The world watched another game of business news ping pong on May 13, as Tesla billionaire Elon Musk said he was freezing his deal to buy Twitter and then hours later said he was still committed to the merger.
It was yet one more chapter in an increasingly fraught series of negotiations over the fate of the microblogging platform.
It is now something of an albatross for both investors and a market already anxious about stubborn inflation and possible recession on the horizon.
Throw in crypto's ongoing meltdown and you have a deal that fewer and fewer people want — not these Twitter shareholders, or these Tesla's shareholders, nor Twitter's employees, and increasingly, not even Musk himself.
So What's the Holdup?
Musk's excuse for the latest delay is a Twitter document showing that only about 5% of its users are bots.
Those are an irritating side feature the site has that has so enraged Musk that he named it as one of his primary reasons for wanting the site in the first place.
Now, however, he said he would pause negotiations until he could research that number further.
The only problem?
The fact that the bot percentage has already been publicized by Twitter and known to the market via its quarterly reports since 2013.
While it is of course possible the Musk is using the bots issue as a way to negotiate a lower sales prices — both Twitter and Tesla have taken significant haircuts since the $54.20 per share deal was announced April 14 — it could also be that he is finding a way to leave the deal entirely.
If so, his contract with Twitter says Musk will have to pay a $1 billion breakup feed.
But the actual cost of ditching the deal could be a lot higher than that.
Twitter Breakup Could Cost Billions in Legal Fees
Twitter has been vocal about its risks in being involved with Musk.
A recent document filed by Twitter with the Securities and Exchange Commission shows the company is already pricing in a possible legal fight with Musk if the merger contract is breached.
The 10-Q, which you can read in its entirety here, was filed for the quarterly period ending March 31.
Twitter also flagged possible litigation related to the merger with Musk, saying that if the deal does not close it will likely pursue legal avenues.
That litigation could cost Musk a great deal and would likely affect Twitter shareholders as well, the form warns.
"Regardless of the outcome of any future litigation related to the merger, such litigation may be time-consuming and expensive and may distract our management from running the day-to-day operations of our business," the company states.
"The litigation costs and diversion of management’s attention and resources to address the claims and counterclaims in any litigation related to the merger may materially adversely affect our business, results of operations, prospects, cash flows, and financial condition."
For now, Twitter has remained mum about Musk's whipsawing sentiment on May 13.
But that doesn't mean it isn't aware of the hazards that it could face if protracted litigation does drag out if the deal falls through.
"Any litigation related to the merger may result in negative publicity or an unfavorable impression of us, which could adversely affect the price of our common stock," Twitter states in its 10-Q.
"[It may] impair our ability to recruit or retain employees, damage our relationships with our advertisers and other business partners, or otherwise materially harm our operations and financial performance," the filing said.
How Expensive Could it Get?
A recent cataloguing of some of America's biggest merger disasters by DealRoom puts the cost of the biggest corporate breakups well into the billions.
It ranked the top eight most expensive merger failures, all of which cost billions of dollars to unwind.
Each spent many years in court, as the aggrieved parties aired the maximum amount of grievance — and occasionally salacious details — to investors and public alike.
That study tallied those costs as follows:
- Bank of America and Countrywide (2008): $2 billion
- eBay and Skype (2005): $2.6 billion
- Mattel and the Learning Company (1998): $3.8 billion
- Microsoft and Nokia (2013): $7 billion
- KMart and Sears (2005): $11 billion
- Google and Motorola (2012): $12.5 billion
- Daimler-Benz and Chrysler (1998):$36 billion
- America Online and Time Warner (2001): $65 billion
While Musk's plan to buy Twitter is centered on one of history's largest leveraged buyouts, it does hold some similar risks.
The deal could also evolve into something like the scenario where LVMH (LVMH) walked away from buying luxury jeweler Tiffany & Co. (TIF) - Get Tiffany & Co. Report, only to be sued back into the merger by the latter.
They eventually agreed on a lower price and completed the deal.
Although the deals above were usually between two companies, Musk's status as the world's richest man is tenable only as long as his stock in his companies remains trading at high levels, giving him financial liquidity and stability.
But one thing investors don't like is protracted legal fights — even for hip companies like Tesla (TSLA) - Get Tesla Inc Report, SpaceX, Neuralink and The Boring Company, armies of lawyers and years of court dates might be enough to scare off even the most stalwart Musk fan.