Musk and Twitter reached an agreement last month to pay a so-called “reverse breakup fee” of $1 billion if he fails to close the deal. That “breakup fee” wasn’t enough to get Musk to walk out of the deal without consequence, though. The “reverse break-up fee” paid by the buyer to the acquisition target applies to external reasons why the transaction cannot be completed, such as regulatory mediation or third-party financing concerns. In the event of fraud, the buyer can also walk away, provided that the discovery of incorrect information would have a so-called “material adverse effect.” A drop in the stock market, such as the current sell-off that has cost Twitter more than $9 billion in market value, would not be a valid reason for Musk to walk away from an acquisition, with or without a breakup fee, according to a senior mergers and acquisitions lawyer familiar with the deal.
The lawyer said that if Musk walked away from the acquisition simply because he felt he had overpaid, Twitter could sue him for billions of dollars in damages and an additional $1 billion in breakup fees. This has happened before, such as Tiffany suing French luxury goods group Louis Vuitton in 2020 over an attempt by the latter to back out of a deal struck between the two parties. The lawsuit was settled after Tiffany agreed to lower the sale price from $16.2 billion to around $15.8 billion.
