Twitter’s Bombshell Civil Complaint Against Elon Musk Contains Hints that Morgan Stanley May Not Be Willing to Provide the Debt Necessary to Close the Deal
Twitter’s Merger Agreement with Elon Musk contains a provision that allows the billionaire to walkway from the deal if the lenders do not fund at least $13 billion in debt.
Eleven minutes after the market closed today Peter Walsh, Jr. filed a 62-page complaint1 on behalf of William “LawDragon” Savitt2, against Elon Musk and the shell companies he formed to sign the Merger Agreement with Twitter. Savitt’s prayer for relief was simple - the court should order Elon Musk to buy Twitter.3
Savitt persuasively rejects each of the reasons Mike Ringler cited as grounds for termination of the Merger Agreement with Twitter in his letter dated July 8th.4 Savitt admits that Twitter believed Elon Musk to be an out-of-control madman when they agreed to sell their company to him. He even acknowledged that Twitter believed that there was a very good chance that Elon would attempt to terminate the deal and as a result attempted to negotiate a deal that would be almost impossible to escape from.
Savitt contends that Twitter’s concerns were well-founded as he shares screenshots from the billionaire’s tweets at various stages of the deal arguing that Elon never intended to buy the company but instead sought to cause litigation in which Twitter would be forced to publicly disclose embarrassing information about the company’s fake account problem.
Savitt’s complaint gives the impression that Elon Musk hasn’t been acting in good faith just as Ringler’s letter gave the impression Twitter was holding back information and data from Musk’s team. It is clear from Savitt’s complaint that Twitter WAS withholding certain user data and financial information from Musk as they did not trust him. It doesn’t make much sense to spend time discussing these issues in any detail until Musk’s lawyers have a chance to respond to this complaint.
THE BOMBSHELL
The REAL elephant in the room is the $13 billion in debt promised by Morgan Stanley Senior Funding, Inc. and other lenders in a debt commitment letter dated April 25th. Elon’s equity agreement with X Holdings is contingent on the lenders’ issuance of the debt to the company. If for any reason, Morgan Stanley refuses to fund, Elon is no longer obligated to provide the additional $33.5 billion in equity to close the transaction. Savitt claims that Morgan Stanely cannot refuse to fund the deal.
Importantly, Savitt seems to admit in the complaint that Morgan Stanley might disagree. In arguing that Twitter has given MORE financial information than they were required to provide to Musk, Savitt lets it slip that Morgan Stanley has the right to request that information to facilitate their diligence process - presumably a process without a point if they have no ability back out of their commitment.
Later in the complaint, Savitt reveals that around Jun 23rd Twitter became concerned that the debt from Morgan Stanley was not, in fact, ‘secured’. He explains that Musk informed Twitter that he needed certain financial information to “secure the debt” - a clear as day signal that “funding was NOT secured….” Savitt explains that the data Musk was asking for would have been needed “well in advance of close and before approaching ratings agencies, which is a key first step in consummating debt financing.” In the complaint, Savitt reveals that Twitter was so concerned that the “debt commitment” had fallen through their lawyers began calling Morgan Stanley and the other lenders for more information - calls that seemed to piss off Elon Musk as he sent Twitter’s CEO a text telling him to get his lawyers to stop causing “trouble”.
At the end of the day, if Morgan Stanley and the other lenders aren’t willing to fund, any request for specific performance would be pointless. Elon Musk has ZERO duty to fund this deal beyond $33.5 billion and that funding is 100% contingent upon Morgan Stanely’s debt - without that there is no deal. Could it be this easy? Only time will tell.
Finally, as I have previously noted I believe that the market’s correction made it VERY clear that Elon was paying too much for Twitter - way too much - and I think he’s looking for any excuse not to close. As a result, I’ll wait to predict how the court will rule until I’ve read Elon’s lawyer’s responses. While I’m in favor of a transaction whereby Elon would become the owner of Twitter I just can’t see one coming together presently…
