Elon Musk's bid to buy Twitter shows how messy mergers and acquisitions can get : The Indicator from Planet Money For the corporate engagement of Elon Musk and Twitter, the road to the chapel has been unusually rocky. So how are these deals supposed to go, anyway?

Mergers, acquisitions and Elon's "rude" proposal

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AMANDA ARONCZYK, BYLINE: Dearly beloved, we are gathered here today to celebrate the union of two corporate giants - a corporate marriage, if you will - between Elon Musk and Twitter.


ARONCZYK: Yes, we've watched this engagement with rapturous joy as Elon proposed buying the company for $44 billion, and Twitter's board said yes.


ARONCZYK: Twitter, do you take Elon to be your lawful owner, to have and hold his $54.20 per share in return for control of the company?


ARONCZYK: And do you, Elon - wait a second. Elon?


ARONCZYK: Where did Elon go?


Psst (ph).


MA: Psst. Hey. Excuse me. Hi. Sorry. Do you mind if we get up there and say a few words to the crowd?

ARONCZYK: Uh, sure. Yeah.

MA: Thanks. Yeah. Hi, everybody. My name is Adrian Ma.


And I am Wailin Wong. We're with THE INDICATOR FROM PLANET MONEY, and we don't know where Elon is - maybe a case of cold feet?

MA: Now, we know there's been a lot of drama around this deal, but we're here to tell you that deals happen all the time. And in fact, last year was a record for corporate mergers and acquisitions. According to one estimate from PwC, more than 60,000 of these were announced last year. And so we thought we could help by explaining how these things are normally supposed to go.

WONG: Today, how two companies go from meet cute to getting hitched and how, for Twitter and Elon, the process went very, very wrong.


MA: Mergers and acquisitions - M&A, if you want to be fancy about it - it's what happens when one person or company buys another company or even just a piece of another company. And the reason you so often hear mergers and acquisitions in the same breath is they're sort of like two sides of the same pancake.

WONG: A lot of business deals involve both merging corporate entities and acquiring corporate assets. Matt Levine knows all about this, not just because he's a columnist writing about the whole will-they-won't-they saga between Twitter and Elon Musk for Bloomberg Opinion. In a previous life, Matt was an attorney working for a firm that specialized in corporate mergers and acquisitions.

MA: Can you picture yourself as an M&A lawyer working on this deal?

MATT LEVINE: I think it would be so unpleasant, right? You're, like, trying to be professional and, like, make sure that everything is in place so that if Elon Musk wants to close the deal, the deal will get closed. But on the other hand, you're also working for him to try to undermine the deal.

WONG: We'll get back to Elon and Twitter. But to understand why this situation is so unusual, it helps to know how things normally work when one company merges with or acquires another one. The process typically begins in one of three ways - from friendly to slightly desperate to outright hostile. The friendly way happens like this.

LEVINE: Usually they start with, like, the two CEOs had dinner together, or they, like, met at a conference. Or they've been calling each other over the years to say, hey, we should work together. That's really the most common way that mergers get started.

MA: And sometimes they get to talking and they're like, hey, you know what? Our companies could be better together. They could be more profitable.

WONG: Another way companies end up merging is when one company decides to sell itself, put itself up for auction to the highest bidder. This often happens with companies in financial trouble.

MA: Then there is the third approach, the hostile approach.

LEVINE: The CEO of the buyer calls the CEO of the seller and says, hey, would you like me to buy you? And the CEO of the seller says, no thanks, we're happy; like, everything's good. And then if the buyer still wants to buy them, you have what's called a hostile takeover where the buyer tries to buy them even though the CEO doesn't want to sell.

WONG: For now, let's assume things are still friendly. Two companies are like, maybe we should get together. In that case, the next phase is usually something called due diligence. Due diligence is the getting-to-know-you phase, where the would-be buyer gets all up in the other company's business interviewing executives, combing through internal records to find out what kind of shape the business is in. How much are they paying their executives? Are they facing any lawsuits?

MA: To put it in the sort of relationship metaphor, it's basically asking the other person to, like, just tell us about your baggage.

