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Musk misconduct allegation won’t stop Twitter deal, experts say

The news website Insider reported that SpaceX paid a flight attendant $250,000 in severance after she claimed Musk sexually harassed her while she was working.
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A report that tech billionaire Elon Musk paid a private settlement following claims of sexual misconduct from a flight attendant who worked on a private jet in 2016 is unlikely to affect Musk’s deal to buy Twitter, experts in corporate acquisitions said Friday, after Musk’s critics called for him to face consequences. 

The news website Insider reported Thursday that SpaceX had paid a flight attendant $250,000 in severance after she claimed Musk sexually harassed her while she was working. The website, citing documents it says it obtained from a friend of the flight attendant, reported that the payout was contingent on the accuser not bringing future legal action. 

NBC News has not confirmed the veracity of Insider’s reporting. SpaceX representatives did not immediately respond to a request for comment. 

Musk denied the accusation in a series of posts on Twitter Thursday evening and Friday morning, calling it “utterly untrue” and saying “it never happened.” He said the Insider report was a “hit piece” designed “to interfere with the Twitter acquisition.” 

Musk and Twitter’s board of directors struck a deal last month to take the company private in a deal valued at $44 billion, with Musk as the majority owner. Musk, the world’s wealthiest person according to Bloomberg News, said he wanted to buy Twitter to ensure it remains committed to free speech, and he proposed loosening its rules to leave up all tweets as long as they don’t break local laws. 

There aren’t many examples of misconduct allegations in other high-profile corporate deals, but it’s clear that the reported accusation against Musk is unlikely to change the mind of anyone involved in the planned takeover of Twitter, professors at law and business schools said. 

David Yoffie, a professor at Harvard Business School who teaches a course on strategy and technology, said he believed the allegation would have “little or no effect” on Musk’s attempt to purchase Twitter. 

“Twitter’s board is highly unlikely to change its position, Musk’s equity backers are largely friends who are unlikely to back out, and it is unlikely to affect lenders,” Yoffie said. 

The Twitter deal isn’t final and is expected to be completed later this year, pending shareholder approval, financing and other hurdles. Musk and Twitter announced the deal on April 25. 

It is theoretically possible but very unlikely that the allegation against Musk could cause Twitter shareholders to reject the acquisition in their upcoming vote, said Ann Lipton, a business law professor and dean at Tulane University. 

Musk has agreed to pay $54.20 a share, or 42 percent more than what Twitter shares were selling for on Friday. 

“If the shareholders decide, ‘I’d like my $54.20, but I don’t want to give my precious baby over to Elon Musk,’ then they can vote the deal down, but that would be a striking change from investor behavior historically,” Lipton said. 

Shareholders almost never derail mergers and acquisitions. One review of 1,620 deals between 1996 and 2017 found that shareholders rejected them in formal votes only five times, or in 0.3 percent of cases. 

Twitter’s stock closed at $38.29 a share Friday, up 2.7 percent. The S&P 500 was flat. 

Lipton agreed that the Twitter board was unlikely to walk away from the deal. She said that under state law in Delaware, where Twitter is incorporated, the board has a duty to maximize shareholder wealth and it could face a shareholder lawsuit if it considers anything but the price Musk is willing to pay. 

Twitter did not immediately respond to a request for comment. 

There have been cases where allegations of executive misconduct caused a deal to fall apart. 

In 2002, after prosecutors accused Tyco International executives including former CEO Dennis Kozlowski of using $170 million in company money to throw parties and buy expensive items including a $6,000 shower curtain, two other companies that Tyco was seeking to acquire walked away, said Morgan Ricks, a law professor at Vanderbilt University who studies mergers. 

But there was a difference in how those deals were structured versus the Twitter deal: Tyco was buying the target companies not with cash but with shares in Tyco stock, and those shares became toxic when the scandal broke, he said. 

“The target companies didn’t want the stock anymore,” Ricks said. But now, Twitter shareholders are supposed to get the same cash regardless. “$54.20 is $54.20,” he said. 

In another case, Microsoft began exploring a purchase of game publisher Activision Blizzard last year after negative coverage of Activision’s CEO dented the share price of the target company, making it a less expensive deal. 

Experts said that Musk’s lenders and co-investors are unlikely to back off the deal, because unless there are more allegations or reports of payouts, the report likely won’t factor into their estimation of Musk’s ability to turn a profit at Twitter. 

“It’s not like we don’t know the dude’s history,” said Lipton, citing allegations of sexual harassment at SpaceX and Tesla, two companies where Musk is CEO. The accusation by the flight attendant is the only one against Musk personally.

“I can imagine a world where equity investors and lenders will be hesitant to loan money to someone who’s the subject of sexual harassment allegations, but that’s clearly not this world,” Lipton said. “I don’t know that this additional allegation is going to be the straw where Morgan Stanley says, ‘Oh, no, we’ve been wrong all along.’” 

Morgan Stanley has agreed to lend $2 billion to the Twitter deal, more than any other bank, the Financial Times reported this month. The bank did not immediately respond to a request for comment Friday. 

The Twitter deal has already been a roller coaster for investors and Twitter users. The broader stock market plummeted in recent weeks, making the deal less financially attractive for Musk. He has since said the deal is temporarily on hold and complained about Twitter’s handling of spam bots, while Twitter executives have said it is not on hold

“The banks backing out would probably be what Musk wants — and what Twitter does not want — at these valuations,” Ricks said.