Look, I was willing to believe I’d called it wrong after the merger agreement went through. Maybe Elon Musk was serious for a change! Maybe he really did want to own an also-ran social network! Maybe Musk was really looking forward to giving himself ulcers dealing with content moderation issues! People have done weirder shit for power, and I think we can all agree that Elon Musk is deeply interested in power. Why else would he be busy testing how well Americans enforce their laws?
A quick recap: Musk is attempting to do a runner on the Twitter acquisition, and Twitter isn’t having it. Twitter lawyered up in the rudest possible fashion: with the firm that came up with the poison pill. That firm then filed a lawsuit against Musk to try to force the merger to go through.
When the Twitter complaint dropped, my impression, on the first read, was that someone really had a lot of fun putting it together, not least because the screenshot of Musk’s poop tweet got included:
I love a good lawsuit. Can Twitter win? “He signed a contract, it says what it says,” says Tom Redburn, the chair of securities litigation at Lowenstein Sandler, after he finishes laughing at my exasperation. Because Musk waived due diligence — that’s the thing when you do some research on the company you’re acquiring before you agree to an acquisition — his ability to walk away from the deal is constrained. “That’s a tough position for a buyer to be in,” Redburn says.
In fact, Delaware’s Chancery Court, which is widely used by businesses, tends to be fairly unsympathetic to buyer’s remorse, Redburn says. There’s one high-profile case where a buyer successfully got out of a transaction — and it was because of fraud. In 2018, medical group Fresenius, best known for its US dialysis service, successfully did not buy drugmaker Akorn because Akorn hid a whole bunch of business problems. “Fresenius was able to prove Akorn was making up its data,” Redburn says. That would put something of a damper on a merger!
This is kind of different from a half-baked assertion that Twitter’s accounting for inauthentic activity is wrong. Musk’s transparently bad-faith rationale for getting 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 is true — and I have no reason to believe it is — Musk’s team still has to demonstrate that it matters in some material way to the business.
Twitter has to remain committed to the bit of being purchased by Musk to get any kind of consolation prize
“If you take the antics out of it, this is not an atypical kind of lawsuit,” Redburn says. “We’ve seen a fair amount of this over the last few years.” During the pandemic, for instance, private equity firm Kohlberg & Company tried to weasel its way out of a $550 million agreement to buy a cake decoration company called DecoPac. The presiding judge, Kathaleen McCormick, decided against Kohlberg, which became the proud(?) owner of DecoPac in May 2021. McCormick is now the chancellor, which is what Delaware calls the fanciest judge in chancery court.
Now, I don’t know that the Twitter case is necessarily going to go to trial. It seems possible Twitter is willing to settle, perhaps by demanding a higher payout than the $1 billion specified in the contract from Musk if the transaction didn’t go through. I suppose Twitter could renegotiate the transaction at a lower cost, but if I were Twitter’s board, I certainly would not do that because then you’re still in an agreement with Elon Musk, and that shit is for suckers. Though I suppose there’s empirical evidence at this point that the board composition is exclusively suckers.
But the mechanism for those outcomes is the lawsuit Twitter filed — it has to remain committed to the bit of being purchased by Musk in order to get any kind of consolation prize. So the next fun part will be discovery. All it takes is one email or text where Musk admits he’s not serious about the deal to nuke his entire position. And because of Musk’s lack of impulse control, it strikes me as possible that someone goaded him into saying so.
The more I think about it, the angrier I get about the dumb little lectures about fiduciary duty
So what are Musk’s chances? Noted short sellers Hindenburg Research — you may remember them as the ones alleging fraud at electric car companies Nikola and Lordstown Motors, resulting in SEC investigations — have gone long on Twitter, effectively shorting Musk. Plus, Bloomberg’s Matt Levine, an actual lawyer, has combed through the specifics of the suit, and I’m not going to do a better job. What I am interested in, however, is a very annoying conversation I have had with people over the last several weeks: what dumbfuck nonsense made Twitter’s board take Musk seriously in the first place?
Whenever I have asked this question, I have gotten some manner of gibberish about fiduciary duty. Basically the idea is that maximizing shareholder value means that Musk’s obviously unserious offer must be taken seriously because, gee whiz, it would be a lot of money for shareholders if it were real.
But that is exactly what I mean!!!!!! Elon Musk famously says he’ll do a lot of things and does about a quarter of them — maybe less — and usually not on time. If you are being wooed for a buyout by someone with a history of poor impulse control, violating agreements and launch licenses, ignoring regulators (remember “I do not respect the SEC”?), and bluffing that he’ll take his company private, your standard commonsense fiduciary duty is to tell him to get lost. Wait and see if he’ll do that tender offer he was threatening or if he’ll lose interest because something else new and shiny comes along. I mean, this guy sired 10 known kids with how many women? This doesn’t exactly suggest a knack for commitment or, frankly, much of an attention span.
Man, the more I think about it, the angrier I get about the dumb little lectures about fiduciary duty. Anyone who’s followed Musk knows about his attempt at starting a media company, not thinking about how to monetize, and then immediately shutting it down because, I guess, it bored him? I’m referring to the short-lived Thud, which was kind of like MSCHF but without a business model. Musk came up with it because he didn’t buy The Onion when it was for sale; Thud folded before it ever had a chance to do anything exciting.
So what’s the real thing Twitter’s board should have done?
Well, obviously they have to consult with their financial and legal advisors. The board probably should have heard Musk out. But one thing that board can then do is say “no ❤️” and go about its business!
Like yes, sure, maximizing value is very important for shareholders, but let’s look at how the dumbfuck nonsense Twitter’s board chose to do is working out:
- Firings of key personnel
- Rude tweets by Musk about Twitter employees, prompting harassment from his flying monkeys
- Stopping long-term product development
- Distracting employees and making the company a more unpleasant place to work
- Expensive litigation
This is not what I would call maximizing shareholder value; it is running the business into the ground, screwing the shareholders in the process. Do you know what probably would have actually maximized shareholder value and also been very satisfying? Telling Elon Musk to fuck off.