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Elon Musk Got More Time to Close Twitter Deal, Not More Options

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A judge’s decision to grant

Elon Musk

a delay in his legal battle with Twitter Inc. gave the billionaire more time to complete his acquisition of the social-media platform—but no new leeway to avoid the deal if he changes his mind again, lawyers following the case said.

Chancellor Kathaleen McCormick on Thursday paused a trial scheduled to start on Oct. 17 and gave Mr. Musk until Oct. 28 to close his $44 billion takeover, following his about-face Monday after months of effort to get out of the deal. The judge said if a deal isn’t closed by that date, she would reschedule the trial in November.

The judge offered no explanation for her decision. Twitter had objected to Mr. Musk’s request—saying if the deal didn’t close by Oct. 10, the trial slated to begin in Delaware Chancery Court should move forward to prevent “further mischief and delay” from Mr. Musk’s camp.

While Chancellor McCormick previously rejected attempts by Mr. Musk to delay the trial, by allowing a pause she’ll continue to have discretion to enforce the merger agreement. Her order gives both sides time to secure the deal, reduces the risk of Mr. Musk successfully challenging a decision through an appeal and prevents wasted efforts of preparing for trial, according to lawyers following the case.

The ruling surprised some observers, appearing to introduce new uncertainty after Twitter and Mr. Musk had been in talks this week to close the deal within days. The

Tesla Inc.

chief executive notified Twitter on Monday that he wanted to return to the agreement on the original terms of the deal he had sealed in April, before saying in July that he wanted to cancel it.

Elon Musk—at a SpaceX event last August in Boca Chica Beach, Texas—this week offered to close his acquisition of Twitter on the terms on the originally agreed to.



Photo:

Michael Gonzalez/Getty Images

Still, Mr. Musk’s latest move has limited his options, legal observers say, because he now has represented to the judge that he intends to close the deal, and he’ll face pressure to get financing lined up ahead of the deadline. He could open himself up to securities fraud violations on top of shareholder lawsuits if he fails to move forward, according to Ann Lipton, a former corporate lawyer and law professor at Tulane University.

Chancellor McCormick can still enforce the agreement if the deal doesn’t close by the deadline, even if Mr. Musk in the coming weeks claims financing has fallen apart, according to lawyers following the case. That, in some cases, can be a way a buyer uses to break out of a contract if debt financing isn’t fully shored up.

If Mr. Musk plays games, the games are being played on the judge, not the company, and that is far more serious, said Zohar Goshen, a professor of transactional law at Columbia University Law School.

“He practically closed all exits,” Mr. Goshen said.

Since the judge’s order, Twitter and Mr. Musk’s team have been in regular contact, discussing the mechanics of closing the deal, people familiar with the matter said, as is typical when two parties are preparing for a company to change hands.

After the judge’s decision, Twitter said it looks forward to closing the transaction at the original price of $54.20 per share by Oct. 28.

To meet that deadline, Mr. Musk will need to gather the money to close the deal. He plans to use roughly $13 billion of debt from seven banks and is personally on the hook to contribute $33.5 billion of equity, though he has some investors who have agreed to help.

The debt, from banks including Morgan Stanley,

Bank of America Corp.

BAC -2.26%

and

Barclays

PLC, is unlikely to fall through, as the banks’ commitments offer very few exceptions. That is despite the fact that they face the prospect of massive losses given the precarious state of the market to resell debt. Many are already preparing the funds and Mr. Musk’s team has been in touch with them in recent days, according to people familiar with the matter.

One unknown is exactly how Mr. Musk will fund the rest. Mr. Musk, in public filings, has laid out funding sources that could be used in the deal for about $26.5 billion of the $33.5 billion he’s on the hook for. Part of that was to come from other investors, including

Oracle Corp.

co-founder

Larry Ellison,

Sequoia Capital Fund LP and Saudi Prince al-Waleed bin Talal, who agreed in May to provide just over $7 billion in total. Mr. Musk is responsible for any shortfall, if not all of them follow through with their commitments.

Mr. Musk’s existing stake in Twitter is worth roughly $4 billion, and he sold roughly $15.4 billion worth of Tesla stock in April and August. He said funds from the latter sale would be for use in a Twitter acquisition. To cover the remaining amount, he could rely on cash holdings or potentially sell more Tesla stock, though he has said after previous sales that he didn’t intend to sell more.

Should he close the deal by Oct. 28, that would mean the litigation resulted in it closing roughly six weeks after it otherwise would have. Shareholders approved the deal Sept. 13 and Twitter has said it should have closed two days later, per the terms of the merger agreement.

The latest twists in the Twitter saga come as Mr. Musk has been busy on multiple fronts.

On Thursday, he announced that Tesla would deliver its first all-electric semitrailer truck to

PepsiCo Inc.

That came shortly after Tesla reported quarterly vehicle deliveries that fell short of expectations and leave the company pressing to meet a full-year target of increasing deliveries by an average 50% annually. His rocket company SpaceX launched a crew of four toward the International Space Station on Thursday and the same day another of his rockets blasted 52 satellites into orbit for the company’s Starlink internet service.

“Very intense 7 days indeed,” Mr. Musk tweeted recently.

Mr. Musk precipitating a deal with Twitter indicates that his arguments to get out of the deal may not have convinced the judge in trial, said Lawrence Elbaum, partner at Vinson & Elkins LLP, who leads the firm’s shareholder activism practice.

“Musk will look like the boy who cried wolf, the buyer who cried `I’m ready to close,’” Mr. Elbaum said, if he ends up not closing after publicly indicating that he would. He now runs more risk of being harshly judged if he tries again to back out. “It’s just very tough for him now.”

