Yet Another Value Podcast - Chris DeMuth's state of the markets July 2022

Episode Date: July 28, 2022

Chris DeMuth returns to the podcast to talk about what's on his mind in the markets this month, including updates on TWTR, the state of antitrust, and the opportunity set in squeeze outs.0:00 Intro2:45 Markets Overview4:25 Sanderson Farms (SAFM)8:00 Majority owned companies and squeeze outs10:40 CLR update and energy companies21:55 Energy companies now versus Tobacco in the 80s26:10 TWTR update28:50 Review of the TWTR expedited hearing35:25 Will Twitter win specific performance if they win the trial?40:20 Thoughts on TWTR's complaint and Elon's response46:30 Was Elon's attempt to break the deal now bad strategy?52:45 TWTR wrap up

Today's podcast is brought to you by Delupa. Delupa's database of over 2,500 models contains the most KPI's for each company, along with non-gap adjustments and guidance specific to the business and the quarter. Clients use Delupa's existing data to construct their own models faster and ramp up on new names more readily. Coupled with Delupa's plugin, which automatically updates numbers and formatting within your model, you'll never need to input numbers manually again. All of Delupa's data points are contextual, audible, and accurate. Their AI algorithms allow them to collect the most data on their companies at the greatest speed

and build out their model database at a rapid pace, while their final layer of human analysts ensures total accuracy of their models. You can even update KPIs for multiple different companies in an industry model that allows you a bird's-eye view for better idea generation. Save time with Delupa to do more value-added work. No more data errors, no more Excel monkeying, just the fundamentals, all at your fingertips. all right hello welcome to the yet another value podcast i'm your host andrew walker if you like this podcast it would mean a lot to me if you could follow it rate it review it wherever you're

watching or listening to it with me today i'm happy to have my friend my partner chris demuth chris is the founder of rangley capital we he comes on once a month and we just kind of talk about everything that's going on in the adventure of inland in the markets and everything so chris how's it going good great to be here Great to have you. Let me start this podcast the way I do every podcast. Just a quick disclaimers to remind everyone, nothing on this podcast is investing advice. We're probably going to go through a lot of different names today. We may have positions in some. We may have, we may not have positions in some, but everybody should just remember. We're just two guys who forgot to shave this morning talking about a bunch of different stuff. Please consult a financial advisor. Do your own research. Do your own work. That's the disclaimer. Second, pitch for you, my guest. Don't have to do it today. We do these every month. People can go listen to all the past ones for the pitch for you. But Chris, my partner, founder at Rangley Capital, covers a lot of stuff. And I'm really excited to talk to you today, Chris. We're towards the end of July. Things are starting to slow down in event-driven land a little bit just because people are starting to go in for the summer. So, you know, if the bankers are there, deals can't get done. But there's still lots of interesting talk about. So just want to turn it over to you. What's been on your mind the past month? Well, yeah, I know I think this is the kind of next few weeks, Americans start to sound a little bit like Europeans with all the bankers and the lawyers and the executives all kind of on holiday. And you kind of try to, you can't really in this business be the only one working.

You know, at some point you try to get checks on something and there's not a lot of checks to be had. But yeah, you know, I think that we've talked about this as kind of the golden age of arbitrage. I think that the most golden, golden part kind of happened fast. You know, there were kind of days and then weeks and then things kind of largely corrected, but still, you know, what was great is still good. I think that, yeah, definitive ARP has been a big, a bigger interest of mine than it's been in many years, despite the fact that I think we're going to have very active antitrust, besides the fact that the banks are on the hook for much worse.

deals than they thought they were getting themselves into, so that that's kind of how that's resolved is a big topic. And just kind of thinking about what realistically, if anything, people are going to do in terms of new deals. And I think that's going to be the kind of the slowest, hardest slog for the next little bit here. Just on the antitrust, I had a quick question. So look, I think you've been very since, probably since the Biden administration came in, You've been very specific that the antitrust environment is going to be really bad. And I think the market started to wake up to that when the Biden administration came in, but they obviously underrated it.

