- Hey, Aiden Durham here,
business and branding attorney with 180 Law Co. in Colorado.
Welcome to All Up In Your Business,
and what I hope will be the first
and last time I make a video about Elon Musk.
(gentle music)
So if you've been paying attention recently,
you've probably heard the big news
that Elon Musk buys Twitter.
Well, guess what?
That's wrong?
I mean kind of wrong, mostly wrong.
He hasn't actually purchased anything
and Twitter hasn't actually sold anything.
What did happen?
Well, they entered into a contract
contemplating this potential purchase.
So what we are going to do today is look at that contract
and discuss as a group what's actually going on here.
Specifically, what kind of a purchase is this?
Can Elon Musk or Twitter change their minds
and pull out of this deal?
What promises are being made and more.
Now I'm not doing this because I'm particularly interested
in Elon Musk or Twitter.
I mean, I love Twitter.
I love Twitter, but I truly couldn't care less about this.
No, you guys, this isn't about Twitter,
it's not about Elon Musk.
This is about contracts.
I wanna go through this contract
so you all have a better idea of what to look for
when you have a contract in front of you for your business.
What do some of these things mean?
How do we read through
and review and evaluate this contract?
Before we get into all of that,
if this is your first time on my channel, welcome.
Please be sure to subscribe and hit that little bell button
so you get notified anytime I post a new episode.
You can also check the description for a few links
to additional information and resources.
I also want to give a shout out and pretty much full credit
to Raffi Melkonian.
I hope I'm pronouncing his name right.
He did a superb breakdown on Twitter of this contract.
And so I'm pretty much just turning his tweet into a video.
I'll add a little bit more but it's mostly just the stuff
that he provided.
I'm gonna explain to you guys here.
I'll link to his his tweet
and his account in the description
if you wanna read the full thing.
It really is a great insight
with his input into this transaction, this whole situation.
So whenever I'm reviewing a contract for a client
the first thing I want to know is what is this?
What kind of a transaction are we dealing with here?
This, my friends is a merger transaction.
We can see that the plan is
for Elon Musk to create a company, the acquisition sub,
then that company will merge and become one with Twitter.
It'll pay off all the Twitter shareholders.
Then the acquisition sub will cease to exist
as a separate entity.
And we're basically left with Elon Musk owning Twitter.
Why is Elon doing this?
While I'm sure he has plenty of reasons.
One of the main reasons that we know about
is because he desires to make Twitter privately owned
and it's related to free speech
and less oversight, regulation.
But whatever, he wants to privately own Twitter.
It's currently publicly owned,
publicly traded on the stock market.
So anyone, you and me,
we can purchase shares of Twitter on the stock market.
Doing this merger transaction basically allows Twitter
to terminate its status as a public company,
it becomes privately owned
and essentially gives all control to Elon Musk.
And since it's no longer publicly owned,
the company's gonna be able to operate
a bit more efficiently 'cause it doesn't have that concern
for its public stockholders or shareholders.
So that's kind of the end game
the end goal here with this merger transaction.
Okay, great.
But what if you know, people change their mind?
What once sounded like a great idea
may no longer sounds so great.
And you know what, that's okay.
So if Elon changes his mind and is like nah,
I don't wanna do this anymore.
Can he get out of the deal?
Sure he can.
He'll just have to pay a measly $1 billion termination fee.
That's Elon.
What about Twitter?
Does this mean they are bound,
committed to selling to Elon Musk?
What if somebody else wants to buy the company?
Can they, they just have to shoo those people away?
Kind of.
Twitter is agreeing not to seek out any other deals
and that they'll stop any existing
or ongoing current negotiations
but they can and entertain unsolicited offers.
So Twitter can't go out and seek better offers
or seek better deals.
But if someone comes up to them and just makes one,
they can entertain it.
And not only can they entertain it
they actually have to entertain it.
I'll explain why in a couple of minutes.
But they have to.
Of course though there are kind of a bunch of rules
and restrictions in the contract
about how that deal is entertained and the process by which
this thing would happen if there was another offer.
So let's say Twitter does get another purchase offer,
and it's a good one, better than Elon's in fact.
I think his, I think he's purchasing it for $44 billion.
So let's say someone comes in and offers $44,000,000,000.01,
or two cents.
That might not be that significantly better
but it's a better deal.
Well, basically Twitter has to tell Elon Musk about it
and he'll have four days to match or beat that offer.
Then maybe there might be some back
and forth of competing offers, competing offers.
Who's gonna make the best deal here?
If Elon Musk makes the best offer
then Twitter has to go with his offer.
And if Twitter gets a better deal elsewhere
and they decide break this deal with Elon Musk
he's gonna be left out in the cold
'cause poor guy's only gonna get
a $1 billion termination fee in that instance.
I'm kidding about that obviously.
But yeah, so either way,
basically either party can terminate the deal
in certain instances
and they have to pay a billion bucks to the other.
What about situations where Elon Musk might be validated
in pulling out of this deal?
Will that exist?
Absolutely.
One situation would be if there is
a material adverse effect,
AKA if something really bad happens to Twitter.
Interestingly that that something bad doesn't include COVID,
it doesn't include social media kind of
becoming less popular
or the decline of social media in general.