Write to Erin Mulvaney at [email protected] and Cara Lombardo at [email protected]

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8


A judge’s decision to grant

Elon Musk

a delay in his legal battle with Twitter Inc. gave the billionaire more time to complete his acquisition of the social-media platform—but no new leeway to avoid the deal if he changes his mind again, lawyers following the case said.

Chancellor Kathaleen McCormick on Thursday paused a trial scheduled to start on Oct. 17 and gave Mr. Musk until Oct. 28 to close his $44 billion takeover, following his about-face Monday after months of effort to get out of the deal. The judge said if a deal isn’t closed by that date, she would reschedule the trial in November.

The judge offered no explanation for her decision. Twitter had objected to Mr. Musk’s request—saying if the deal didn’t close by Oct. 10, the trial slated to begin in Delaware Chancery Court should move forward to prevent “further mischief and delay” from Mr. Musk’s camp.

While Chancellor McCormick previously rejected attempts by Mr. Musk to delay the trial, by allowing a pause she’ll continue to have discretion to enforce the merger agreement. Her order gives both sides time to secure the deal, reduces the risk of Mr. Musk successfully challenging a decision through an appeal and prevents wasted efforts of preparing for trial, according to lawyers following the case.

The ruling surprised some observers, appearing to introduce new uncertainty after Twitter and Mr. Musk had been in talks this week to close the deal within days. The

Tesla Inc.

chief executive notified Twitter on Monday that he wanted to return to the agreement on the original terms of the deal he had sealed in April, before saying in July that he wanted to cancel it.

Elon Musk—at a SpaceX event last August in Boca Chica Beach, Texas—this week offered to close his acquisition of Twitter on the terms on the originally agreed to.



Photo:

Michael Gonzalez/Getty Images

Still, Mr. Musk’s latest move has limited his options, legal observers say, because he now has represented to the judge that he intends to close the deal, and he’ll face pressure to get financing lined up ahead of the deadline. He could open himself up to securities fraud violations on top of shareholder lawsuits if he fails to move forward, according to Ann Lipton, a former corporate lawyer and law professor at Tulane University.

Chancellor McCormick can still enforce the agreement if the deal doesn’t close by the deadline, even if Mr. Musk in the coming weeks claims financing has fallen apart, according to lawyers following the case. That, in some cases, can be a way a buyer uses to break out of a contract if debt financing isn’t fully shored up.

If Mr. Musk plays games, the games are being played on the judge, not the company, and that is far more serious, said Zohar Goshen, a professor of transactional law at Columbia University Law School.

“He practically closed all exits,” Mr. Goshen said.

Since the judge’s order, Twitter and Mr. Musk’s team have been in regular contact, discussing the mechanics of closing the deal, people familiar with the matter said, as is typical when two parties are preparing for a company to change hands.

After the judge’s decision, Twitter said it looks forward to closing the transaction at the original price of $54.20 per share by Oct. 28.

To meet that deadline, Mr. Musk will need to gather the money to close the deal. He plans to use roughly $13 billion of debt from seven banks and is personally on the hook to contribute $33.5 billion of equity, though he has some investors who have agreed to help.

The debt, from banks including Morgan Stanley,

Bank of America Corp.

BAC -2.26%

and

Barclays

PLC, is unlikely to fall through, as the banks’ commitments offer very few exceptions. That is despite the fact that they face the prospect of massive losses given the precarious state of the market to resell debt. Many are already preparing the funds and Mr. Musk’s team has been in touch with them in recent days, according to people familiar with the matter.

One unknown is exactly how Mr. Musk will fund the rest. Mr. Musk, in public filings, has laid out funding sources that could be used in the deal for about $26.5 billion of the $33.5 billion he’s on the hook for. Part of that was to come from other investors, including

Oracle Corp.

co-founder

Larry Ellison,

Sequoia Capital Fund LP and Saudi Prince al-Waleed bin Talal, who agreed in May to provide just over $7 billion in total. Mr. Musk is responsible for any shortfall, if not all of them follow through with their commitments.

Mr. Musk’s existing stake in Twitter is worth roughly $4 billion, and he sold roughly $15.4 billion worth of Tesla stock in April and August. He said funds from the latter sale would be for use in a Twitter acquisition. To cover the remaining amount, he could rely on cash holdings or potentially sell more Tesla stock, though he has said after previous sales that he didn’t intend to sell more.

Should he close the deal by Oct. 28, that would mean the litigation resulted in it closing roughly six weeks after it otherwise would have. Shareholders approved the deal Sept. 13 and Twitter has said it should have closed two days later, per the terms of the merger agreement.

The latest twists in the Twitter saga come as Mr. Musk has been busy on multiple fronts.

On Thursday, he announced that Tesla would deliver its first all-electric semitrailer truck to

PepsiCo Inc.

That came shortly after Tesla reported quarterly vehicle deliveries that fell short of expectations and leave the company pressing to meet a full-year target of increasing deliveries by an average 50% annually. His rocket company SpaceX launched a crew of four toward the International Space Station on Thursday and the same day another of his rockets blasted 52 satellites into orbit for the company’s Starlink internet service.

“Very intense 7 days indeed,” Mr. Musk tweeted recently.

Mr. Musk precipitating a deal with Twitter indicates that his arguments to get out of the deal may not have convinced the judge in trial, said Lawrence Elbaum, partner at Vinson & Elkins LLP, who leads the firm’s shareholder activism practice.

“Musk will look like the boy who cried wolf, the buyer who cried `I’m ready to close,’” Mr. Elbaum said, if he ends up not closing after publicly indicating that he would. He now runs more risk of being harshly judged if he tries again to back out. “It’s just very tough for him now.”

Write to Erin Mulvaney at [email protected] and Cara Lombardo at [email protected]

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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