And it's been pretty bad. But I did have one question that we, I know you were looking at, but we didn't really talk about it. Sanderson Farms got done maybe four days ago. And that's a really interesting one. I'm happy to give a little bit of color there. But were you surprised that got done? Because for a long time, Sanders and Farms, for those who aren't listening, they make chicken. they were getting by it. They produced chickens. They were going to buy it by somebody else who

produces chicken. A lot of people thought that deal was going to get blocked and ultimately it went through. Were you surprised by that? Did you read anything into it? Is there any readthrough for other deals? There was something else going on there. And I think that that it's hardest is where you have industry case outside of the HSR review and outside of the deal specific stuff. And it was a really a good opportunity or a grubby opportunity for regulators to kind of finagle settlement and issues that are not deal specific. So I think that was not deal specific. I think they didn't have other things around. I think they might have brought a suit. I thought there was actually a suit to bring against that one. So I was, I thought it was reasonably, I thought it was,

I thought it was a close call reasonably likely that they would have done that, especially on the DOJ side. but DOJ and FTC really, the one thing I do kind of agree with them on is shying away from complex behavioral fixes. The record in the last few years of doing something other than clearing or blocking has been just in shambles. They defer fairly heavily to the companies on who buys packages. And the record, I mean, it's just been, I mean, most of these are private. So in a lot of cases, it's not actionable in terms of like shorting them. But they just go bankrupt or fall apart or they lose the market share that was divested almost, almost every time. And so the government's really pulling back from that, which is going to mean more suits.

But a couple of times when you think that's a really weird non-suit. And for me, I'm surprised by, certainly if you compare it to what I would do or my kind of ideal, there's a lot more cases that are brought that I wouldn't bring, the cases that aren't brought that I would bring, but they almost always have something else going on. Quite a few of them are tobacco related where I think, oh, that's, is pricing power? And they simply have something to do with the MSA or other issues where the government has something else going on. I think that was the case of Sanderson. Cool. And Sanderson Farm, just for those who weren't following every tick or something, it's an interesting one because it's a merger. The rough numbers was they were

getting taken out for a little bit over $200 per share. Back in May or April, the stock was trading at, I'll call it 180, because people thought there was a good chance the deal wouldn't go through. So they were pricing, oh, you know, if the downside's 140, the upside's 200, then at 180, you've got like maybe a two-thirds chance the deal goes through or something. But then all a sudden chicken prices went parabolic. So by last month, the stock was trading at 220 with the deal at 200 because people were starting to say, hey, if this deal doesn't go through, the stock is actually worth more than the deal and the stock will go up. So that was the rare case where as recently as two weeks ago, ours were actually hoping the DOJ would bring suit and the deal would fall

through because then the stock would go up. And ours were actually disappointed because the deal closed and it closed below where the stock went out trading because people were still hoping, please DOJ, bring a suit, bring a suit, destroy this deal. I don't know if there are any arbs that are arbitrageeors and chicken farmers. I think there's probably a few, but they could have like lobbed in complaints and like here you know here's an amicus brief and like but get you see if they could because yeah no a recut would have been much higher. I mean if you look at broiler prices I mean you could do you could have done the deal at 250 or something like that yeah yeah what else is on your mind these days um squeeze outs I think that if you look at uh

the slow pace of M&A right now and you look at what's getting done. We have the shell squeeze out that you had written about persuasively. In the past, you could have other similar deals where somebody's already pot committed, where a big player is doing something small. And I think if you have a trickle of new M&A stuff, and like, we don't need new stuff. Like we could put all our capital to work or not put it all to work, but we could be plenty busy on definitive deals at this point. But if we're looking at kind of new deal flow, I think these kind of tuck-in, squeeze-outs are going to be a big part of what we see in the next few months. And just for people who aren't familiar with the term of squeeze-out is,

you know, one company, one publicly traded company often, they own 80% of another publicly traded company. So, well, actually, a squeeze-out would be you own 90% plus and you squeeze them out, you squeeze out the remaining 10% by just saying, hey, this is going private. Here's the price. Boom, done. Thank you, ma'am. Over. What Chris is referring to, majority, but majority owner by the majority owner owns. In Shellex's case, I think they own 63, shell owns 63% of Shellex, which was their MLP, which owned, you know, when I first started writing, I think I've said this before, I didn't quite understand how good Shellex's assets were. Like, I saw some expert calls that were like, hey,

you know, you hear pipelines and you think every pipeline's the same. And it's like, no, Shellex owned the best pipelines in all of America, but Shell offer to buy minorities out. They initially offered no premium. And yesterday, I think the Conflicts Committee actually did a pretty nice job here. Shell made a really big bump. And there are a lot of other ones out there. There are a lot of companies out there that somebody owns 60 or so percent of them. I know last month we talked to, I guess I'll get your updated thoughts.

You know, Harold Hamm with CLR. We talked, CLR was trading six weeks ago for $64 per share, and Harold Ham came out with the letter that said, hey, I don't think Wall Street will let me invest to go drill. Energy prices certainly support drilling. I'll take minorities out. I'll squeeze them out, bummed about whatever you want to call it. I'll take them out $70 per share, and that's kind of still outstanding. But I guess just a little bit over to you. Any updated thoughts on CLR?

