Clown Time is Over
Musical Tribute
A Word About Delaware
Apparently Clown Time Not Over Yet
Rebuttal to Clowns
Case Outcomes
Bloomberg’s has an excellent article on binary outcomes in a court case.
Matt Levine is a Bloomberg Opinion columnist covering finance. He was an editor of Dealbreaker, an investment banker at Goldman Sachs, a mergers and acquisitions lawyer at Wachtell, Lipton, Rosen & Katz, and a clerk for the U.S. Court of Appeals for the 3rd Circuit.
In short, his opinion is well worth reading.
Please consider The Price of Not Buying Twitter by Matt Levine.
Merger agreements are contracts, and in theory a jilted seller could sue a buyer for expectation damages, but in practice merger agreements often limit the availability of damages. In particular, the Twitter merger agreement (Section 8.3(c)) says that Twitter can’t get more than $1 billion of damages from Musk, which is also the amount of the reverse termination fee that Musk has to pay Twitter in certain circumstances.
But, as we discussed on Saturday, Twitter has a better option. It can sue for specific performance, and ask a Delaware judge to order Musk to pay, not $1 billion or $24 billion, but the whole $44 billion to actually close the deal and buy Twitter.
Three Possible Court Outcomes, Two Are Essentially the Same
- Agree with Musk, and let him terminate the deal without paying anything.
- Agree with Twitter that Musk is bound by his contract, and then make him pay $1 billion, the maximum available damages, for breaching the contract.
- Agree with Twitter that Musk is bound by his contract, and then order specific performance, making him pay $44 billion to actually buy Twitter.
For Musk, $1 billion and nothing are essentially the same vs the potential for $44 billion. Levine comes to the same conclusion and also discards option number 1 as it as the least likely outcome.
In essence we have a binary outcome. If neither side is willing to gamble on that outcome, there can be a negotiated settlement over specific performance.
I have seen talks of $20 per share in damages but the sides could agree on anything. Suppose Twitter agrees to $5 billion in damages. Would shareholders be happy?
Obstacles to Negotiated Settlement
Elon Musk is rich, weird and stubborn, and might not settle even when it’s in his best interests. Twitter’s directors are in an awkward spot: They are under a ton of scrutiny, they have a good legal case, and they will probably be sued by disgruntled shareholders if they settle for anything less than specific performance at $54.20 per share, even if doing so is in shareholders’ best interests.
Banker Complications
- In general, investment bankers would prefer that the deals they work on close. Twitter’s bankers — mainly Goldman Sachs Group Inc. and JPMorgan Chase & Co. — will get paid a lot of money if Musk buys Twitter; they will get paid less if he doesn’t.
- Musk’s bankers — a group led by Morgan Stanley — have a more complicated set of incentives. If the deal closes, they will get big fees for advising on the merger, and bigger fees for lining up Musk’s $13 billion debt financing. But that debt financing is committed; the banks are on the hook to put up the $13 billion themselves, even if they can’t find any other buyers for the debt.
Due Diligence
What About the Bots?
https://twitter.com/d_mccar/status/1546155529621454848
Curiously, More Bots are Good
https://twitter.com/d_mccar/status/1546155532549079040
More Bots are Good Part II
https://twitter.com/d_mccar/status/1546157805413048321
“What is most ridiculous to me, and is the main point of this thread, is this silly conception that more bots *definitely* means the business is a fraud, and should tank $TWTR’s fair valuation. Think about it for just a minute and you realize that this makes no sense.“
Questions Abound
If this is settled in court in a binary fashion, Musk appears to be in a very poor position.
Not only did Musk waive due diligence, but Daniel McCarthy, Marketing Prof @EmoryUniversity and Stats PhD @Wharton makes a strong case that Musk’s concern over Bots makes little sense.
Would Twitter management pass up a chance to get $5 to $10 billion in cash if Musk offered that much?
Does a corporation really want to force a sale to a buyer who does not want the company?
Does the current board just want to walk away, damn the company?
Back in the Real World
Meanwhile, back in the real world, here’s Why I Expect a Minimal Rise in Unemployment This Recession
This post originated at MishTalk.Com.
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Mish
“What is most ridiculous to me, and is the main point of this thread, is this silly conception that more bots *definitely* means the business is a fraud, and should tank $TWTR’s fair valuation. Think about it for just a minute and you realize that this makes no sense.“
Fraud in public filings by Twitter on prevalence of bots voids contract despite waiver of due diligence?Several months ago tweeted a comment questioning why postal service should compete, with government subsidies, against UPS, FedEx, DHl, etc. in delivery of packages. Fairly tame. In response, viciously attacked for many days by hundred of attacking accounts all spouting, in essence, same narrative. Assume post office or postal union has attack bots. Try it yourself. Accounts or active accounts? No effort by Twitter to control and probably supports their political leanings.