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Elon Musk Could Struggle with Banks, His Twitter Deal Escape Hatch, Experts Say

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The banks that agreed to finance Elon Musk’s $44 billion (roughly Rs. 3,37,465 crore) acquisition of Twitter have a financial incentive to help the world’s richest person walk away but would face long legal odds, according to people close to the deal and corporate law experts.

Twitter has sued Musk to force him to complete the transaction, dismissing his claim that the San Francisco-based company misled him about the number of spam accounts on its social media platform as buyer’s remorse in the wake of a plunge in technology stocks.

The Delaware Court of Chancery, where the dispute between the two sides is being litigated, has set a high bar for acquirers being allowed to abandon their deals, and most legal experts have said the arguments in the case favour Twitter.

Yet there is one scenario in which Musk would be allowed to abandon the acquisition by paying Twitter only a $1 billion (roughly Rs. 7,924 crore) break-up fee, according to the terms of their contract. His $13 billion (roughly Rs. 103 crore) bank financing for the deal would have to collapse.

Refusing to fund the deal would weigh on the banks’ reputation in the market for mergers and acquisitions as reliable sources of debt. However, the banks would have at least two reasons to help Musk get out of the acquisition, three sources close to the deal said.

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The banks stand to earn lucrative fees from Musk’s business ventures such as electric car maker Tesla and space rocket company Space, provided they continue to curry favour with him.

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They also face the prospect of hundreds of millions of dollars in losses if Musk is forced to complete the deal, the sources said. This is because, as with every big acquisition, the banks would have to sell the debt to get it off their books.

They would struggle to attract investors given the downturn in pockets of the debt market since the deal was signed in April, and the fact that Musk would be seen as an unwilling buyer of the company, the sources said. The banks would then face the prospect of selling the debt at a loss.

It is unclear whether the banks that agreed to finance the acquisition — Morgan Stanley, Bank of America, Barclays, Mitsubishi UFJ Financial Group, BNP Paribas, Mizuho Financial Group and Societe Generale — will attempt to get out of the deal.

The banks are waiting for the outcome of the legal dispute between Musk and Twitter before making any decisions, according to the sources. The trial is scheduled to start in October.

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Spokespeople for Morgan Stanley, Bank of America, Barclays, Mitsubishi and Mizuho declined to comment, while BNP Paribas and Societe Generale did not immediately respond to requests for comment.

There is a catch to the banks serving as Musk’s escape hatch. He would have to show in court that the banks refused to deliver on their debt commitments despite his best efforts, according to the terms of his deal contact with Twitter.

This would be challenging to prove given Musk’s public statements against the deal as well as private communications between Musk and the banks that Twitter may uncover in its request for information, four corporate lawyers and professors interviewed by Reuters said.

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“Musk would have to convince the judge he is not responsible for the bank financing falling through. That is hard to show, it would require a great degree of deftness from him and the banks,” said Columbia Law School professor Eric Talley.

Musk and Twitter representatives did not respond to requests for comment.

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Huntsman precedent

Even if the banks can show they are not acting at Musk’s behest, they would find it difficult to get out of the Twitter deal, the legal experts said. They pointed to the case of chemical maker Hunstman, which in 2008 sued the banks that walked away from financing its $6.5 (roughly Rs. 500) sale to Hexion Specialty Chemicals.

Hexion, owned by private equity firm Apollo Global Management, abandoned the deal after Huntsman’s fortunes deteriorated, but a Delaware judge ruled that the transaction should go ahead. The two banks financing the deal, Credit Suisse Group AG and Deutsche Bank AG, then refused to fund it, arguing the combined company would be insolvent.

Huntsman sued the banks and, one week into the trial, they settled. The banks agreed to a $620 million (roughly Rs. 4,912 crore) cash payment and the provision of a $1.1 billion (roughly Rs. 8,716 crore) credit line to Hunstman, which had also secured earlier a $1 billion (roughly Rs. 7,924 crore) settlement payment from Apollo.

The banks balking at funding Musk’s deal would also have to show that Twitter would be insolvent if the acquisition happened, or that terms of their debt commitment were somehow breached, a high bar based on the deal documents that have been made public, the legal experts said.

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“If the banks try to get out of the deal, they will walk into the same fight that Musk has taken on, where Twitter has the better legal arguments,” said Eleazer Klein, co-chair of law firm Schulte Roth & Zabel LLP’s mergers, acquisitions and securities group.

See also  Elon Musk Reacts to Twitter Lawsuit Over Breach of $44 Billion Deal: All Details

© Thomson Reuters 2022


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Biden Administration Tells US Supreme Court Section 230 of Communications Decency Act Has Limits

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The Biden administration argued to the US Supreme Court on Wednesday that social media giants like Google could in some instances have responsibility for user content, adopting a stance that could potentially undermine a federal law shielding companies from liability.

Lawyers for the US Department of Justice made their argument in the high-profile lawsuit filed by the family of Nohemi Gonzalez, a 23-year-old American citizen killed in 2015 when Islamist militants opened fire on the Paris bistro where she was eating.

