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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  Twitter Sends Civil Subpoenas to Elon Musk’s Tech Allies as Part of Lawsuit

© Thomson Reuters 2022


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Facebook Bans Major US Anti-Vaccination Group Children’s Health Defense for Spreading Covid-19 Misinformation

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Facebook-owner Meta said Thursday it had kicked one of the most influential US anti-vaccination groups off the social media network for spreading Covid-19 misinformation. The Children’s Health Defense (CHD), which has been a critic of Covid vaccines, immediately accused Meta of stifling its free speech rights. “Facebook is acting here as a surrogate for the federal government’s crusade to silence all criticism of draconian government policies,” CHD founder Robert Kennedy Jr., nephew of late president John F. Kennedy, said in a press release.

Meta spokesperson Aaron Simpson told AFP that the group’s accounts at Facebook and Instagram were shuttered on Wednesday. The ban came after repeated violations of Meta’s misinformation rules.

CHD said its social media accounts were followed by hundreds of thousands of people, and claimed the action by Meta came as a surprise.

In a release, the group shared a screen capture showing messages stating the accounts were suspended for violating Meta policies regarding “misinformation that could lead to real world harm.”

CHD contended that the ban could be related to a lawsuit it filed against Meta accusing the tech giant of infringing free speech rights by relying on US Centers for Disease Control regarding what Covid-19 information is scientifically backed.

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The anti-vaccine group has appealed a lower court ruling against it in the litigation, according to legal filings.

In other news, US teens have left Facebook in droves over the past seven years, preferring to spend time at video-sharing venues YouTube and TikTok, according to a Pew Research Center survey data out Wednesday. TikTok has “emerged as a top social media platform for US teens” while Google-run

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YouTube “stands out as the most common platform used by teens,” the report’s authors wrote.Pew’s data comes as Facebook-owner Meta is in a battle with TikTok for social media primacy, trying to keep the maximum number of users as part of its multi-billion-dollar ad-driven business.

The report said some 95 percent of the teens surveyed said they use YouTube, compared with 67 percent saying they are TikTok users.Just 32 percent of teens surveyed said they log on to Facebook — a big drop from the 71 percent who reported being users during a similar survey some seven years ago


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Elon Musk Said to Target Advertising Tech Firms in Twitter Suit Over Takeover Deal

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Billionaire entrepreneur Elon Musk, who is attempting to walk away from his deal to acquire Twitter, is seeking documents from advertising technology firms as part of his quest to gain more information on bot and spam accounts on Twitter, according to filings in a Delaware court on Thursday. Twitter has sued the Tesla chief executive, who has accused Twitter of hiding information about how it calculates the percentage of bots on the service, for attempting to walk away from the $44 billion (roughly Rs. 3,50,900 crore) agreement. A trial is scheduled for October 17.

Musk’s lawyers have subpoenaed both Integral Ad Science (IAS) and DoubleVerify for any documents or communications on their involvement in reviewing accounts or participation in any audit of Twitter’s user base.

IAS and DoubleVerify, which are both based in New York, use technology to independently verify that digital ads are viewed by real people. Advertisers use the services to ensure the ads they pay for are seen by potential customers and not automated bots.

Twitter, IAS and DoubleVerify did not immediately respond to requests for comment.

In response to a tweet by a user who questioned how Twitter audits its service and also linked to a Reuters story on Musk targeting the ad firms, Musk tweeted: “Those are the questions that Twitter is doing everything possible to avoid answering …”

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In a countersuit earlier this month, Musk claimed that Twitter’s monetizable daily active users are 65 million lower than what the company has touted. Twitter has said it stands by its disclosures.

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The metric measures users who log onto Twitter through the website or apps that are able to serve ads or used paid products like subscriptions, according to Twitter filings.

© Thomson Reuters 2022


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Snap Said to Shut Down Development of Pixy Flying Selfie Drone Camera: Report

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Snapchat parent Snap will stop future development of its Pixy flying selfie drone, the Wall Street Journal reported on Thursday, citing people familiar with the matter. Pixy, which costs $230 (roughly Rs. 18.300), will continue to be sold in its current iteration, according to the report.

The news comes nearly four months after the Santa Monica, California-based company launched the pocket-sized Pixy camera, which can fly a few feet above its user to take photos and videos.

Snap declined to comment on the report.

Rising costs and other economic woes have forced companies to curb their marketing spend, hurting ad-reliant online companies such as Snap, Facebook-parent Meta, Twitter, and Pinterest.

Last month, Snap had warned of “incredibly challenging conditions” due to the current economic turmoil and increasing competition after reporting disappointing results.

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The company, which is reeling from privacy changes made to Apple’s iPhone, had also said it would significantly slow hiring, invest in its advertising business and find new sources of revenue as part of its belt-tightening efforts.

On Monday, Snap said it had reached 1 million subscribers for its Snapchat premium subscription, after launching the service in June as a new source of revenue.

Social media companies including SnapTwitter, and Meta Platforms, which all earn the majority of revenue from selling digital advertising, are facing a weakening ad market due to record-high inflation causing brands to reign in their marketing spending.

Snap’s shares dropped 25 percent last month after disappointing second quarter earnings, as it suffered from weaker advertising demand than Wall Street had expected. Chief Executive Evan Spiegel said the company would work to speed up revenue growth, in part through new sources of revenue.

See also  Twitter to Face First Test in Legal Battle With Elon Musk Over Bid for Fast-Track Trial

© Thomson Reuters 2022

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