Elon Musk at Web Summit 2013. Image: Conor McCabe Photography
Twitter must pay the fee if it takes a better offer, for example, and Musk will have to pay it if he can’t cough up the funds.
Elon Musk’s takeover deal with Twitter includes a clause whereby if either party ends up terminating the agreement, they have have to pay the other a $1bn fee.
This detail was included in official Twitter filings published yesterday (26 April).
Twitter will have to pay the termination fee – roughly 2.5pc of the entire deal value – if it backs out of the deal or decides to take a better offer elsewhere. Musk will also have to pay the fee if he changes his mind or fails to provide financing for the $44bn deal he struck with Twitter earlier this week.
The filing also states that if the deal isn’t closed by 24 October, both sides could walk away without a takeover. However, if the deal isn’t closed because it is awaiting regulatory approval at the time, a six-month extension would apply.
Background
This follows nearly a month of back-and-forth between the world’s richest man and the social media platform.
At the beginning of April, it was revealed that Musk had bought a significant stake in Twitter and became one of its biggest shareholders. It was then announced that he would be joining Twitter’s board of directors, with plans to bring “significant improvements”.
Days later, the plan to have him on the Twitter board fell through. But the Tesla boss then offered to take full control of the social media company and take it off the stock market with a “best and final” offer.
On Monday (25 April), the two sides reached the $44bn takeover agreement. It came after a filing with the US Securities and Exchange Commission (SEC) published on 21 April showed that Musk had been exploring a tender offer to acquire the company.
The documents showed that Musk had received commitments for funds to make the deal, including $25.5bn in debt financing from Morgan Stanley and other firms, and around $21bn in equity financing.
Headwinds from Europe
While the deal is still awaiting regulatory approval, it is unlikely to be stopped on anti-competitive grounds where a rival social media company acquires another.
However, Musk might yet face some headwinds from the EU in the form of the landmark Digital Services Act agreed over the weekend, which demands tech companies take control of content moderation.
“Be it cars or social media, any company operating in Europe needs to comply with our rules – regardless of their shareholding. Mr Musk knows this well,” tweeted Thierry Breton, the EU’s internal market chief, yesterday. “He is familiar with European rules on automotive and will quickly adapt to the Digital Services Act.”
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