The family argued that Google was in part liable for Gonzalez’ death because YouTube, which is owned by the tech giant, essentially recommended videos by the Islamic State group to some users through its algorithms. Google and YouTube are part of Alphabet (GOOGL.O).

The case reached the Supreme Court after the San Francisco-based 9th US Circuit Court of Appeals sided with Google, saying they were protected from such claims because of Section 230 of the Communications Decency Act of 1996.

Section 230 holds that social media companies cannot be treated as the publisher or speaker of any information provided by other users.

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The law has been sharply criticised across the political spectrum. Democrats claim it gives social media companies a pass for spreading hate speech and misinformation.

Republicans say it allows censorship of voices on the right and other politically unpopular opinions, pointing to decisions by Facebook and Twitter to ban dissemination of a New York Post article about the son of then-Democratic candidate Joe Biden’s adult son, Hunter, in October 2020.

The Biden administration, in its filing to the Supreme Court, did not argue that Google should be held liable in the Gonzalez case and voiced strong support for most of Section 230’s protections of social media companies.

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But the DOJ lawyers said that algorithms used by YouTube and other providers should be subject to a different kind of scrutiny. They called for the Supreme Court to return the case to the 9th Circuit for further review.

Attorneys for Google could not be reached for comment on Wednesday night.

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© Thomson Reuters 2022


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WhatsApp Avatar Feature Rolling Out to Users With Support for 36 Customisable Stickers

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WhatsApp has begun rolling out Avatars, a feature that allows users to make a digital representation of themselves. The Meta-owned instant messaging service previously rolled out the Bitmoji-like feature to beta testers on Android and iOS. The feature which is now making its way to all users as part of a full-scale rollout, will allow users to curate their digital representation or personal avatar from a combination of hairstyles, facial features, and outfits, according to the company. WhatsApp will also provide 36 custom stickers that reflect different emotions and actions.

The instant messaging platform announced the new Avatars feature via a blog post on Wednesday. A user can set an Avatar as their WhatsApp profile photo, or use them as stickers. Meta says that these stickers will be available in 36 versions of popular emojis and actions, adding that avatars could provide users “a fast and fun way to share feelings with friends and family.”

Personalised avatars were first made popular on social media by Snapchat which now owns Bitmoji which was initially created by Bitstrips. Instagram, which is also owned by Meta, previously added support for Avatars, just like Facebook and Facebook Messenger.

WhatsApp’s support for Bitmoji-like 3D avatars appears to be the same set of models that are available on other Meta-owned apps. Facebook was the first amongst the Meta family to be introduced to Avatars through Messenger and the News Feed in 2019. A year later in 2020, the company added support for adding these digital avatars on Facebook comments and stories.

The company intends to serve Avatars as a mode for fun and creative expression as well as a privacy feature. Avatar can be a “great way to represent yourself without using your real photo so it feels more private,” added the company blog post.

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Users may access the Avatars feature by updating their WhatsApp to the latest version and navigating to Settings > Avatar > Create Your Avatar.

WhatsApp is also promising to bring future enhancements in the form of lighting, shading, hairstyle textures, and more that will improve the experience.

See also  Elon Musk Allowed to Use Whistleblower Claims in Case Against Twitter, Trail to Start in October

The feature was previously tested with a few beta testers on WhatsApp beta version 2.22.23.9 for Android, about a month before it was eventually rolled out to all users.


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Twitter Blue Pricing to Be Lowered for Web Users to $7, App Store Subscribers to Pay $11: Report

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Twitter plans to change the pricing of its Twitter Blue subscription product to $7 (roughly Rs. 600) from $7.99 (roughly Rs. 700) if users pay for it through the website, and $11 (roughly Rs. 900) if they do so through its iPhone app, the Information reported on Wednesday, citing a person briefed on the plans.

The move was likely a pushback against the 30 percent cut that Apple takes on revenues from apps on its operating system, the report said, with lower pricing for the website likely to drive more users to that platform as opposed to signing up on their iPhones.

It did not mention whether pricing would change for the Android platform as well.

Last week, Musk accused Apple of threatening to block Twitter from its App Store without saying why in a series of tweets that also said it had stopped advertising on the social media platform.

In the first quarter of 2022, Apple was the top advertiser on Twitter, spending $48 million (roughly Rs. 390 crore) and accounting for more than 4 percent of total revenue for the period, the Washington Post reported, citing an internal Twitter document.

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Among the list of grievances tweeted by Musk was the up to 30 percent fee Apple charges software developers for in-app purchases.

He also posted a meme suggesting he was willing to “go to war” with Apple rather than paying the commission.

The fee has drawn criticism and lawsuits from companies such as Epic Games, the maker of Fortnite, while attracting the scrutiny of regulators globally.

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The commission could weigh on Musk’s attempts to boost subscription revenue at Twitter, in part to make up for the exodus of advertisers over content moderation concerns.

Musk later met Apple chief executive Tim Cook at the company’s headquarters and later tweeted that the misunderstanding about Twitter being removed from Apple’s App Store was resolved.

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Twitter and Apple did not immediately respond to a request for comment.

© Thomson Reuters 2022


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