Even among corporate raiders, Elon Musk is a pirate


The history of mergers and acquisitions is full of ruthless corporate predators, grueling arguments and people trying to stiffen each other.

T. Boone Pickens, the oil tycoon who rioted in the 1980s, bought small stakes in energy companies, Management attacked and forced sales of the companies. Carl Icahn, the activist investor, collected stocks from companies and threatened to oust their directors if they have not agreed to a deal. And Robert Campeau, the Canadian real estate investor known for tech takeovers, wasn’t afraid to do it take legal action against companies trying to distract his advances.

Yet despite all these cutthroat tactics, the dealmaking world has never seen a buyer like this one Elon Musk.

In the weeks since Mr. Musk, the richest man in the world, has struck a $44 billion deal With the purchase of the social media service Twitter, he turned the deals landscape upside down. When two sides agree to negotiate a takeover, they typically spend weeks mulling over finances and working out details. The action mostly takes place behind closed doors, in boardrooms and at well-known law firms and investment banks.

However, according to legal documents, Mr Musk failed to exercise due diligence to close the Twitter deal. He has since publicly criticized Twitter’s service – on Twitter, of course – attacked some of his top executives and unleashed tweets mocking the company’s board of directors. And with memes and a Poop Emojihe apparently tried to negotiate the price of the deal down on social media.

Essentially, Mr. Musk, 50, turned a mostly friendly deal into a hostile takeover after the fact. His actions have left Twitter, regulators, bankers and lawyers confused as to what he might do next and whether the blockbuster deal will go through. And Mr. Musk has made past corporate raiders look positively odd by comparison.

“Elon Musk is playing in his own gray area – you could almost say by his own rules,” said Robert Wolf, former chairman of the Americas at Swiss bank UBS. “This is certainly a new way” of doing business, he said.

Mr Musk did not respond to a request for comment.

At a company meeting on Thursday, Twitter executives said Mr Musk’s purchase is progressing and that they would not renegotiate, according to two attendees who spoke on condition of anonymity. Earlier this week, the company’s board of directors also stated, “We intend to complete the transaction and enforce the merger agreement.”

Twitter’s board of directors has claimed that it has legal authority over the deal. Next to one $1 billion breakup feethe agreement with Mr. Musk includes a “specific performance clause” that gives Twitter the right to sue him and force him to complete the deal or pay for it, as long as the debt financing he’s cooped up remains intact.

“He signed a binding agreement,” Edward Rock, a professor of corporate governance at New York University School of Law, said of Mr. Musk. “If those agreements aren’t enforceable, that’s a problem for every other deal out there.”

Twitter did not respond to a request for comment.

Mr. Musk has already crossed some legal lines. The Federal Trade Commission is investigating whether the billionaire violated disclosure requirements by failing to tell the agency He had amassed a sizable stake in Twitter Earlier this year, a person with knowledge of the investigation said. Investors are typically required to notify antitrust authorities about large stock purchases, allowing government officials 30 days to review the transaction for antitrust violations.

The FTC declined to comment. The Information, a tech news site, previously reported on the FTC’s interest in Mr. Musk.

The archetype of the mercenary company buyer has existed for decades. Jay Gould, a late 19th-century robber baron who helped build the US railroad system, financed deals in part with fortunes he amassed from gambling on Wall Street. He consolidated dying railroads and was known for spreading rumors in the press.

Mr Gould, wrote one of his biographers, Edward Renehan Jr. was a “maestro of margins” who “was able to create capital out of thin air and gain control of companies using just a few dollars, reflected in a hall of financial mirrors: Fun houses of convertible bonds, proxies and leveraged cash.”

In the same decade, Mr. Campeau used buyouts to build one retail empire These included Bloomingdale’s and Abraham & Straus, who eventually kinked under the guilt he laid upon them. A new breed of enemy attackers also emerged – private equity firms – employing takeover tactics that take no prisoners and memorably in “barbarians at the gate‘, a 1989 book about the private equity firm KKR and its acquisition of RJR Nabisco.

In recent years, it was not uncommon for deals to fail or be renegotiated. According to Sallie Maethe student-credit giant sold itself to a consortium of financial firms for $25 billion in 2007, a credit crunch raged and new legislation threatened it finance. Buyers tried to re-cut the deal, insults flew and the effort collapsed.

That same year, a $6.5 billion deal by Apollo Global Management – combining an owned chemical company, Hexion, with a rival, Huntsman – fell through as Huntsman’s profits plummeted each side sued. In 2016, telecom giant Verizon slashed its $4.5 billion price tag for Yahoo’s internet business Yahoo disclosed it had suffered an enormous security breach.

But in many of those deals, actual “material adverse changes” — whether a financial crisis or a security breach — were behind a price change or the end of an acquisition. That is not the case now with Twitter and Mr. Musk, where no obvious factor has emerged in an attempt to change the contours of the agreement. (Mr. Musk, who has addressed the issue of the number of bots on Twitter, said he doubts the accuracy of the company’s public records.)

Mr. Musk appears free to do as he pleases with business, in part because of his extraordinary personal wealth, with net worth to match around 210 billion dollars and that leaves him Ignore the economics of a deal. And unlike a private equity firm, it doesn’t buy multiple public companies a year, making it less important to present yourself as a consistent close.

While Mr. Musk is accountable to the shareholders of other companies he runs — including publicly traded automaker Tesla — those shareholders generally invest in his endeavors because he’s an inventor, not because he’s a deal maker.

Ann Lipton, a professor of corporate governance at Tulane Law School, said much of what keeps the world of mergers and acquisitions in check is “reputational sanctions.” But Mr. Musk, she noted, “doesn’t care about reputation sanctions.”

And that leaves almost everyone guessing.

Mike Isaac and Cecilia Kang contributed reporting.

Source link

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.