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Matt Levine

Does Elon Musk Know How Mergers Work?

Also fake ESG shareholders and a DWAC extension.

I think that the simplest explanation might be that Elon Musk does not know what a merger agreement is. It is not uncommon, in the world, for two companies to get together and discuss one buying the other. And sometimes these talks will go well and they will get together and sign some sort of document — a “memorandum of understanding,” perhaps — that says, basically, “now we are going to talk really seriously about me buying you.” Sometimes they will have a price lined up when they sign this document, say $54.20, and that price will be written into the document, and the expectation will be that eventually the buyer will pay $54.20 to buy the seller. But things can go wrong. There will be continuing due diligence, where the buyer examines the seller’s business, and the buyer might change its mind. Facts might come to light in due diligence that could make the buyer walk away or want to revise the price downward. The market might crash, making the seller less valuable or making it harder for the buyer to get financing. The MOU is an agreement to talk more seriously; it reflects a general mutual desire to come to a deal at $54.20, but it is not binding. Nobody is committed to a deal at $54.20. Nothing is certain until the final deal is signed.

That, again, is a description of a thing that can happen in the world; some business acquisitions do go through a process like that. But it is not a description of US public-company merger agreements. In normal US public-company mergers, you don’t sign a memorandum saying “we’re going to negotiate seriously about buying you.”  You negotiate seriously, and then you sign a merger agreement saying “we agree to buy you for $54.20.” And then if the buyer changes its mind, it still has to pay $54.20. And if the market crashes, the buyer still has to pay $54.20. The deal is the deal; once it is signed, the merger agreement is binding and definitive.