Elon Musk Cannot Get Out of Twitter Deal Even if His Money Lenders Back Out
By: Andruw Lin
Elon Musk agreed to buy Twitter for 44 billion dollars in April. He said that he would make the company better by fending off spambots and being more transparent about its algorithms and won support from several banks (including Bank of America, Morgan Stanley, and Barclays) that agreed to loan him money for the purchase. However, recently Musk has wanted to get out of the deal, blaming Twitter for not giving him enough information. Twitter has sued to close the deal, saying that these reasons are just excuses for him to not honor the deal.
The banks that have given Musk money, however, are stuck since they signed legal agreements to help Musk buy the company. Even if the banks managed to back out, their reputations would be ruined and other companies wouldn’t want to work with them. “They’ve signed commitment letters so they’re essentially committed,” said Adam Badawi, a law professor at Berkley. “Other companies wouldn’t want to work with them if they reneged.” If the banks get out, Musk will still have to find another way to pay for the purchase.
Musk is the world's richest man, valued at $218 billion, but even he doesn’t have $44 billion in cash in his hands, so he took out loans from banks. Now that Elon has terminated the deal, banks are going to be in a weird spot. “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,” said M. Todd Henderson a professor at the University of Chicago Law School. “Would you want to fund a guy to own a company that he doesn’t want to own?”
Since Musk’s deal with Twitter said that he has to stick with the deal even if his debt financing becomes unavailable, he cannot back out even if the banks decide that they don’t want to lend money to Musk anymore. In this case, Musk would have to pay part of the money that he agreed to pay himself, and the money that was originally paid by the loans is going to be paid by Twitter to its former shareholders.