If the $44 billion deal between Elon Musk and Twitter falls apart, either side may have to pay the other $1 billion, according to a securities filing on Tuesday.
The world’s richest man struck a deal on Monday to buy the social media company for $54.20 a share. Mr. Musk, who also leads the electric carmaker Tesla and the rocket maker SpaceX, has said he plans to take Twitter private and that he wants to improve the product and promote free speech on the platform.
The deal is not set to close for another three to six months, Twitter told its employees on Monday. According to Tuesday’s filing, Twitter would have to pay Mr. Musk in certain circumstances if the deal goes awry. That would include if the social media company signed a deal with another suitor whose offer it deemed superior. Mr. Musk, for his part, would have to pay if his financing for the deal falls apart.
Twitter declined to comment. Mr. Musk did not immediately respond to a request for comment.
Mr. Musk’s financing has played a key role in the deal’s intrigue. He initially did not appear to have any funding lined up for his bid. But last week, he revealed in a filing that he had commitments for loans from various banks. Mr. Musk is paying with $13 billion in bank loans, plus another $12.5 billion in loans against his stock in Tesla. He has pledged another $21 billion in cash, though he has not outlined the source of that money.
Requiring a buyer to agree to a fee if financing falls apart is not atypical, lawyers said. The fee Mr. Musk is on the hook for — roughly 2.5 percent of the deal — is on par with other acquisitions.
“It’s actually a pretty plain vanilla merger agreement,” said Steven Davidoff Solomon, a professor at the School of Law at the University of California, Berkeley.
The filing also said that if a deal does not close by Oct. 24, both sides could walk away. Should the transaction still be awaiting regulatory approval at that time, Mr. Musk and Twitter would have another six months to close it.
U.S. regulators may examine Mr. Musk’s purchase of Twitter but are unlikely to sue to block it, since it is not an example of a company buying a competitor, former antitrust officials have said.
European officials said on Tuesday that Twitter under Mr. Musk’s ownership would have to abide by its new Digital Services Act. The landmark law, which is likely to take effect by next year, requires social media companies to police their platforms more aggressively to fight misinformation and restrict certain online ads.
Mike Isaac contributed reporting.