Look, I was willing to believe I was wrong after the merger deal was done. Maybe Elon Musk was serious about a change! Maybe he really wanted to have a social network that works too! Maybe Musk was really looking forward to giving himself ulcers over content restriction issues! People have done weirder things 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 trying to make a runner on acquiring Twitter, and Twitter isn’t having it. Twitter lawyered up in the rudest way possible: the company that made the poison pill. That company then filed a lawsuit against Musk to try to force the merger to go through. When the Twitter complaint dropped, my impression, upon first reading, was that someone had a lot of fun putting it together, mostly because the screenshot of Musk’s tweet was included: Just guessing that whoever drafted this document was laughing darkly the whole time. I love a good treat. Can Twitter win? “He signed a contract, it says what it says,” says Tom Redburn, the head of securities litigation at Lowenstein Sandler, after he’s done 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 agreeing to an acquisition — his ability to back out of the deal is limited. “This is a difficult position for a buyer to be in,” says Redburn. In fact, Delaware’s Chancery Court, which is widely used by businesses, tends to be pretty indifferent to buyer’s remorse, Redburn says. There is one high-profile case where a buyer successfully walked out of a transaction — and it was due to fraud. In 2018, medical group Fresenius, known for its dialysis service in the US, did not successfully buy the pharmaceutical company Akorn because Akorn was hiding a whole series of business problems. “Fresenius was able to prove that Akorn was fabricating its data,” says Redburn. That would put something of a damper on a merger! This is somewhat different from a half-hearted claim that Twitter’s calculation of inauthentic activity is wrong. Musk’s apparently bad faith excuse for getting out of the deal with Twitter is that there is too much spam, and the company won’t give him the data he needs to determine exactly how much there is. Regrettable. Even if that’s true — and I have no reason to believe it is — Musk’s team needs to prove that it matters in some material way to the business. Twitter needs to stay committed to Musk’s slice of the market to get any kind of consolation prize “If you take away the shenanigans, this is not an informal kind of lawsuit,” says Redburn. “We’ve seen quite a few things like this in recent years.” During the pandemic, for example, private equity firm Kohlberg & Company tried to exit a $550 million deal to buy a cake decorating company called DecoPac. The presiding judge, Kathaleen McCormick, ruled against Kohlberg, who became the proud(?) owner of DecoPac in May 2021. McCormick is now a chancellor, as Delaware calls the fanciest judge in chancery court. Now, I don’t know that the Twitter case will necessarily go to trial. It seems likely that Twitter is willing to settle, perhaps demanding a higher payout than the $1 billion set out in the contract by Musk, if the transaction doesn’t go through. I guess Twitter could renegotiate the deal at a lower cost, but if I were the board of Twitter, I sure as hell wouldn’t because then you’re still in a deal with Elon Musk and that shit’s for fun. Although I suppose there is empirical evidence at this point that the board composition is all bullshit. But the mechanism for these results is the lawsuit filed by Twitter — it must remain committed to Musk’s share of the market to receive any kind of consolation prize. So the next fun part will be discovery. All it takes is an email or message where Musk admits he’s not serious about the deal to nuke his entire position. And given Musk’s lack of impulse control, it strikes me that someone encouraged him to say it. The more I think about it, the angrier I get about silly little fiduciary duty lectures So what are Musk’s chances? Noted peddlers Hindenburg Research — you may remember them as the ones who allegedly committed fraud at electric car companies Nikola and Lordstown Motors, leading to SEC investigations — have gone too far on Twitter, effectively short-circuiting 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’m interested in, though, is a very annoying conversation I’ve had with people over the past few weeks: what dumbass made the Twitter board take Musk seriously in the first place? Whenever I’ve asked this question, I’ve gotten some kind of nonsense about fiduciary duty. Basically, the idea is that maximizing shareholder value means that Musk’s apparently frivolous offer should be taken seriously because, if true, it would be a lot of money for shareholders. But that’s exactly what I mean!!!!!! Elon Musk famously says he’s going to do a lot of things, and he does about a quarter of them – maybe less – and usually not on time. If you’re being approached for a takeover by someone with a history of poor impulse control, violating deals and licenses, ignoring regulators (remember “I don’t respect the SEC”?), and bluffing that he’s going to take his company private, your standard fiduciary duty is to tell him to get lost. Wait and see if he makes that threatened offer or loses interest because something else new and shiny comes along. I mean, this guy fathered 10 known children with how many women? That doesn’t exactly indicate a capacity for engagement or, frankly, a long attention span. Man, the more I think about it, the angrier I get about the dumb little fiduciary duty lectures. Anyone who has followed Musk knows about his attempt to start a media company, without thinking about how to monetize it, and then promptly shut it down because, I guess, he got bored? I’m referring to the short-lived Thud, which was kind of like MSCHF but without a business model. Musk thought this because he didn’t buy The Onion when it was for sale. Thud folded before he had a chance to do anything exciting. So what’s the real thing Twitter’s board should have done? Well, they should obviously consult their financial and legal advisors. The board should probably listen to Musk. But one thing the board can do is say “no ❤️” and get on with the job! Like yes, sure, maximizing value is very important to shareholders, but let’s see how it processes the stupid nonsense Twitter’s board chose to do:
Redundancies of key personnel Musk’s rude tweets about Twitter employees, prompting harassment from his flying monkeys Cessation of long-term product development Distracting employees and making the company a more unpleasant place to work Exact litigation
This is not what I would call maximizing shareholder value. he’s running the business into the ground, screwing over shareholders in the process. You know what would probably maximize shareholder value and also be very rewarding? We tell Elon Musk to run away.
