How did Musk and Twitter achieve a win-win situation?

Tesla CEO Elon Musk's planned $44 billion acquisition of Twitter has almost turned into a farce, and the two sides are about to go to court in Delaware. Now that both sides are locked in a legal battle, can they find a win-win solution?

In recent days, Musk revealed that he sold another $7 billion worth of Tesla stock in case a court forced him to complete the deal to buy Twitter. It could be better for both Musk and Twitter shareholders if the Twitter board can reach a settlement with the capricious billionaire and sell it to a third party for a lower price.

Musk and Twitter will go to court in October over whether the acquisition will go through. However, it is clearly not in either party's interest to go through a legal battle. Instead, Musk could pay a hefty "breakup fee" to get out.

While Musk may be reluctant to pay cash, he still owns nearly 10% of Twitter, which could make up some of his losses. For example, if Musk paid a $5 billion "breakup fee" and Twitter paid it to shareholders as a special dividend, roughly equivalent to $6.50 per share, Musk would receive $475 million of that.

It also helps ease the pain for the rest of the shareholders. Musk made a $54.2 per share offer in April, and paying a hefty “breakup fee” would make it easier for Twitter’s board to accept a new offer of just under $48 per share. Granted, that's 50% above the fair value of $32 per share, but it's also less than a tenth above the stock's current trading price.

In addition, Musk has raised $7 billion from equity partners including Sequoia Capital and Oracle founder Larry Ellison, who may be open to the chance of a cheaper deal.

Meanwhile, assuming Musk bought Twitter shares in late March, executing the new deal at $48 a share would save him around $560 million.

So, even if Musk pays $5 billion in "break-up fees," he'll actually only have to pay $4 billion. But he has previously said he would buy Tesla stock again if the cash from selling Tesla shares is not used to complete the deal. His Tesla holdings have fallen by more than a quarter since early April, so it could represent a huge investment opportunity for him.

It would also be better for Twitter to sell it to a more willing third-party buyer than to renegotiate the deal with Musk, who has continually dragged Twitter's business model into the mud. Twitter investors may still be able to dump Musk and win.