Yeah. So it certainly qualifies as a big player in the sense of a multi-billionaire doing something for him is. fairly small. It's almost kind of like a bookkeeping nuisance to have this public stub that he doesn't plan to, he doesn't need the capital from the public markets. And if he can get it at a price he's happy with, but I think he's pretty pulled up on what it's worth. And certainly his communication with his employees, his colleagues, has implied that he thinks he can do this at some price. And And so I think this kind of thing is an interesting opportunity. Now, the backdrop being, I like the asset and I'm excited about energy here.

So it's kind of like I'm pretty happy to, I think I'm pretty happy to own this thing here. I own some and thinks he plans to do the deal, even though he hadn't, it wasn't well-timed off or it wasn't, and there's, you know, the, uh, the, uh, the, the, the, the, skews a little funny because it's not definitive. And I think that's the thing that gets tricky in this environment where you're counting on contracts. But he can do whatever he wants. There's not a financing problem. There's not an antitrust problem. And it wouldn't be a big deal for him. So I think it's the kind of thing that really could get done even in this environment across energy credit, equities, everything else.

I thought it was funny. Like, I don't have a lot of experience or know a lot about Harold Ham, but a lot of people said, hey, this is a man who's like the ultimate pro-cyclical behavior. Like, when energy prices are high, you know, he's always drilling and going all out. And then when energy prices are low, he's always like over leveraged and just like trying to hold it all together. And I just kind of thought it was funny. People said that when he made the offer on, I think he made the offer on June 14th.

And I believe that was also like the actual top. of where every energy price kind of top ticked out. But, you know, I do think since then, like prices, if we were talking a week ago, prices were still high from, if you, a year ago, if you had said where prices were a week ago, people would have been like, all right, Andrew, come on. You're like, you're a little too bullish on energy there. You're being a little bit crazy. A week ago, prices were a lot lower than they were last June, but prices have actually

really ramped up since then. So it's kind of almost back to where it was when he made that initial bid, though it's not quite back there. He really did top ticket in the short term. Oil and gas guys are just denominated in oil and gas and their timing. I've been thinking about this in terms of looking at energy companies that we've looked at and looking at their hedging policies and looking at the timing and how they can be, sometimes they can be worse than almost seems arithmetically possible. It's like insiders on both share buybacks and energy companies on oil and gas hedging. It doesn't matter how expert or how many billions of dollars, like the

timing on these things, like you wish there was some kind of way to make it more index fund like or dollar cost averaging. Like, okay, you need to hedge out these risks. Like, can you at least be average? It seems like average is something that we could all easily aspire to and just fire ourselves on micromanagement timing if we demonstrably suck at it. And these guys demonstrably suck at it. Look, I mean, shame on me a little bit, but, you know, something like bed, bath and beyond, I wrote about it and had a small position. Unfortunately, sold a decent bit into the meme squeeze, but you go look at them. And last year, they're plowing like literally every dollar they can into share buybacks.

And this year, you know, the stock is down 75, 80 percent, and they can't do share bybacks anymore because they're not talking about equity value. Like, they're trying to avoid going into bankruptcy. see. And you're really seeing it with oil and gas guys, with retail guys, like retail guys, last year things were good. And all of them were just buying back shares like crazy with all their cash flows. And now things have slowed down. And a lot of them are like looming into distress. And then oil and gas guys, I'll send you a Wall Street Journal article. I wrote about this a little bit, but somebody sent me a Wall Street Journal article that was done last November that said, hey,

if like if you look at the history of oil and gas guys hedging for any reason other than because the bank lines require them to. All of them are so bad at it. It's almost comical how much money they lose on these take of you hedging and how, again, pro-cyclical they are. I think one of the reforms that I've thought about both in oil and gas and for companies generally because shareholders are generally not as bad at this is to say, hey, every proxy give us a choice. You want to do this tuck in acquisition that's fine, but it's yes, no, or we're stipulating, we're stipulating that we have X number of dollars available for this corporate purpose, would you like us to buy back shares instead?

