Is Elon Musk Actually Going to Buy Twitter? Can He Just Walk Away?
Here are Musk’s options should he try to abandon the $61 billion deal.
3 min
There are signs Elon Musk may be getting cold feet a few weeks after he agreed to buy Twitter Inc. for approx. $61 billion.
The billionaire Tesla Inc. chief executive recently tweeted that the deal is “on hold” until he gets more information about the portion of the social-media platform’s users that are spam accounts. Twitter has for years said in filings that it estimates they represent less than 5% of its daily active users, though has cautioned the number could be higher.
This is all happening as technology shares—including those of Tesla, which Mr. Musk is relying on to fund the deal—have been under pressure. Twitter’s board, meanwhile, says it intends to enforce the agreement, which calls for him to pay US$54.20 a share.
Here’s what to know about how things could play out.
Can either side walk away at any time?
Not easily. Both sides signed a merger agreement, a detailed document stipulating exactly what each will do to ensure the agreed-upon deal closes, and what legal rights each has if the other doesn’t hold up its end of the bargain. It is similar to going under contract on a house.
In this case, Mr. Musk was motivated to quickly negotiate a deal, and in doing so, agreed to a contract with several seller-friendly components. For example, he waived the detailed due diligence that buyers typically perform on targets (think of it like skipping a home inspection), and gave Twitter the right to sue him to follow through with the deal, a legal clause known as “specific performance.”
Both sides also agreed to pay each other a US$1 billion breakup fee if they cause the deal not to happen for certain reasons, but specific scenarios must unfold for those to become relevant. Also called termination fees, the penalties are meant to deter parties from breaking agreements and address the inconvenience and cost of a failed deal.
Can Mr. Musk just pay Twitter the $1 billion breakup fee to get out of the deal?
Not necessarily. There are three clear scenarios in which this could happen, and possibly more. If regulators try to block the deal or the debt financing falls through, he would likely have an out. The third is if he can show Twitter has significantly changed for the worse since the deal was agreed upon, under a concept known as a “material adverse effect.”
If Mr. Musk believes Twitter’s accounting of spam accounts was inaccurate when he signed the deal, his lawyers could attempt to litigate that issue in various ways, including as a material adverse effect, or possibly by alleging that Twitter misrepresented information in its filings. It is unclear whether they would succeed, though it could open the door to settlement discussions.
What will Twitter do?
Twitter’s board feels strongly that the two sides had an agreement that remains in effect and is the best option for shareholders. “We intend to close the transaction and enforce the merger agreement,” it said.
For that reason, Twitter appears willing to sue for specific performance if it comes to that, meaning it could try to force Mr. Musk to follow through with the deal or provide what it sees as fair compensation. In practice, that can be difficult but often opens the door to settlement discussions.
The agreement between the two sides also requires Mr. Musk to avoid disparaging Twitter and its representatives on the platform and his recent tweets could have crossed that line. While Twitter could challenge the behaviour, it appears more focused at the moment on closing the deal rather than launching relatively minor litigation that could run the risk of complicating things further.
What is going to happen?
It is too early to say. The deal could still happen, and could close as soon as this winter if both sides keep moving forward. Another possible outcome is that the two sides negotiate a settlement, especially if it becomes clear that Mr. Musk is intent on getting out of the deal or trying to lower the price.
Even when contract terms are clearly spelled out, more often than not deal clashes end in negotiated settlements that can include a price cut or one-time payments.
In 2020, luxury-goods conglomerate LVMH Moët Hennessy Louis Vuitton SE tried to back out of a deal to buy Tiffany & Co. for US$16.2 billion after the pandemic hurt demand for high-end jewellery. Tiffany sued to enforce the agreement and LVMH countersued, arguing the business had been so deeply damaged that their original agreement was no longer valid.
The two sides later agreed to cut the price by a relatively modest US$430 million and settle related litigation.
Reprinted by permission of The Wall Street Journal, Copyright 2021 Dow Jones & Company. Inc. All Rights Reserved Worldwide. Original date of publication: May 18, 2022.
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Government spending, including Biden’s Inflation Reduction Act, has helped drive a gap between clean-energy spending and fossil-fuel investments
3 min
Investments in solar power are on course to overtake spending on oil production for the first time, the foremost example of a widening gap between renewable-energy funding and stagnating fossil-fuel industries, according to the head of the International Energy Agency.
