Musk/Twitter: Wall Street should resist conscription into Elon’s war

Elon Musk appears reluctant to close his Twitter acquisition on the terms he signed up for in April. Perhaps the banks providing him with $13bn in debt financing are equally nervous. On Monday, the Tesla boss disclosed a letter his lawyers recently sent to Twitter. This accused the social network of thwarting his requests for information related to spam and fake accounts.

Musk says Twitter’s alleged unresponsiveness may threaten his ability to secure debt financing committed to the deal. It is a crucial point. He is only obliged to complete the transaction if all closing conditions are met. These include funding the debt component.

If the banks balk at that, Musk could legally get away with paying a $1bn termination fee. That outcome may now be more palatable to him than coming up with more than $30bn in equity and going through with the takeover.

Musk’s legal letter ended with a threat to walk from the deal unless his demands for information are met. Twitter’s board and shareholders must be furious. But they should also wonder about the motivation of Wall Street banks landed with a pivotal role in Musk’s latest manoeuvre.

It is unclear whether the banks are genuinely nervous. They would have the job of selling the debt to specialised investors in leveraged loans and junk bonds. The banks would ideally price within a range they have told Musk is feasible. If they have misjudged where demand will be when the syndication process begins in a few months, they face losses themselves. Still, Musk, as the equity investor, would bear far more risk than holders of the Twitter buyout debt.

Legal tactics to duck out of signed deals rarely work in the US, especially when a buyer eschews normal due diligence. However they do create nuisance costs. Musk, via tweeting and letter-writing, may be trying to exhaust Twitter into a settlement.

If Musk wants to shake the faith of counter parties in his reliability, that is up to him. But it would be unwise for reputable law firms and financial institutions to assist with that misadventure.