Don’t sell your business to Elon Musk

So you agree to sell your business to Elon Musk

When a buyer signs an agreement to buy a company they do so with the intent of actually buying the company. There is no qualification with respect to the speed with which they rushed into the deal. The signatures to the agreement of sale turn the deal into reality with confident flourish of the last signatory’s pen.

There is no cooling off period for their aunt to talk them out of it. Instead, the buyer has an opportunity to conduct some research into the company, to test the seller’s claims, study the financial statements, customer performances, supplier redundancies, and general capacity of the company to continue and grow. This process is colloquially called “due diligence.”

Due diligence always – except when selling your business to Elon Musk

Sometimes the due diligence is conducted before the final agreement is signed. Sometimes it is part of a suspensive condition of sale to the final agreement. In the latter case, the expected findings in the due diligence are itemised carefully and accurately. When the expected findings become proven, the agreement of sale becomes “unconditional”. The seller should get cash, and the buyer their company.

This is known as “certainty of contract” and is fundamental to the successful continuation of commerce the world over. Certainty of contract is designed to be certain. Some countries allow some contracts to be reversible. If you change your mind about the washing machine within a period, you can return it, and get your money back. But you cannot buy a slice of cake and return it for a refund the next day.

Franchise sales are “returnable”, uniquely amongst the “business” sales because of the nature of their buyers and the selling promises involved. For the rest though, mergers and acquisitions are not returnable. Hence the need for buyers to be diligent in their research and decision making. The owe their shareholders, families, and themselves the duty of due diligence.

Elon Musk, recently declared the richest person in the world, thrilled in the adulation, as he made a lot of noise about what should be done with Twitter, whether he should start something in competition, and finally admitted he had been secretly accumulating Twitter stock.

With the admission, he first accepted, then turned down a seat on board of Twitter. And then, he announced he would make a hostile bid for the whole company. “Oh Elon,” thought the world. So he quickly convinced his bankers to fund the deal, with his own Tesla stock as security. Then everybody took him seriously.

Within days he signed a deal with the board of Twitter and within the agreement, Musk specifically waived his rights to a due diligence on his own accord. But when you sell your business to Elon Musk, you expect that he knows what the hell he is doing.

As described above, this is meaningful. Again, it must be meaningful because certainty in corporate contracting is vitally important and valuable to corporations.

If you sell your business to Elon Musk, go the distance

In the days that followed, Tesla stock took a tumble on world markets, and did not rise to fill the arbitrage gap between what Musk would pay and their actual price, and Ukraine fought back. So in the time-honoured tradition of fake buyers, Musk started throwing red herrings at the deal.

He has now sent several letters of cancellation on various days, for several different reasons. But Twitter will have none of it. Twitter is suing for specific performance: that he carries through with the deal and pays the money which he showed he had at the time the deal was signed.

He has tried to delay the court case into 2023, but the Delaware Chancery Court has declared the trial will start on Monday 17 October 2022, the 42nd week of the year.

A smaller deal which the same judge ruled on, had the same remedy clause of specific performance, and in that she said: “scoring a win for deal-certainty,” as she forced the private equity firm to carry through with its offer to purchase.

This court has discretion to fashion a remedy which is fair or equitable.
She does not have to limit the judgement to a financial finding, but can instead force Musk to carry on with his purchase. If he still refuses, he would do so under penalty of liberty. In other words he could be jailed. 

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