(TheLibertyRevolution.com)- To avoid the $1 billion ‘breakup’ fee, Elon Musk has agreed to withdraw the $44 billion takeover deal.
Just three weeks after starting the process, Musk acquired Twitter for $44 billion, saying he intended to turn it into a free-speech haven for his critics.
An earlier filing said Musk and Twitter might be required to pay $1 billion if the deal falls through.
Without a deal by October 24, either party can back out. Regulatory hurdles can be resolved in six months.
Twitter’s shares dropped 3% to around $48 as investors examined the deal’s finances. To buy the stock, Musk will pay $54.20 a share.
Musk’s financial method for the acquisition is explained in new SEC filings.
Morgan Stanley has offered $13 billion in regular bank loans, and Musk has guaranteed another $12.5 billion in margin loans.
Musk must collateralize the loan with Tesla stock worth five times the loan amount, or $62.5 billion at Tuesday’s closing price of $876.42.
A margin call would be issued if Twitter’s stock price fell below $500.
Because Musk cannot use more Tesla stock as collateral, he must come up with billions of dollars in cash within two days.
That would necessitate selling Tesla shares, further devaluing the loan collateral.
As a result, Musk must inject extra money if the stock falls below $700.
Musk owns 172.6 million Tesla shares, or 17% of the firm, worth $151 billion.
Lawyers say charging both parties a “termination fee” is standard.
Musk and Twitter can back out if the deal isn’t finished by October 24. The parties would have another six months to agree if it wasn’t authorized.
According to Twitter, the purchase will take three to six months.
Tesla’s stock market value dropped by about $125 billion overnight on worries Musk might have to sell his stake to fund his Twitter purchase.
Elon Musk’s shares plunged 12.2% on the Nasdaq, fearing he would sell them to pay for the cash component of his $44 billion mega purchase.
Tesla’s owner has committed $21 billion to the deal.
Aside from Tesla and SpaceX, it’s unclear how he’ll fund the equity.
The Twitter takeover may also distract Musk from running Tesla.
Musk’s pursuit of Twitter has driven down its stock price. $101.70 on Monday. On Tuesday, it was down 4% to $49.68, or 10% below Monday’s agreed offer price of $54.20.
According to Markets.com analyst Neil Wilson, investors are apprehensive about what Musk is planning.
To avoid destabilizing Tesla’s stock, Musk may seek additional investors to help fund the transaction.
Musk’s 17 percent ownership in Tesla accounts for much of his $270 billion wealth and the Twitter purchase.
Due to the $12.5 billion margin loan, the value of Tesla stock might plummet dramatically.