Elon Musk and Twitter agree to pay $ 1 billion in termination fee if takeover deal breaks down

Elon Musk and Twitter have agreed to pay the remaining $ 1 billion if their proposed merger falls apart due to the two sides’ actions.

Regulatory documents revealed on Tuesday that as part of Musk’s proposed $ 44 billion takeover of social media company, both sides have agreed to pay a $ 1 billion termination fee to the other side if the deal falls apart for various reasons. .

Termination fees are common in takeover deals such as those offered to ensure that both parties negotiate in good faith.

The deal predicts that Twitter will pay Musk $ 1 billion if, for some reason, the company’s board of directors recommends that shareholders reject Musk’s offer in favor of someone else. Known as a “no store” provision, the clause means that the company is not allowed to “invite, initiate, knowingly encourage or knowingly facilitate any material discussion, offer or request that represents or is reasonably expected to lead to a competitive offer for acquisition “

The Twitter board rejected Musk’s initial attempts to buy the company and adopted a “poison pill” plan designed to make it harder to take power in a bid to buy time to come up with an alternative offer. Such a proposal did not appear and the company said in the agreement that it would give up this poison pill for this proposed merger.

Similarly, Musk is required to pay $ 1 billion to Twitter if he abandons the deal.

Musk has pledged $ 21 billion in cash as part of his takeover bid, but has so far offered little detail on how he will do so. It is speculated that he may have to sell part of his huge stake in electric car maker Tesla to do so, an opportunity that led to a $ 100 billion drop in Tesla’s value on Tuesday.

If the merger does not take place, ‘because the capital, debt and / or financing of the margin loan is not financed, [Musk] will have to pay a $ 1.0 billion termination fee to Twitter, ”the file said.

The agreement also allows both parties to finalize the deal by October 24, 2022, but this period can be extended as long as certain conditions are met.