The history of mergers and acquisitions is full of ruthless corporate lootershurtful wars of words and people trying to scam each other.
T. Boone Pickens, the oil tycoon who dominated the 1980s, took small stakes in energy companies, attacked managers, and forced firms to be sold. Carl Icahn, the investor and activist, amassed stakes in companies and threatened to remove their boards if they didn’t take a deal. Furthermore, Robert Campeau, the Canadian real estate investor known for making homeowners sell, was not afraid to take legal action against companies seeking to defend himself against his attempts.
Yet even with all those ruthless tactics, the world of business deals has never seen a buyer like Elon Musk.
In the weeks since Musk, the world’s richest man, struck a $44 billion deal to buy information platform Twitter, the tycoon has turned the deal landscape on its head. Typically, when two parties agree to negotiate an acquisition, they spend weeks poring over the financials and ironing out the details. The action takes place mostly behind closed doors, inside meeting rooms, as well as in prestigious law firms and investment banks.
However, Musk did not perform any due diligence to get the Twitter deal approved, according to legal documents. Since then, Musk has publicly criticized the Twitter service (on Twitter, of course), attacked some of its top executives and launched tweets to provoke the company’s board of directors. In addition, with memes and the excrement emoji, it seems that he tries to renegotiate the price of the agreement through social networks to pay less.
In essence, Musk, 50, it has turned what was largely a friendly deal into a hostile takeover after deal. His actions have left Twitter, as well as regulators, bankers and lawyers, stumped as to what he might do next and whether the mammoth deal will go through. Plus, Musk has made the corporate looters of the past look really quaint by comparison.
“Elon Musk plays in his own gray area, you could almost say with his own rules,” said Robert Wolf, the former Americas president of Swiss bank UBS. “This is really a new way” to do deals, he said.
Musk did not respond to a request for comment.
On Thursday, Twitter executives told a corporate meeting that the acquisition of Musk was going ahead and that it would not be renegotiated, according to two aides who spoke on condition of anonymity. A few days ago, the company’s board of directors declared: “We intend to close the transaction and enforce the merger agreement.”
Twitter’s board of directors has maintained that it has the legal advantage in the deal. In addition to a $1 billion breakup fee, the deal with Musk includes a “specific performance clause,” which gives Twitter the right to sue him and force him to complete or pay for the deal, as long as funding from debt you have collected remains intact.
“He signed a binding agreement,” Edward Rock, a professor of corporate governance at New York University School of Law, said of Musk. “If these agreements cannot be enforced, it’s a problem for every other deal in the world.”
Twitter did not respond to a request for comment.
Legal limits exceeded
Musk has already exceeded some legal limits. The Federal Trade Commission (FTC, for its acronym in English) is investigating whether the billionaire violated confidentiality requirements by not notifying the agency that he had amassed a considerable share of Twitter a few months ago, said a person with knowledge of the investigation. Investors typically must notify antitrust regulators when they make large stake purchases to give government officials thirty days to review the transaction for anticompetitive violations.
The FTC declined to comment. The Information, a tech news site, previously reported on the FTC’s interest in Musk.
In recent years, agreements that have not been enforced or have been renegotiated have not been common. After Sallie Mae, the giant student loan company, sold itself in 2007 to a consortium of financial firms for $25 billion, a credit crunch erupted and new legislation put its finances at risk. The buyers tried to cut the deal, insults were hurled, and the attempt was called off.
That same year, a $6.5 billion deal by Apollo Global Management (combining a chemical company it owned, Hexion, with a rival, Huntsman) fell through when Huntsman’s profits plummeted and each side sued. In 2016, telecoms giant Verizon cut its $4.5 billion price for Yahoo’s internet business after Yahoo revealed it had suffered a massive security flaw.
It’s different with Twitter
Still, in many of those deals, “material adverse changes” (a financial crisis or a security breach) were behind a change in price or the termination of an acquisition. That is not what is happening now with Twitter and Musk, since no obvious factor has emerged to attempt to alter the boundaries of the deal. (Musk, who has taken advantage of the issue of the number of existing bots on Twitter, has expressed that he doubts the veracity of the public documents presented by the company.)
(VIDEO) Elon Musk questions Twitter purchase
Musk seems to feel free to do as he pleases. with the deals in part because of his extraordinary personal fortune, with a net worth hovering around $210 billion and that allows you to ignore the economic issues of a deal. Also, unlike a private equity firm, he doesn’t buy multiple public companies a year, which makes it less important to present himself as an individual who consistently closes deals.
Although Musk is accountable to the shareholders of the other companies he runs (including publicly traded carmaker Tesla), those shareholders generally invest in his companies because he’s an inventor, not because he’s a deal expert.
Ann Lipton, a professor of corporate governance at Tulane Law School, said that much of what keeps mergers and acquisitions within the permissible margins are “reputational sanctions.” Yet Musk, Lipton noted, “doesn’t care about reputational sanctions.”
And that leaves almost all people not knowing what to think.
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