And that that could be, and then have some kind of rudimentary fairness opinion on the deal and compare it to doing nothing and also compare it to doing the thing we're already doing, which presumably, if it's the same management team, should have had some purpose. And you could in oil and gas, do the same thing, say, hey, do you want exposure to this in dollars or in oil and gas? here we can we have these financial tools but as shareholders you have financial tools as well there's really no reason that they should do them especially if you don't know what they're doing in real time but especially also if they're doing it really badly that if you could at least be

given side by side I think that would hold them a little more accountable and give them a higher standard for pletzing and I've written a few times on the blog about how the share prices of oil and gas and energy companies really perplex me. I'm just looking like the strip. So the strip is like not current energy prices, which are obviously up a lot, but energy prices for 2023, 2023, 2024, 2025. So the future strip since the beginning of year for oil is up like around 20 percent and for that gas is up almost 50 percent. And yeah, a lot of these oil companies are up a good bit. But if you looked at the kind of cash flows implied by the strip, they're up nowhere close to that. And I've been very perplexed by that. And I think one of the

reasons is investors are very hesitant. Investors are looking at these oil and gas teams who are saying, hey, we're really bullish prices. Hey, we're not putting on hedges. Hey, a lot of them are returning cash. That's not fair. But I think investors are maybe rightly looking at them and saying, these guys are just going to burn all the cash on a crazy drilling, bad M&A. Like, let's just discount this cash every which way because we're really worried. I think that's what's going on. But it's been really interesting, really tough to kind of figure it out. I mean, my kind of oil and gas tourism that could get me in trouble is if you look at somebody who looks like, say they're going to have been or you predict that they're going to return in capital, like, you can get some free oil and gas companies net of the money they're going to make in the next few years. And it just seems like it's an amazing opportunity. And I have no thesis that either the commodity price or the equity price is more efficient.

but I, if I had to, if I had to answer that, I would say the commodity, especially the more liquid and more visible commodity prices, like that is, as far as we know the price, so the strip is, that's the market. And then the equity prices, I don't really know what happens. It does seem like that there are some, there's some crowding into the topic of what's supply going to be. Okay, there's a lot of really good reasons to be very cautious on supply. And then a few weeks later, it's like, let's all talk about demand. We could be going into a recession. And that seems to be kind of an all-consuming sort of flail back and forth in the voting machine

era of like what's everybody worried about. And I think on the economic worry side, that's kind of hit, well, I guess. And then maybe there's also kind of fun flow. and this is the one thing that hasn't lost a lot of money this year. And so maybe there's, I mean, I always say I like distressed investments, but I love distressed investors that have a non-distressed investment. And so maybe it's kind of like a milder version of, you know, when you look at a fund that blows up and you look at their 13F for like, oh, what are they going to have to puke at this point?

Like maybe just across, not just with specific fund blowups, but maybe just like paying across the market, there's some liquidity available for funds that are having horrible years from energy the last little bit. But it's just, I don't know, either we're going to get a profit or a lesson out of why it's not as simple as these equities are really cheap, I mean, with lots of cool examples compared to the commodity prices. Yeah, yeah.

You know, just on your cash for the thing, like, I think he's my buddy modest proposal on Twitter who said, hey, one thing, and I've certainly had this beat into my head more than once, like, you can't buy back your way out of a terminal value question, right? Where if the market's putting a, if you're generating a lot of cash flow and the market's putting a seven times multiple on you, like, and you think you're worth 10, you can take advantage of that. But if the market thinks maybe you're not, you don't have a terminal value, you know, I think about a lot of the legacy media companies, the buybacks don't really matter. Like, you need to just prove you've got a sustainable long-term future. And I think a lot of people look at energy companies, say, oh, well, maybe they

don't have, you know, renewables are coming. They're really ramping up. People are trying to eliminate carbon. Maybe they don't have a terminal value. And I kind of look at it. I'm like, yeah, but there's trading so cheaply, like the terminal value doesn't matter. They're going to generate their whole market cap in the next year or 18 months. Like either the strip is right and we get all our cash back or there's something like completely wrong with the strip. This isn't even a terminal value question anymore. Tobacco is a good analogy possibly here for a industry that had just the clearest, most obvious worth nothing, no terminal value, probably in a few years, many decades ago.

I mean, just like, you know, in the 70s or the 80s, like, well, everybody's going to stop smoking, it's going to be worth nothing. And, like, I mean, it's been, I mean, I can't think of a category. kind of over the last century. I think there might be no category of the last century that has a rewarded outside shareholders better. That's a great. The cash is there and like they're still kicking in terms of the value today in 2022, which is I think, I think a huge, like if you just pulled investors and call it the 80s, like what's Altrue? It wasn't what's Philip Morris going to be worth in 2022. I think, I think probably majority would have said zero prospectively. And,

and then you kind of have a trickle of cash. This is like, like, like the, the, the kind of cliche, like, I mean, just kind of the speaking circuit conference, smart guy thing you can say about ESG in the future. I mean, nobody says, you know, this is the future. If you look at oil and gas, engineering, by degree, there's just like, it's just gotten smashed. Like, there's very, very few really smart kids that are like, hey, what are you going to do with your career? Like, oh, I'm going to be an oil gas engineer. Like, I think, I mean, the numbers are just incredibly low. And so I think there's this kind of like cliche theme that's anti-hydrocarbons. And I think it's missing a like several decade gap between now and the most ambitious green energy.