It also doesn't include any backlash against Elon Musk.
So like if he were to announce this, I am buying Twitter,
and we all revolt and hate him as a result of it.
He can't use that as now grounds
to get out of this contract.
He can also pull out of it if Twitter does something major
like purchasing another company
or entering into some really major substantial contract
or if they lie to him about liabilities
or lawsuits that may be really damaging.
Now often in these kinds of transactions
the parties want to keep things kind of private.
They don't want big announcements to be made
to the public about what's going on.
It could, you know affect the wellbeing of the company
the shareholders, the value, that kind of thing.
And that's true in this case
but kind of with a little twist.
So they can't make any random public announcements
about this, except that Elon Musk can, get this,
he can tweet about the deal as long
as it's not insulting or speaking poorly of Twitter
in the process.
Another interesting thing I wanted to point out,
you know that $1 billion termination fee
that I talked about that Elon has to pay
if he decides to get out of the deal?
Well, he, Elon himself is actually promising to pay
that himself or at least a portion of it.
So that way if he pulls out of the deal,
'cause it's not,
he himself isn't entering into this contract,
it's his company.
And so if he pulls out of the deal
he can't be like, ha ha, sorry.
Yeah, that company doesn't have any assets.
I don't know where you're gonna get that $1 billion from.
He won't be able to do that.
He himself will have to pay that termination fee.
He's given a guarantee.
So take this as a lesson.
If you've watched my previous videos
about getting business credit or loans for your business,
getting a credit card, I talk about how it's very common
especially in the beginning of a business
to have to personally guarantee a lease or a loan
even if you're getting it for an LLC or corporation.
And that's because the other party entering into it
wants to make sure they'll be able to collect their money
one way or the other.
If the company is broke or insolvent
or doesn't have any money
they wanna be able to collect it one way or the other.
Even billionaires, serious literal billionaires
have to give personal guarantees sometimes.
So next time you are asked for a personal guarantee,
maybe don't take it so personally.
It is sometimes just completely warranted in the situation
and even billionaires aren't immune
from the personal guarantee.
Finally, unsurprisingly, if there is a lawsuit related
to this matter, it is going to be handled in Delaware
at the court of Chancery.
This is unsurprising because it's just a kind of standard
for big major corporations.
Does that mean all of us little regular businesses
need to have all of our contracts be governed
by Delaware law and handled in the court of Chancery?
No, it doesn't.
For most of us we still want to handle our legal matters
locally in our local jurisdiction and our own state
unless we're actually in Delaware, then it might be good.
But in this case Twitter and Elon have chosen Delaware.
Okay, great.
We have gone through the important bits of that contract.
So given all of that, what do you think?
Does this mean that Elon has purchased Twitter?
No, we can see in the contract he's,
he hasn't purchased anything.
He's agreeing, or they're agreeing to talk about it.
Basically we're agreeing to discuss the possible purchase.
He hasn't purchased anything.
And really this is still kind of in the,
in the very beginning stages.
What's actually happened is that the board of directors
of Twitter has approved the merger transaction.
This approval however is subject to the approval of
a lot of other folks including the shareholders of Twitter
and the government.
And there are probably gonna to be a lot
of other legal challenges along the way.
And of course in the meantime
there's still the issue of competing bids.
Someone might outbid Elon Musk.
We don't know.
And now under Delaware law
since Twitter's board of directors has approved this merger,
they have to pursue the highest ticket price
they can possibly find.
It is now their duty,
pretty much their sole duty to the shareholders now,
is to get the highest price they can find.
So it doesn't matter, PR, if the media attention dealing
with Elon Musk will be worth taking a lower purchase price.
If a, if a bid comes in for a better purchase price
Twitter's board of directors is required to seek out
the best price they can find.
So if Twitter gets an offer that is even pennies better
than Elon's they would most likely have a duty to accept it.
So all in all this deal is not even close to being finished.
And Elon Musk does not own Twitter,
except for whatever shares he might own.
I don't know. He probably owns some stock of Twitter,
but he himself does not privately own Twitter at this point.
It's going to be at least three to six months,
probably a bit longer than that,
before we actually see this thing playing out
and Twitter actually changing hands in terms of ownership.
But like I said, this isn't about Elon Musk or Twitter.
This is about contracts.
So more importantly than all of that
I hope this is an opportunity for you to appreciate
the value in carefully reviewing and reading your contracts,
understanding what they say so you understand
what you are agreeing to when you enter into them.
Whether you are Elon Musk, Twitter,
or just an average solo business owner,
it is always best to have an attorney carefully review
your contracts for you.
I can guarantee Elon Musk did not put this contract together
by copying and pasting stuff on the internet.
You should be more like Elon Musk in that sense.
Have lawyers helping you with your contracts,
drafting, reviewing, negotiating these deals.
So you can have someone who's looking out
for your best interest
and making sure you're not getting screwed in the process.
If you learned a thing or two,
go ahead and hit that thumbs up button,
gimme a like, drop a comment if you want.
Of course be sure to subscribe and hit the bell button
so you get notified when I post any new videos
and of course check the description for links
to some additional information and resources.
Thank you all so much for watching.
I am Aiden Durham, and I will see you next time.
(gentle music)