So he was a troll after all.
Look, I was ready to believe I was wrong after the merger deal. Maybe Elon Musk was serious about changing! Maybe he really wanted to own a social network that was also managed! Maybe Musk was really looking forward to giving himself some ulcers over content moderation issues! People have done weirder bullshit for power, and I think we can all agree that Elon Musk is deeply interested in power. Otherwise, why would he be busy testing how well Americans enforce their laws?
A quick recap: Musk is trying to make a run on the Twitter acquisition, and Twitter isn’t having it. Twitter has been advocating in the crudest way possible: with the firm that came with the poison pill. That company then filed a lawsuit against Musk in an attempt to force the merger to go through.
When the Twitter complaint was filed, I got the impression on first reading that someone really had fun putting it up, not least because the screenshot of the poo tweet from Musk was included:
I like a good trial. Can Twitter win? “He signed a contract, he says what he says,” says Tom Redburn, president of securities litigation at Lowenstein Sandler, after finishing laughing at my exasperation. Because Musk waived due diligence — that’s the thing to do when researching the company you’re acquiring before agreeing to an acquisition — his ability to walk away from the deal is limited. “It’s a tough position for a buyer,” Redburn says.
In fact, Delaware’s chancery court, which is widely used by corporations, tends to be fairly insensitive to buyer’s remorse, Redburn says. There is a high profile case where a buyer managed to walk away from a transaction – and it was due to fraud. In 2018, medical group Fresenius, best known for its US dialysis service, failed to buy drugmaker Akorn because Akorn was hiding a whole host of business issues. “Fresenius was able to prove that Akorn was fabricating his data,” Redburn says. This would have put a stop to a merger!
That’s a little different than a half-made claim that Twitter’s accounting for inauthentic activity is bogus. Musk’s transparent bad faith rationale for pulling out of the deal with Twitter is that there are too many spambots, and the company won’t give him the data he needs to determine exactly how many there are. Pathetic. Even if that’s true — and I have no reason to believe it — Musk’s team has yet to demonstrate that it matters in some material way to the company.
“If you strip out the antics, it’s not an atypical type of trial,” Redburn says. “We’ve seen a fair amount of that over the last few years.” During the pandemic, for example, private equity firm Kohlberg & Company tried to squeeze out of a $550 million deal to buy a cake decorating company called DecoPac. Presiding judge Kathaleen McCormick ruled against Kohlberg, who became the proud (?) owner of DecoPac in May 2021. McCormick is now the Chancellor, who is what Delaware calls the poshest chancery court judge.
Now, I don’t know if the Twitter case will necessarily go to trial. It seems possible that Twitter is ready to settle, perhaps demanding a payment higher than the billion dollars specified in Musk’s contract if the transaction does not go through. Guess twitter could renegotiate the deal cheaply but if i was the board of directors of twitter i definitely wouldn’t because y’all are still in a deal with elon musk and that shit is for suction cups. Although I suppose there is empirical evidence at this point that the composition of the board of directors is exclusively made up of suckers.
But the mechanism for these results is the lawsuit filed by Twitter – he must remain committed to being bought by Musk in order to get any consolation prizes. So the next fun part will be discovery. All it takes is an email or text in which Musk admits he’s not serious about the deal to destroy his entire position. And because of Musk’s lack of impulse control, it seems to me possible that someone pushed him to say it.
So what are Musk’s chances? The Hindenburg Research-rated short sellers — you might remember them as those alleging fraud at electric car companies Nikola and Lordstown Motors, prompting SEC investigations — spent a long time on Twitter, effectively bypassing Musk. More, Bloomberg’s Matt Levine, a real lawyer, has combed through the details of the lawsuit, and I won’t do any better. What interests me, though, is a very boring conversation I’ve had with people over the past few weeks: What dumb stupidity caused Twitter’s board to take Musk seriously in the first place?
Every time I asked this question I got some kind of gibberish about fiduciary duty. Basically, the idea is that maximizing shareholder value means that Musk’s obviously unserious offer should be taken seriously because, damn it, it would be a lot of money for shareholders if it were real.
But that’s exactly what I mean!!!!!! Elon Musk says he will do a lot and does about a quarter – maybe less – and usually not on time. If you’re being courted for a takeover by someone with a history of poor impulse control, violating launch agreements and licenses, ignoring regulators (remember “I don’t respect the SEC”?), and bluffing that he will take his private companyyour standard common-sense fiduciary duty is to tell him to get lost. Wait to see if he’ll make that offer he’s been threatening or if he’ll lose interest because something else new and brilliant comes along. I mean, this guy fathered 10 known children with how many women? That doesn’t exactly suggest a knack for engagement or, frankly, a great attention span.
Man, the more I think about it, the angrier I get at the stupid little lectures on fiduciary duty. Anyone who followed Musk knows about his attempt to build a media company, not think about how to monetize it, then shut it down immediately because, I guess, he was bored? I’m talking about the ephemeral Thud, which looked a bit like MSCHF but without a business model. Musk made it up because he didn’t buy onion when it was for sale; Thud folded before he ever had a chance to do anything exciting.
So what’s the real thing Twitter’s board should have done?
Well, obviously they need to consult their financial and legal advisors. Table Most likely should have heard Musk. But one thing the council can then do is say “no ❤️” and go about their business!
Like yes, of course, maximizing value is very important to shareholders, but let’s look at how Twitter’s board chose to do something dumb:
- Layoffs of key personnel
- Rude tweets from Musk about Twitter employees, prompting harassment from his flying monkeys
- Discontinuation of long-term product development
- Distract employees and make the company a more unpleasant place to work
- Expensive litigation
It’s not what I would call maximizing shareholder value; he steers the company into the ground, screwing shareholders in the process. Do you know what would have probably maximized shareholder value and also been very satisfying? Tell Elon Musk to fuck stopped.
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