goals, and it reminds me a little bit of tobacco. That's such an interesting comp. I hadn't thought about that before. And the other thing that I love about that comp is tobacco, you know, if you went back, I don't know for sure, but if you went back to the 70s, I think they were really conglomerating where they were taking their cash flows and they were really like buying movies studios and buying things that didn't matter. And then starting the 80s, I think they really slimmed down and they're like, look, we generate

cash flow and all we're going to do, we're going to be tobacco companies and we're just going to focus and basically every dollar we make, we're going to return it to shareholders through dividends and share buybacks. And what strikes me about a lot of the oil companies I've written about this is a lot of them are just coming out and they're saying, hey, every dollar we make, we're going to reinvest enough to make sure our production like kind of stays around flatish, maybe grows a little bit. But we're not going to try and grow like crazy. We're basically going to be, this is the company we are. We're going to stay here. And then every dollar we make, we're going to return it to shareholders. We'll have a dividend program where our dividend is covered at very low energy prices and

everything else, we just keep hammering our share account. And one of the reasons tobacco did so well is that's what they did, right? They stopped all those crazy investments and they just returned to shareholders. And most oil and gas companies I know of are trading at around five times free cash flow that's elevated because energy prices are high right now. But if you're five times free cash flow and you've got a really long tail and you're just returning to all to shareholders, it's pretty tough for it not to work out well. To push the analogy a little bit, one thing that I thought was very funny kind of going back to like the 90s before the settlement with the government that basically made the government a limited partner of the industry

was that they were simultaneously pushing a lot of litigation and subsidies. So the same industry that was told, here's a lot of free stuff, was also told, shut up and stop doing that, or we're going to, like, it was very like superficially adversarial. beneath the surface, it was subsidized. But the superficial adversarialness was incredible barrier to entry. So, like, nobody could compete against the big incumbents. And they were doing things constantly that if it was a private pact, would have been a dead-to-rights antitrust violation, right?

Like, you were, like, if you, like, competitors allowed to come together to basically gut their advertising costs, having all these things, you know, an addictive product that people are going to use anyways, they got their... tossed cut down to the bone with rules and regulations the government insisted on. And then the government came in and said, hey, we'll settle for all of the liability, but we'll become partners. And so I think there's a lot of analogies today in oil and gas where you have the kind of superficial adversarialness with the state where the state's, you know, saying

basically, we're going to drive you out of business in a number of years. Well, okay, so you're not, now you're not going to get new entrance. now you're going to have competitive barriers. And then beneath the surface, there's a lot of subsidies. There's a lot of manipulation that tends to be captured by incumbents. So I think, yeah, and I think that we'll see how apt the analogy becomes, but I think there's some prospects for that that could be really good for the owners. I want to talk about Twitter in a second, but before we get there,

I just, anything else event or in the markets on your mind before we kind of start talking Twitter? I think that about covers it. I'm ready for Twitter. Okay, so let's talk Twitter. You know, you and I talk Twitter so much on a daily basis. It's hard to remember. But we let on the podcast, we've last talked about them in June, which if you remember,

like Twitter was still, they're still in a definitive merger contract, but Elon was still technically buying Twitter at that point. And since then, I think the two, the major data points we've had is in early July, Elon filed a 13D, sent a letter, everything that said, hey, I'm breaking the Twitter deal for X, Y, and Z reasons, and we can go into those. Twitter responded by suing Elon and saying, hey, this is not a valid breach. You still need to close us. We still think we're under definitive agreement. So they filed that. And we got Twitter's complaint, Elon's response.

We had a trial where we had a hearing where the judge said expedited a trial, we'll have. have a trial likely in mid-October at this point. But that's kind of the just-the-fax ma'am of what has happened since then. I want to ask you, starting, I guess, from Elon's break through the hearing, the trial, the notice everything, what are you thinking on Twitter these days? You know, it's funny you said we talk about it every day. We also tweet pretty much every day. There was one. Elon treats pretty much every day too. I mean, like, FinTwitt's kind of been, but all over this topic, and it's by definition people who are interested in it. There was one Middle Eastern buyer of a very, very high-end jewelry company at one point that had much less growth than they thought they were going to.

