Oh, the humanity! Somehow, we all managed to survive Twitter's (TWTR) global outage this morning. Seriously, I deactivated my account long ago, but can Elon deactivate his bid to take over the company? It is difficult to see how such a smart guy could find himself in such a dumb situation. It is truly a fine mess.
After my well-deserved victory lap Real Money article on Monday - remember TWTR was trading above $50/share after Elon's bid was announced in late April - I am forced to look ahead.
Can Elon be forced to close this transaction? Or will he, as one Fin TV's nitwits suggested earlier this week, be sent to jail if he doesn't? No on the second question, as the Delaware Chancery Court is a civil not a criminal body, but the first one is more gray.
I read the 62-page document filed by Wachtell Lipton on behalf of Twitter. While it would be trite to say it is rife with legalese and incomprehensible jargon, the fact is... it is not. It is actually written in simple English, and has a folksy tone that almost sounds like it was written by... me! No rock n' roll references, though.
But why would a white-shoe firm like Wachtell file such a document? Don't lawyers talk to other lawyers (and judges, who, by definition, are lawyers) in legalese? Yep. But as I was reading the document, I realized it was intended not for the Chancellors, but for Elon.
Bit-by-bit, piece-by-piece, Wachtell's attorneys were trying to convince Elon that he was hopelessly outgunned. So, Elon should just say "damn the recession (which we are in, not approaching, as he noted in his famous "super bad" tweet) I still want to pay 8.5x trailing revenues for a faux-tech company with no visible IP, no moat, and a history of paying large fines (including as recently as October, 2021) to settle SEC litigation."
Who wouldn't want that?
Anyone who possesses a modicum of common sense. This excludes every person I have ever met (including the one I am related to and am in year four of litigation with) who works at Morgan Stanley (MS) , Musk's advisors on his TWTR bid. Those ethically-challenged drones are now holders of greatly devalued stock, as MS crashes this morning after its brutal earnings miss.
But will this deal get done in October at $54.20 as some non-lawyers have posited (pushing up TWTR stock in the process) this week? No. There is a six-month extension window that is comprehended in the merger agreement, and I am guessing Elon's lawyers are smart enough to figure out how to execute that.
But, even if he buys six more months, would Elon have to buy this thing by April 2023? That's where this gets sticky. Tesla (TSLA) - which has been consistently and unscientifically represented by Morgan Stanley, which has also participated in every major Tesla financing in the past five years - is still valued at over $700 billion. Making a short call when it was $1.2 trillion still feels pretty damn good (you're welcome), but Musk's 16% of that $700 billion gives him $112 billion worth of TSLA stock.
Also, we have no idea what he did with the proceeds from the TSLA shares he recently liquidated. Plus his 73mn share stake in Twitter is still worth about $250 million even after that stock's plummet.
Elon has too much money to cry poverty. That's the real problem here. If Tesla fell to the level at which it were fairly valued (maybe $200/shr) he would have a poor-house case and could probably get TWTR's Board to accept the $1 billion "walk-away" payment. Especially since Twitter incinerates cash on an operating level and it would take eons for Twitter to actually produce a billion dollars' worth of cash flows.
But, TWTR's Board was willing in April 2022 to sell a stock that was trading at nearly $80/share in February 2021 for only $54.20, so obviously they see Elon as the Golden Goose. Without any competing offers - the TWTR merger agreement does contain a provision for acceptance of a "Superior Offer" to Elon's... unfortunately for him it's been crickets on that front - they must focus on Musk's.
Get ready for months of legal wrangling. I always will describe Twitter as a cesspool of lies, hate speech and selective censorship. That hasn't changed, but it was Elon's focus on another issue - the prevalence of spambot accounts - that really elucidated why Twitter is just not a viable business, hence the lack of alternate bids.
I cannot predict an outcome, but I predict Elon will never again work with Morgan Stanley. Even geniuses occasionally make mistakes. This one is so large and offers up so many complex outcomes - none of which would benefit Elon - that it will be studied by both law and business school students for decades. That kind of notoriety is not appreciated.