So it was a troll after all.
See, I was willing to believe I called it wrong after the merger deal went through. Maybe Elon Musk was serious for a change! Maybe he really wanted to own his own social network! Maybe Musk was really looking forward to ulcerating himself with content moderation problems! People have done stranger things for power, and I think we can all agree that Elon Musk is very interested in power. Why else would he be busy testing how well Americans enforce their laws?
A quick recap: Musk is trying to chase the Twitter takeover, and Twitter won’t let him. Twitter hooked up with an attorney in the rudest of ways: with the company that invented the poison pill. That company then filed a lawsuit against Musk to try to force the merger.
When the Twitter complaint dropped, my first reading impression was that someone was really having fun putting it together, not least because it included the screenshot of Musk’s poop tweet:
Only to guess whoever formatted this document was giggling darkly the whole time.
I love a good lawsuit. Can Twitter win? “He signed a contract, he says what he says,” says Tom Redburn, Lowenstein Sandler’s securities litigation chair, after laughing at my exasperation. Because Musk foregoes due diligence — that’s the thing, doing some research on 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,” says Redburn.
In fact, the corporate-wide Chancery Court in Delaware tends to be quite unsympathetic to buyer remorse, Redburn says. There’s a high-profile case where a buyer successfully exited a transaction — and it was due to fraud. In 2018, medical group Fresenius, best known for its US dialysis service, successfully failed to buy drugmaker Akorn because Akorn hid a number of business issues. “Fresenius was able to prove that Akorn invented his data,” says Redburn. That would put a damper on a fusion!
That’s a little different from a half-baked claim that Twitter’s accounting for spurious activity is wrong. Musk’s obviously malicious reason for exiting 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 still needs to prove it matters to the company in any way.
Twitter has to commit to the part of being bought by Musk to get any consolation prize
“If you take the antics out of it, it’s not an atypical type of lawsuit,” says Redburn. “We’ve seen a lot of that over the last few years.” During the pandemic, for example, private equity firm Kohlberg & Company was trying to wriggle out of a $550 million agreement to buy a cake decorating company called DecoPac. Presiding Judge Kathaleen McCormick ruled against Kohlberg, which became the proud (?) owner of DecoPac in May 2021. McCormick is now the chancellor, what Delaware calls the smartest chancery judge.
Well, I don’t know if the Twitter case will necessarily go to court. It seems possible that Twitter is willing to come to an agreement, perhaps by demanding a higher payout from Musk than the $1 billion stipulated in the contract if the deal doesn’t go through. I suppose Twitter could renegotiate the transaction at a lower cost, but if I were the CEO of Twitter I certainly wouldn’t do that because then you still have an agreement with Elon Musk and that shit is for suckers. Although I suppose at this point there is empirical evidence that the board composition is all suckers.
But the mechanism for these results is the lawsuit that Twitter has filed — it still has to commit to being bought by Musk in order to receive any kind of consolation prize. So the next fun part will be discovery. All it takes is an email or text message where Musk admits he’s not serious about the deal to wreck his entire position. And given Musk’s lack of impulse control, I think it’s possible that someone pressured him to say so.
The more I think about it, the angrier I get at the silly little lectures on fiduciary duty
So what are Musk’s chances? Noted short sellers Hindenburg Research — you may remember them as the ones who alleged fraud at electric-car makers Nikola and Lordstown Motors, which led to SEC investigations — have long invested on Twitter, effectively shorting Musk. Also, Matt Levine from Bloomberg, a real lawyer, has been combing through the details of the lawsuit and I won’t do better. What interests me, however, is a very annoying conversation I’ve been having with people over the past few weeks: What stupid nonsense made the Twitter board even take Musk seriously?
Whenever I’ve asked that question, I’ve heard some gibberish about fiduciary duty. Basically, the idea is that maximizing shareholder value means taking Musk’s obviously bogus offer seriously, because it would be a lot of cash for shareholders if it were legit.
But that’s exactly what I mean!!!!! Elon Musk famously says he’ll do a lot of things and about a quarter of them – maybe less – and usually not on time. When you’re being solicited for an acquisition by someone with a history of poor impulse control, violating covenants and launch licenses, ignoring regulators (remember “I don’t respect the SEC”?), and bluffing that they will take their company private , your usual common sense fiduciary duty is to tell him to back off. See if he makes the offer he threatened or if he loses interest because something else new and shiny comes along. I mean, this guy fathered 10 known children with how many women? This doesn’t exactly indicate a talent for engagement or, frankly, a great attention span.
Man, the more I think about this, the angrier I get at the stupid little lectures on fiduciary duty. Anyone who’s followed Musk knows his attempt to start a media company, not think about how to monetize it, and then immediately shut it down because I think it bored him? I’m referring to the short-lived Thud, which was something like MSCHF but with no business model. Musk got it because he didn’t buy The Onion when it was on sale; Thud folded before he even had a chance to do anything exciting.
What was the Twitter board supposed to do?
Well, of course they must consult with their financial and legal advisers. The board probably should have listened to Musk. But one thing the board can then do is say “no ❤️” and go about their business!
Like yes, sure, maximizing value is very important to shareholders, but let’s look at how the stupid nonsense voted for by Twitter’s board of directors works:
- layoffs of key people
- Rude tweets from Musk about Twitter employees leading to harassment from his flying monkeys
- Stop long-term product development
- Distract employees and make the company a less pleasant place to work
- Expensive litigation
This is not what I would call maximizing shareholder value; it is driving the business into the abyss and screwing the shareholders in the process. Do you know what would probably have actually maximized shareholder value and also been very satisfying? Elon Musk telling him to fuck off.