And this was a kind of a sovereign buyer. And they didn't properly calculate the fact that they were like a double digit part of the demand for this company. And maybe it's like Finwit were like the last people who love Twitter. But in any event, so since last we spoke on here, I think that the big thing for me and the thing that's, I think, most analyzable is what is the judge going to see and what's her focus going to be, I think, real serious by the time they get to October. and it's going to vector from kind of the goofy phase of kind of mems and tweets to tweets to the serious one. I think that both sides are well represented and that we'll have a series of filings back and forth. They're already getting kind of sharp elbow, even about just kind of procedural stuff that normally in a smaller case would be perfunctory. But, you know, we had what

I think was a very interesting scheduling hearing because both sides chose to sneak in a lot of substance. We could have just made it a when's good for you, when's good for me. But instead, I think that the plaintiffs want a discussion of the contract and the defendant, in this case, because Twitter, it could have gone in either direction, as it turned out, Twitter soon first, but it could have been Elon soon first. Twitter wants to talk about the contract, and Elon wants to talk about a lot of other stuff. A lot of other stuff, right? He's going to kind of insert in the contract.

And so I, you know, listening to the judge who did not interrupt Twitter once and who had this one pointed interjection as Elon's lawyer was speaking. And I think he did a nice job, but she's like, so how long did I BP Tyson take? And he stammered for a moment. She has three months. So she asked the question. Can I just pause you for one second there? Sure. Just to give everyone a bit of an overview, Twitter was arguing for an expedited trial, right? They sued in early July. and Twitter said, hey, we would like the trial to take place in September for X, Y, and Z reasons. And Elon said, look, this is one of the largest mergers in history. There's a lot of data.

September is way too quick for all of this. We think the trial should take place, I believe in February is what they said. And Elon's lawyer was saying he was trying to give his reasons for why the trial should take place in February. And he said, hey, the I.B. Tyson precedent, he was talking about. the reasons and the judge interrupted and said, how long did it take for I.B. Tyson to kind of hit the trial doorstep. So just to give that background so people understand. Thank you. Yeah. So I thought she was pointed. And so what I took from that and then we and then we heard her decision, which was call it 80 to 90 percent of what Twitter wanted, which, uh,

I guess we're allowed to read into things and think about things, but reading into it a little bit, what I took away from that is, one, the quicker we go, the less time there is for other things to go wrong. We'll probably see one more corridor. We will probably have new economic information. We'll have new data about how the company's doing, but there's a shorter time line for other things to go on, a better IRA, but also it's seen. like a pregnant decision, it seemed like it was siding, going strongly in the direction of let's talk about the contract. We can do that quickly versus what's kind of toss in whatever anybody else wants to chat about. That's going to be really complicated and time

consuming because we have all sorts of things. A fishing expedition is going to be really time consuming. My sense is that her patients for that would be small and that seemed corroborated by her behavior at the trial. And then there's a third thing I think I would throw in there, which is, and this is just how she handled the scheduling. She took a 10-minute break with COVID, and she came back. She had, just for those who don't know, when Chris says with COVID, she actually tested positive for COVID. It was going to be an in-person case. And she switched it to Zoom because she tested positive for COVID. Just so everyone understand. So this is somebody who's just not necessarily her fullest capacity took a break to collect her thoughts and came back and had a

full, elegant, detailed explanation of why she was going to do what she was going to do. And then just kind of an authoritative answer that to me struck me as somebody who's kind of last in line for somebody who's me tentative about making this decision or somehow split the difference for political reasons, she's going to do what she thinks is right, and it's going to be based on this contract, and she knows what she's doing, and she's smart, and she had probably 95% made up her mind before the Orals, which Oral is something for us to listen to, so we can kind of overdo how much it matters. She was probably listening for anything that was going to have a countervailing influence on what she did. She didn't hear it. And some of the things she spoke to

came out of what happened that day. But this is just a smart, serious person who can follow not just all the contractual issues, but all the parole events, all the things that goes beyond the four corners of the contract. I think she has a strong bullshit detector and knows so much about what's normal in these situations that I think she's going to have a really good grasping just the dynamics here. Yeah. And I 100% agree with you. One of my friends that we were talking about and they were like, look, she took a 10 minute break. And as you said, when she came back with the decision that was well written out, well spoken, well thought through, they're like, look, she, I haven't been a judge

