April 26, 2022

Twitter: What Will the Merger Agreement Say?

Twitter and Elon Musk announced mid-afternoon yesterday that their bizarre mating dance had culminated in a signed merger agreement under the terms of which an entity controlled by Musk would acquire Twitter for $54.20 per share in cash.  The parties didn’t file their merger agreement with last night’s 8-K filing, so I suppose we’ll have to wait a few days to see it, but here are some of the things I’ll be looking to see:

1. No-Shop & Other Deal Protections – How tightly drawn will they be?  Media reports indicate that Twitter asked for – and was refused – a “go shop” clause.  Given the global attention that’s been devoted to this deal (including from Ukrainian war correspondents with bigger fish to fry), it’s understandable why Musk’s team might push back against Twitter’s argument that it needed a go shop to smoke out potential bidders. But just how much room will the board have to respond to competing offers and terminate the deal to accept a superior proposal?  My guess is that, like Twitter’s poison pill, the deal protections will be plain vanilla. As UCLA’s Stephen Bainbridge pointed out, this deal puts Twitter’s board in Revlon-land, with all the fiduciary baggage that goes with that status, so the board will need some room to maneuver – particularly since it wasn’t able to move the price a nickel from Musk’s original offer.

2.  Specific Performance – Full or Limited?  The press release says there are no financing conditions, but Musk’s l13D amendment originally disclosing his financing arrangements indicates that they are very much on the private equity model – everything depends on him satisfying his equity commitment, and the only parties who can enforce that commitment are Musk and the entities he controls.  Typically, deals with private equity buyers include limited specific performance provisions entitling the target to compel the sponsor to fund the equity commitment, but only if buyer’s closing conditions are satisfied and the buyer’s financing is ready to be funded.  Deals with strategic buyers typically have stronger specific performance provisions, but there is also some precedent for larger PE deals (especially in take privates) to include full specific performance.

Note that the 13D amendment Musk filed this morning contains new language in the equity commitment letter indicating that Musk has provided a limited guaranty of the buyer’s obligations under the merger agreement & Bloomberg is reporting that Twitter extracted a “higher than average” reverse breakup fee.

3. Regulatory approvals – On the surface, it appears that the deal wouldn’t raise concerns among antitrust regulators applying traditional criteria, and I guess that’s the conventional wisdom. But in today’s environment, who knows? Congress started poking around last week, and I’d be willing to bet we haven’t heard the last of their always helpful input yet either (and as if on cue, here’s Sen. Warren). What’s more, let’s just say that the buyer here comes with some regulatory baggage of his own, and we can probably add the circumstances surrounding Musk’s acquisition of his 9% ownership stake in Twitter & his rapid transition from a (late) 13G filer to a 13D filer to that baggage. All of that will make it interesting to see how the parties perceived and allocated the regulatory risk associated with this deal in the merger agreement.

I mentioned that Musk amended his 13D this morning, but it doesn’t have any information on any equity partners, so we’ll have to continue to see if any surface. Of course, even after we see the agreement, we’re still going to have to wait a bit longer to see the really interesting stuff – the back and forth about how this very strange deal unfolded that’s going to appear in the “Background of the Merger” section of the proxy statement.

Twitter being Twitter, we’re also seeing multiple tweets from insiders being filed as DEFA14A material. My guess is that’s likely to be a regular event as the deal moves forward. Boy, I’d hate to be a junior associate on this deal.

John Jenkins