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Exclusive: Musk’s Material Adverse Effect Not ‘An Option For Him Walking Away’: Merger Expert Tells Benzinga What’s Next

Published

2 years ago

July 11, 2022

Elon Musk disclosed Friday after market close that he was terminating his agreement to acquire social media platform Twitter Inc (NYSE: TWTR). With shares of Twitter falling Friday on the news, Benzinga asked a merger expert what happens next and if the Tesla Inc (NASDAQ: TSLA) CEO can truly walk away from his definitive agreement.

Merger Terminated: Musk announced he was terminating the merger with Twitter due to the company breaching the agreement and a material adverse effect.

“I don’t consider this an option for him walking away,” Accelerate’s Julian Klymochko told Benzinga. “He can claim he is terminating the merger agreement, however, it is extremely likely that the Board of Directors of Twitter will disagree with the purported termination and sue for specific performance.”

Klymochko, who estimates that he has invested in/analyzed over 2,500 mergers over the last 15 years, told Benzinga previously that Musk can not walk away from the deal.

What Past History Says: Klymochko pointed to past history showing that Musk’s case for a material adverse effect is unlikely to succeed.

“Terminating a merger deal based on a MAE is extremely difficult, and has only happened once in history (Acorn v. Fresenius). This successful MAE-based merger termination occurred after the target’s business completely fell apart,” Klymochko said.

Twitter’s financial performance has not suffered material setbacks since the deal was announced, Klymochko said.

Klymochko highlighted an acquisition between Simon Property Group (NYSE: SPG) and Taubman Centers.

“Simon tried to terminate the deal, claiming a MAE, and Taubman sued to enforce the agreement. The parties settled with an 18% price concession right before the trial started, and the deal went on to close at the lower price.”

Klymochko points out several other case studies in a Twitter thread and told Benzinga that litigated deals often close at a lower negotiated price.

“Trials can go either way, and the acquirer could be forced to close or owe damages well in excess of the reverse break fee.”

What’s Next: Based on past history of acquirers claiming MAE, Musk could come in with a lower price per share offer than the originally agreed upon $54.20.

“Musk closing the Twitter acquisition at a reduced price is the most likely scenario, given a trial will be highly uncertain for both parties,” Klymochko said. “The market has always heavily discounted the probability of this deal closing on the original terms, as indicated by the large discount to $54.20 that Twitter stock has traded at consistently.”

If a deal is not reached prior to court, it will be up to a judge to decide if Twitter breached the merger agreement or suffered a MAE, which would allow Musk to terminate the deal without penalty.

Twitter said in a late Friday press release that they were confident they can prevail in the Delaware Court of Chancery.

“We are committed to closing the transaction on the price and terms agreed upon with Mr. Musk and plan to pursue legal action to enforce the merger agreement,” the company said.

Twitter Chairman Bret Taylor shared the same sentiment with a tweet Friday.

DWAC Effect: Elsewhere, shares of the SPAC taking free speech social media platform Truth Social public spiked on news of Musk pulling his Twitter offer. Digital World Acquisition Corp (NASDAQ: DWAC) is bringing Truth Social parent Trump Media & Technology Group public via SPAC merger.

Musk previously said he would unban former President Donald Trump from Twitter and said he believed in free speech on the social media platform.

Musk not controlling Twitter could be a win for Truth Social in keeping Trump and other banned accounts on the platform without the ability to return to Twitter.

Klymochko isn’t too confident this is a win for Digital World.

“The Twitter deal situation should have no effect on DWAC,” Klymochko said. “In fact, I believe DWAC will likely not close on the Trump Media deal, given lack of progress with the proxy filing and the several subpoenas that the firm has received.”

TWTR Price Action: Twitter shares fell 5% in after-hours trading Friday to $35.04.

Photo: Created with an image from Daniel Oberhaus on Flickr

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BofA Securities maintains Amazon.com at ‘buy’ with a price target of $154.00

Published

1 year ago

June 22, 2023

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Six people in critical condition, one still missing after Paris blast – prosecutor

Published

1 year ago

June 22, 2023

5/5

2/5

PARIS (Reuters) – Six people remained in a critical condition and one person was believed still missing on Thursday, one day after a blast ripped through a street near Paris’ historic Latin Quarter, the city’s public prosecution office said. “These figures may still change,” prosecutor Maylis De Roeck told Reuters in a text message, adding that around 50 people had been injured in the blast, which set buildings ablaze and caused the front of one to collapse onto the street. Of two people initially believed missing, one has been found in hospital and is being taken care of, the prosecutor said, adding: “Searches are ongoing to find the second person.” Authorities have not yet said what caused the explosion, which witnesses said had followed a strong smell of gas at the site. The explosion led to scenes of chaos and destruction in the historic Rue Saint Jacques, which runs from the Notre-Dame de Paris Cathedral to the Sorbonne University, just as people were heading home from work. It also destroyed the facade of a building housing the Paris American Academy design school popular with foreign students. Florence Berthout, mayor of the Paris district where the blast occurred, said 12 students who should have been in the academy’s classrooms at the time had fortunately gone to visit an exhibition with their teacher.
“Otherwise the (death toll) could have been absolutely horrific,” Berthout told BFM TV. She said three children who had been passing by at the time were among the injured, although their lives were not in danger.

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4 big analyst cuts: Alcoa & DigitalOcean shares drop on downgrades

Published

1 year ago

June 22, 2023

Here is your Pro Recap of the biggest analyst cuts you may have missed since yesterday: downgrades at Alcoa, DigitalOcean, Teleflex, and Xcel Energy.InvestingPro subscribers got this news in rapid fire. Never be left in the dust again.Alcoa stock drops on Morgan Stanley downgrade Alcoa (NYSE:) shares fell more than 3% pre-market today after Morgan Stanley downgraded the company to Underweight from Equalweight and cut its price target to $33.00 from $43.00, as reported in real time on InvestingPro.The firm sees a significant decline in consensus estimates, and as negative earnings revisions materialize, it believes the stock will face downward pressure and underperform.The analyst’s estimates for EBITDA in Q2, 2023, and 2024 are substantially lower than the consensus. The stock is currently trading above its historical average. The firm said its downward revisions in earnings estimates and price target are attributed to the company’s high operating leverage to aluminum prices.DigitalOcean stock plunges on downgradePiper Sandler downgraded DigitalOcean (NYSE:) to Underweight from Neutral with a price target of $35.00. As a result, shares plunged more than 5% pre-market today.The company reported its last month, with revenue beating the consensus estimate, while EPS coming in worse than expected. Furthermore, the company provided a strong outlook, which was above the Street estimates.2 more downgradesTeleflex (NYSE:) shares fell more than 3% yesterday after Needham downgraded the company to Hold from Buy, noting that UroLift expectations may still be too high.According to Needham, their checks indicate that urologists are reducing their use of UroLift due to its retreatment rates, reimbursement cuts, and increasing use of competing procedures. This is also supported by their Google Trends data analysis, which indicates decreasing search interest in UroLift.BMO Capital downgraded Xcel Energy (NASDAQ:) to Market Perform from Outperform and cut its price target to $64.00 from $69.00 to reflect the lower-than-expected terms of the company’s regulatory settlement in Colorado.Amid whipsaw markets and a slew of critical headlines, seize on the right timing to protect your profits: Always be the first to know with InvestingPro.Start your free 7-day trial now.