More than $1 billion a day is expected to be invested in solar power this year, which is higher than total spending expected for new upstream oil projects, the IEA said in its annual World Energy Investment report.
Spending on so-called clean-energy projects—which includes renewable energy, electric vehicles, low-carbon hydrogen and battery storage, among other things—is rising at a “striking” rate and vastly outpacing spending on traditional fossil fuels, Fatih Birol, the IEA’s executive director said in an interview. The figures should raise hopes that worldwide efforts to keep global warming within manageable levels are heading in the right direction, he said.
Birol pointed to a “powerful alignment of major factors,” driving clean-energy spending higher, while spending on oil and other fossil fuels remains subdued. This includes mushrooming government spending aimed at driving adherence to global climate targets such as President Biden’s Inflation Reduction Act.
“A new clean global energy economy is emerging,” Birol told The Wall Street Journal. “There has been a substantial increase in a short period of time—I would consider this to be a dramatic shift.”
A total of $2.8 trillion will be invested in global energy supplies this year, of which $1.7 trillion, or more than 60% will go toward clean-energy projects. The figure marks a sharp increase from previous years and highlights the growing divergence between clean-energy spending and traditional fossil-fuel industries such as oil, gas and coal. For every $1 spent on fossil-fuel energy this year, $1.70 will be invested into clean-energy technologies compared with five years ago when the spending between the two was broadly equal, the IEA said.
While investments in clean energy have been strong, they haven’t been evenly split. Ninety percent of the growth in clean-energy spending occurs in the developed world and China, the IEA said. Developing nations have been slower to embrace renewable-energy sources, put off by the high upfront price tag of emerging technologies and a shortage of affordable financing. They are often financially unable to dole out large sums on subsidies and state backing, as the U.S., European Union and China have done.
The Covid-19 pandemic appears to have marked a turning point for global energy spending, the IEA’s data shows. The powerful economic rebound that followed the end of lockdown measures across most of the globe helped prompt the divergence between spending on clean energy and fossil fuels.
The energy crisis that followed Russia’s invasion of Ukraine last year has further driven the trend. Soaring oil and gas prices after the war began made emerging green-energy technologies comparatively more affordable. While clean-energy technologies have recently been hit by some inflation, their costs remain sharply below their historic levels. The war also heightened attention on energy security, with many Western nations, particularly in Europe, seeking to remove Russian fossil fuels from their economies altogether, often replacing them with renewables.
While clean-energy spending has boomed, spending on fossil fuels has been tepid. Despite earning record profits from soaring oil and gas prices, energy companies have shown a reluctance to invest in new fossil-fuel projects when demand for them appears to be approaching its zenith.
Energy forecasters are split on when demand for fossil fuels will peak, but most have set out a timeline within the first half of the century. The IEA has said peak fossil-fuel demand could come as soon as this decade. The Organization of the Petroleum Exporting Countries, a cartel of the world’s largest oil-producing nations, has said demand for crude oil could peak in developed nations in the mid-2020s, but that demand in the developing world will continue to grow until at least 2045.
Investments in clean energy and fossil fuels were largely neck-and-neck in the years leading up to the pandemic, but have diverged sharply since. While spending on fossil fuels has edged higher over the last three years, it remains lower than pre pandemic levels, the IEA said.
Only large state-owned national oil companies in the Middle East are expected to spend more on oil production this year than in 2022. Almost half of the extra spending will be absorbed by cost inflation, the IEA said. Last year marked the first one where oil-and-gas companies spent more on debt repayments, dividends and share buybacks than they did on capital expenditure.
The lack of spending on fossil fuels raises a question mark around rising prices. Oil markets are already tight and are expected to tighten further as demand grows following the pandemic, with seemingly few sources of new supply to compensate. Higher oil prices could further encourage the shift toward clean-energy sources.
“If there is not enough investment globally to reduce the oil demand growth and there is no investment at the same time [in] upstream oil we may see further volatility in global oil prices,” Birol said.
Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’
Americans now think they need at least $1.25 million for retirement, a 20% increase from a year ago, according to a survey by Northwestern Mutual
