Will Elon Musk have to buy Twitter or won’t he? That’s the $44 billion dollar question at the heart of a legal battle between the Tesla and SpaceX founder and the ubiquitous social media platform. But a deeper question has been largely overlooked in media coverage of the story: From the mess the parties have gotten themselves into, is a mutually beneficial resolution possible? A proposal from Program on Negotiation chair Guhan Subramanian, an M&A negotiation strategy expert, suggests it could be.
An Impulse Purchase
In April, Musk, currently the world’s richest person, signed a legally binding agreement to purchase Twitter for $54.20 per share, or $44 billion. A prolific Twitter user and longtime fan of the site, Musk was so eager to buy the platform that, eschewing M&A negotiation strategy best practices, he waived his due-diligence rights.
Musk said he planned to dramatically increase Twitter’s users and revenues, pursue “free speech” on the site, and reduce the number of bots. While some inside and outside Twitter cheered the prospect of a shake-up at the stagnating site, others worried about the mercurial and impulsive Musk’s potential influence on Twitter. He later said he wanted to allow all legal speech on Twitter, which could dramatically increase hate speech and disinformation in tweets.
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The Deal Sours
Soon after the deal was reached, tech stocks, including those of Musk’s own Tesla, experienced a major sell-off. Twitter shares plunged more than 20%. In the aftermath, Musk seemed to suffer a prepurchase version of buyer’s remorse. He tweeted criticisms of Twitter’s board and top executives, and complained about the number of bots on the platform. Twitter, which estimates about 5% of its accounts are bots, gave Musk every tweet from a single day to allow him to reach his own conclusions.
After repeatedly hinting he wanted to get out of the deal, Musk, in a July 8 regulatory filing, moved to cancel the agreement, with his lawyers saying Twitter hadn’t provided sufficient data on bot accounts for him to reach an accurate estimate. The filing accused Twitter of being in “material breach of multiple provisions” of the deal agreement, the New York Times reports.
Twitter responded by suing Musk to force the acquisition to close. He was using the bot issue as an excuse to get out of the deal after his own personal fortunes changed, Twitter argued. A Delaware Chancery Court judge ruled the trial over whether Musk must complete his purchase of Twitter will be held in October.
Applying M&A Negotiation Strategy to Dispute Resolution
Most corporate law experts, including Subramanian, expect Twitter will prevail in court and Musk will be forced to acquire the company. Though this would be better for Twitter financially than Musk walking away, it would leave the company—and all of us—with “an unwilling and mercurial owner of the global town square,” says Subramanian.
A better outcome is possible through the pretrial settlement negotiations that are likely to occur, argues Subramanian. Musk is expected to attempt to negotiate a discount from the agreed-upon $54.20 share price. But with the legal arguments in Twitter’s favor, Musk would need to offer the company an appealing incentive to do so.
Fortunately, one exists. Subramanian proposes: “The carrot that Musk should offer is guardrails on his right to regulate speech on Twitter.” That is, Musk could agree to “permanently and irrevocably delegate all content-moderation decisions on Twitter to a panel of third-party experts,” suggests Subramanian, in exchange for a discount from the current deal price, such as $48 per share. Musk is likely to accept the lower deal price in exchange for guardrails on his decision-making authority at Twitter.
Twitter’s board would then need to choose between settling for a lower sale price along with guardrails on Musk’s ownership or fighting in court to maintain the higher sale price. “Accepting $48 plus guardrails would be good for society, while $54.20 with no guardrails would be good for Twitter shareholders,” says Subramanian.
If Twitter were to take the lower price plus guardrails on Musk’s involvement, it would likely face a lawsuit from plaintiffs’ lawyers for leaving money on the table. But the Delaware Chancery Court could—and should, argues Subramanian—carve out a narrow exception to the requirement that boards maximize value when selling the company. Given Twitter’s role as a quasi-public utility, “the Delaware Chancery Court should not punish Twitter for doing the right thing for society,” says Subramanian.
As Subramanian’s proposal suggests, disputants in the M&A world and beyond often have opportunities to move beyond win-lose outcomes and fashion creative deals. In both negotiation and dispute resolution, the first step in moving beyond adversarial posturing is to see the possible benefits that can come from exploring each other’s interests.
What lessons have you learned from other examples of M&A negotiation strategy?