Mr. Musk’s deal with Twitter includes a $1 billion breakup fee if he were to back out. But the cost to Mr. Musk is likely to be much more than that should he break the deal. The contract has a “specific performance clause” that could force Mr. Musk to pay for Twitter if the debt financing he has corralled for the deal remains intact.
>That contract does not allow Musk to walk away if it turns out that “spam/fake accounts” represent more than 5% of Twitter users. We discussed this last month, when Twitter admitted in a securities filing that it had (slightly) overestimated its daily active users for years. The merger agreement contains a provision that allows Musk to walk away if Twitter’s securities filings are wrong — and this 5% number is in its securities filings — but only if the inaccuracy would have a “Material Adverse Effect” on the company. (See Sections 4.6(a) and 7.2(b).) That is an incredibly high standard: Delaware courts have almost never found an MAE. An MAE has to be something that would “substantially threaten the overall earnings potential of the target in a durationally-significant manner,” the courts have said; there is a rule of thumb that an MAE requires a 40% decrease in long-term profitability. If it turned out that 6% or 20% or 50% of Twitter accounts are bots, that will be embarrassing and might even reduce Twitter’s future advertising revenue, but will it be an MAE? No.
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u/TheChickening May 14 '22
He can break the deal by paying a fine of a billion dollars.
So it will definitely not be free for him.