so I can't say for sure. She obviously had this written before. And she, you know, she could listen to the argument. She could change it if something new came up. She can respond to it. But she obviously had this written before. She had seen all the arguments and stuff. And unless something crazy came to light, she was obviously going to roll for Twitter. She had thought about that before. I agree with that. The other two new piece, we've gotten a lot of new information since the, since we last spoke on the podcast about Twitter. I think the three big pieces would be number one, Twitter reported earnings, Snapchat reported earnings, social media stocks are down a lot. I think people, I don't think we need to talk about that. Look, there is committed financing here,

unless you believe Twitter is insolvent, which I don't believe neither you nor I do, then this deal will happen if Twitter wins the case. We can maybe next month or the month after we'll talk more about Twitter solvency. So I want to put that aside. But the other two new pieces I did want to talk to you about was number one, there's been a big question about will Twitter win specific performance if they win? And I think the judge at least hinted, and I'll let you speak to disagree with me, agree with me. In the judge's ruling, one thing she said, I think this is a direct quote,

she said, based on everything I've seen here, monetary damages would not be sufficient for Twitter if they won, you know, which the judge, oh, and we didn't even know who the judge would be when we talked last time, but this judge last year had a big ruling in a case that to me looks a lot like the Elon Twitter case, where she ruled for specific performance for a seller. And she just said, hey, monetary damage wasn't solved it. To me, one of the biggest pieces news we've gotten in the past month is this judge does not seem scared to a word specific performance of Twitter wins. And I will pause there and let you comment. Yeah, so two quick thoughts. One is she's the ideal judge for Twitter. And again, reading into things, the fact that

she assigned herself, I think kind of doubles down on that fact, right? That she's not trying to in any way past the buck or avoid this issue. She actually, she has two five-day trials involving Elon Musk in October, which I think might serve our purpose as well, in that it's on his comp unrelated to us. I don't care about that as much as she's going to think about him a lot. There's kind of two kinds of chancellors in Delaware, and they're all good at this stuff. But there's a kind of a, the more cautious, the less self-confident in their, own legal abilities, the more they want to just tie themselves to some very specific statute

where it says, look, I'm just doing this one thing. So when it gets appealed, don't come to me and complain. And then you have the kind of Leo Strine, who works at Walkdale now, kind of genius, bold, look, I know all the law. I can say, you want me to say statutes, I'll say some statutes. Here's what I'm going to do. And then get his clerk or something to kind of double check and kind of paper it over, but very, and it's a court of equity. So either is appropriate. But I don't know if I was an Elon Musk side, which do I want? Do I want to talk about this contract and have a very legalistic narrow conversation? Not so much. Do I want to instead focus on the parole general outside evidence of like who's a bad actor, whose hands are dirty?

Who's like, not, not either. And so I don't know which direction you'd want, but she's kind of She can do either. I think she's going to be kind of an equity-based. And even on the topic of specific performance, her last decision on this last calendar year, the part that very much looked like an equity, by which I mean, going outside the four corners of the very specific statute

to do what makes sense overall for contract law, but also for the Delaware court, kind of thinking, kind of broadly about this, kind of almost like spike the football on her own ruling saying, you know, score one for contract certainty. So this is clearly something she's kind of talked about that she cares about and kind of the reason Delaware matters to the rest of the country and everybody else. So, yeah, so I think that she's kind of a big, big deal in this and personality why she's like the most uneloness person on the planet. Like just a serious person and you'd have to be really careful if you're the defendant here

to not make a misstep stylistically. And there was one case that might have been a stylistic misstep was when the defendants were saying, oh, well, you know, it's going to take a really long time for you to understand this kind of thing. there's some complicated things going on. And a little lady, you might need to take some time. And she came back. And this was one that was clearly targeted what happened that day, saying you might have

underestimated how much the court can assimilate information about things like this real fast. And that was the time that it thought, oof, I'm glad she's not talking to me right now. Yeah. And all of that actually bleeds nicely into the other point. The other, really, the major piece of news we've gotten, aside from Elon actually attempting to break this contract, since. we talked last was Twitter filed their complaint to compel Elon to close, their prayer for relief or whatever it is, and Elon filed his response. And I think we can talk about all the different

things, but last month when we talked, we hadn't seen either of these. So we didn't know, we knew probably why, like Elon had already filed his 13D that said, hey, here's all the things I need. I think you're in breach of contract. But we didn't know what he was trying. And now we've seen both. And to date, as far as I know, there's no smoking gone, right? Like, Elon 's complaint doesn't have a email that was sent to him by Twitter that said, hey, we've been saying 5% under 5% of MDAUs are bots publicly, but privately, like, we actually think it's probably 50% of the user on the platform are bots and we're just kind of saying a fake number online and playing games with investors.