LEVINE: Yeah. And it's a range of things. Like, in public companies, it is a lot like that. It is a lot of, like, looking for problems. In private companies where you don't necessarily know how much money the company makes, sometimes it's just, like, looking at their financial statements and saying, oh, this company is very profitable; I should pay more, right? Like, sometimes they're looking for good things.

WONG: After due diligence, there's some back-and-forth negotiation. And if the buyer is still interested, they make a proposal, an offer to buy the company. And then if the company's board says yes, the parties sign a merger agreement.

MA: And once the merger agreement is signed, you can think about this as, like, the phase between the engagement and the wedding, which is to say the deal is not done. So the selling company may still need to get the blessing of its shareholders. The buyer may need to get money to purchase, so it needs the lender's blessing. And certain deals might even need the blessing of federal antitrust regulators. And once all that happens, then a deal is finally closed.

WONG: So that's the rosy scenario. But of course, this is not how things have played out between Elon and Twitter. Rather than wining and dining and due diligence, Elon sort of skipped straight to the proposal.

LEVINE: But unlike the way those deals often go, it then sort of became quasi-hostile, where Elon Musk lobbed in an offer to buy Twitter in a way that was - I don't know if it was exactly hostile, but it was rude.

MA: That is basically what happened in mid-April. Elon wrote a letter to Twitter's board saying, I'll give you 54.20 a share for the whole shebang. Take it or leave it.

LEVINE: So one thing that was rude about it is that he made it public, which is very rude. Like, ordinarily, you want to have a back and forth with the board where you sort of negotiate and, like, try to see if it's a good fit. And he just sent the letter in public, which puts a lot of pressure on the board, particularly when it's Elon Musk and he has a lot of fans. And the fans are mad, and if you don't immediately accept his offer, then his fans, you know, troll you on Twitter.

WONG: So Twitter's board was under some duress, let's say. But in the end, they were like, eh, this is a pretty good deal. Elon is offering almost 40% more than the stock was worth just a couple of weeks earlier. So they signed a merger agreement. For a brief moment, everyone seemed happy.

MA: Elon tweeted about the deal with little heart and star emojis, said he was looking forward to improving the platform by doing things like getting rid of spam bots

LEVINE: And then, like, three weeks later, he was like, wait a minute, there are bots at Twitter. I'm not buying Twitter anymore. And that's kind of where we are now is that he has said the deal is, quote-unquote, "on hold," which is not a concept in M&A law.

MA: Matt thinks what is going on here is that Elon is getting cold feet or maybe buyer's remorse.

WONG: Or pre-buyer's remorse.

MA: Yeah, exactly. Pre-buyer's remorse maybe - after all, Twitter, as big as it is, is not a profitable company. And Elon may be the world's richest person, but he's also lost tens of billions of dollars to his net worth in recent months thanks to a dive in Tesla stock. So Matt thinks Elon is trying to wiggle out of the deal or at least put pressure on Twitter to renegotiate.

WONG: Now, arguably, the way Elon has approached this deal is not just rude, it is chaotic, norm-shattering. Like, a few weeks ago, he tweeted a poop emoji at Twitter's CEO, which is not typical, let's just say. But luckily for Twitter, it has this merger agreement with Elon, which gives it the right to sue to enforce the deal. But Matt says that obviously is not ideal.

LEVINE: That's never what you want to rely on, right? Like, no one signs a prenup being like, oh, this is a great prenup. I love - I mean, some people probably do. But like, most people don't sign prenups being like, oh, this prenup is going to make me so happy, right? Because when you sign a prenup, you're like, well, I hope I never have to use this, right? And merger agreements are the same way. Like, you never are like, oh, look at all these provisions that I have to, like, sue if the deal falls apart.

MA: So a lawsuit is not out of the question because Twitter really wants this deal to happen. The board actually has a fiduciary duty to shareholders to not just let a massive pile of cash walk away. So for the moment, this corporate engagement is looking more like a corporate standoff.

WONG: Special thanks to Amanda Aronczyk for being our officiant today. This episode was produced by Corey Bridges and engineered by James Willetts. Catherine Yang (ph) checked the facts. Senior producer Viet Le edited this episode. Kate Concannon edits the show, and THE INDICATOR is a production of NPR.


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