Musk agreed to buy the company in April and then spent months threatening to walk away before finally “terminating” the deal in July, claiming Twitter hadn’t given him enough information about its business. Within days, the platform hit him with a lawsuit to prevent him from withdrawing.
Although Musk did not disclose a reason for the stock sale in regulatory filings, he made his motivation clear on Twitter late Tuesday: “In the (hopefully unlikely) event that Twitter forces this deal to close *and* certain partners of capital don’t come through, it’s important to avoid an emergency selloff of Tesla stock,” Musk said in a tweet.
In his pursuit of Twitter, which Musk has likened to a digital town square, he lined up $46.5 billion in financing, including a loan using his Tesla stock as collateral. A July 21 regulatory filing revealed that the first two loans would come from investment bank Morgan Stanley and other lenders, worth $13 billion and $12.5 billion, respectively, while the third would be a $21 billion commitment from itself. Musk.
A later document detailed an eclectic mix of financiers that would help Musk raise the money, including a member of the Saudi royal family, cryptocurrency exchange Binance, Oracle co-founder Larry Ellison, Qatar’s sovereign wealth fund and several hedge funds. FUNDS.
He last sold Tesla shares on April 28, when he posted on Twitter, “No further TSLA sales planned after today.” According to SEC filings, he sold about $8.4 billion in stock.
He then wanted out, accusing the company of “failing or refusing” to release information that would have helped Musk and his team determine the true number of bots or spam accounts on Twitter. He says he became increasingly concerned as he learned more about the platform’s methods of verifying its users, to the point where he could no longer do the deal.
Although Twitter had initially resisted Musk’s proposals — going so far as to adopt a “poison pill” strategy to make its stock less attractive to him — it filed a lawsuit to enforce the transaction.
“Having staged a public spectacle to mock Twitter, and having proposed and then signed an amicable merger agreement with the vendor, Musk apparently believes that he—unlike any other party subject to contract law— Delaware — is free to change its mind, dump the company, disrupt its operations, destroy shareholder value and walk away,” the company wrote in a fiery legal complaint, referring to Musk’s exit strategy as a “model hypocrisy”.
The trial date is set for October. Meanwhile, both sides appear to be preparing for a protracted legal battle. Some of Musk’s associates have been called on the deal, The Washington Post reported last week. There have also been a number of contentious court cases.
Investors in both Tesla and Twitter appeared to react positively to the news, with shares rising 3.9 percent and 3.7 percent, respectively, amid a broader stock market rally. At $44.43 a share on Wednesday, Twitter’s stock price is close to where it was when Musk offered to buy it for $54.20 a share on April 14.
Shares rose early in the year after Musk bought shares ahead of his takeover bid, then fell throughout the summer as tech stocks tumbled and Musk’s relationship with Twitter publicly soured. The price has rebounded recently amid a broader revival for tech stocks.
Some investors see Musk’s sales of Tesla stock as a tacit admission that he is likely to lose in court. Wealth management firm Wedbush recently raised its price target for Twitter from $30 to $50.
The chances of a deal are seen as significantly higher, either by a Delaware court order or with the two sides coming up with a new deal to avoid a court battle, Wedbush senior analyst Dan Ives wrote in a note to investors.
Wall Street “is seeing this poker move from Musk,” Ives wrote.
Even if Musk wins in court, he could still be on the hook for the $1 billion breakup fee that was written into the deal.
Carl Tobias, Williams Professor of Law at the University of Richmond School of Law, says he thinks the two sides will settle the case before it is decided by a court.
“I think [Musk] there’s a weak case and the judge is holding his feet to the fire,” Tobias said.
He added that neither side of the dispute really wants Musk at the helm of the social media giant at this point, and they’re probably trying to find exit terms that “allow everyone to save face.”
