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Elon Musk Backing Out of Twitter Deal; What Will Lenders Do?

By: Sunnie Gao

In April, Elon Musk agreed to buy Twitter for 44 billion dollars, claiming that he would make the company better by adding new features, fending off spam bots, and being more transparent about its algorithms. By doing so, he won the support of many banks, who agreed to loan him more than half the total deal price to take over the company.

However, now Musk wants out. He is blaming Twitter for not disclosing enough information on spam accounts and other details.

In turn, Twitter is suing Musk to close the deal, saying his reasons are just excuses to get out of a financial commitment that he no longer wants to honor. They also cited a stock market drop as a cause of Musk’s hesitance. Right now, Twitter shares are trading at around $36, a lot less than the $54. The company has said it also has worked with Musk to give him information about fake accounts.

Twitter says that its agreement with Musk clearly requires him to complete the deal, and this puts Musk’s financial backers in a tough position. According to legal experts, the banks that have agreed to give Musk billions in loans to help him buy Twitter have signed legal agreements preventing them from simply walking away if they change their minds, making them unable to back out.

“They’ve signed commitment letters, so they’re essentially committed. The banks have reputations to uphold, too. Other companies wouldn’t want to work with them if they reneged,” said Adam Badawi, a law professor at the University of California at Berkeley.

Elon Musk has signed two agreements with banks, including Morgan Stanley, Bank of America, and Barclays, to loan a total of $25.5 billion. But now that Muck says he is terminating the deal, the banks are reluctant to fund it.

“Musk doesn’t want to own Twitter. The banks don’t want to fund it. We’re in this weird ‘Alice in Wonderland’ situation trying to force this guy to buy a company he doesn’t want to buy. Would you want to fund a guy to own a company that he doesn’t want to own,” said M. Todd Henderson, a professor at the University of Chicago Law School.

Officials don’t believe Twitter will successfully manage to get the court to force Musk’s hand. Instead, a more likely outcome will be that the judge will make a compromise. Musk will pay Twitter a large sum for the trouble, but Musk can walk away from the deal, Carl Tobias, a law professor at the University of Richmond, says.

If that happens, the banks will most likely get a small sum of money from Musk for doing the work, and they no longer have to lend him anything.

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