Breakingviews: Twitter investors may yet boot Elon Musk and win

Elon Musk is hedging his Twitter court case bets. On Tuesday he revealed he sold another $7 billion of Tesla shares in the “hopefully unlikely” event that he has to close the $44 billion agreed deal for the social network that he decided to walk away from last month. Better for Twitter shareholders – including Musk – if the board settled with its flaky, unwilling buyer and sold to someone else for less.

The two sides go to court in October to battle over the minutia of the merger document. It’s in neither party’s interest, though, to undergo a legal battle.

Instead, Musk could pay up to back out. Though he may loath handing over the cash, he would in part be paying himself, as he still owns almost 10% of the company. A $5 billion payout, say, equates to roughly $6.50 a share, or $475 million in Musk’s pocket, if the company were to distribute it as a special dividend.

That helps ease the pain for the remaining shareholders, too. Musk offered $54.20 a share back in April, so the break fee would allow Twitter’s board to accept a new bid for just under $48 a share and not lose. Granted, that’s 50% higher than the $32 a share that is fair value. But it’s also less than a tenth higher than where the stock currently trades. Moreover, Musk lined up $7 billion from equity partners including Sequoia Capital and Larry Ellison. They might jump at the chance for a cheaper deal.

There are other goodies in it for Musk. Assuming he bought his Twitter stake in late March, a new deal at $48 a share would ink another $560 million or so in gains. He’d still be out $4 billion to Twitter. But Musk has said if he doesn’t use the cash from his Tesla share sales to close the deal, he’d scoop up his carmaker’s stock again. That has fallen more than a quarter since the start of April so could represent an investment opportunity for him.

Selling to a willing buyer is also a better outcome than renegotiating a deal with Musk, who keeps dragging Twitter’s business model through the mud. Its investors may yet be able to ditch Musk and win.