Like, Elon doesn't have that smoking gun. So, like, to me, the other new information is I've read Twitter's complaint. I've read Elon's complaint. I know you've read Twitter's complaint. You've read Elon's complaint. But there is no smoking con. The case is about exactly as we thought it was when we were talking last month, probably a little better for Twitter based on some of the things that we didn't know last

month that we do know now thanks to Twitter's complaint. But there's no smoking gun. And I think that's a great thing for our thesis, which is that Twitter is in the right here. Elon should be forced to close. I'll pause there. Anything you saw, do you disagree with that? Anything you saw that you wanted to highlight from the, for the complaint? in the filings and everything?

I guess three things kind of jumped out at me. One was the counterfactual of the contract that you and I read. I mean, read long before it was, you know, being litigated, read before Elon complained about it. We read the merger agreement, the counterfactual, all the stuff that wasn't in it, I thought it was hugely in Twitter's favor that really put an exclamation point behind each of their points to say, oh, you know how it kind of didn't say this thing? yeah we talked about saying that thing we decided not to it's very meaningful the specific way this

was written i think can i can i pause and just give an example so like Elon in the original merger contract he signed with twitter said hey twitter if you would like to fire fire someone you need to come to me to get approval first and twitter actually struck that from the merger contract they said we can fire hire or fire people as we want and Elon signed that and Elon's complaining against Twitter, one of the three things that he's trying to get out on is Twitter fired people. And we thought Twitter could fire people no matter what, but Twitter can go a step further now and say, oh, actually, in the merger contract we signed, you wanted the right to hire or fire people. And we didn't know that, right? We could only read the final draft. And Twitter can say, no, we took that out

and you agree to it. So not only do we have the right just based on the contract, but based on the negotiations, you agreed to give us that break. And that really puts in my mind this, as the Super Bowl of contract law and the rule of law generally, which says, why do we even have these conversations if the result of the conversations doesn't dictate what happens? I mean, you know, you feel kind of foolish if you're a lawyer the next day, if Elon Musk wins, trying to hash out the minutia of these contracts because it either matters or it doesn't. But I think that it was very meaningful here for how this kind of. contract came together. So that was the first thought. Second was that the most important part

to me that I think the Twitter complaint really got at under the contract and that it fits in with how strong a contract this is, is that you can't use these things as. You can't use these things as termination events if you don't have clean hands. You have to come as a good actor who has lived up to your own contract duties to then use things to get out of. And a point that they didn't hit as hard as I might have, in part because it's, I can see the reason why they did this because it could change yet again, depending on how facts unfold, is that he cited things that have never incited before, like information requests that would be literally unprecedented to get out of a contract for. And one of the reasons is, is that it's curable. It's not even to the end,

you know, to end of the contract yet. Now, he waited the 30 days. No, the one part of the contract, his advisors apparently got him to read was the, you have to, you have this 30 days to bring the suit. He brought the suit on the 30th day from his. original complaints that you brought. But I think that the one of the reasons why Wachtel was so kind of kind of so much on offense, they weren't apologetic and saying, hey, we'd love to do this deal. We think we're doing the best we can, kind of please don't. They were like, they were, I mean, this was an offensive complaint is that, is that he has a very hard time using any of these provisions if his hands aren't clean. And I think that 25 years from now

in law schools, you know, musking a contract will be used as a verb for like screwing up your ability to get out of it because you've done. I mean, just by definition, if this isn't violating non-disclosure, violating non-disparagement, what would it be? I mean, it's using their platform to do it. And so I think he has the dirtiest of dirty hands. And I think he's the baddest of bad actors. You know, I think, look, Elon, if you believe that Twitter, he's paying about 54 per share and, you know, reasonable people can disagree. But let's just say a lot of people think the downside to Twitter if it was a standalone stock would be 25, right? So that's obviously a huge spread. The most reasonable thing for Elon to do is try to cause maximum pain on Twitter to get them

to agree to a price cut, right? And I think to some extent he's done that. But the one thing where I he really failed is you always want to preserve your flexibility, your strategic optionality. And the best thing for him to do would have been wait till the very last second to break, right? Allow every different plot point to pay off. So anything can happen and maybe something breaks, right? To one that has already passed, but the DOJ just decides, Elon's too rich and he owns Tesla. He can't own Twitter. That has passed. But Tesla's site gets hacked for a hundred days and all the user information gets lost and Elon can actually file a map on that like by doing this way earlier than by the SEC who's going after him on unrelated things

won't approve the proxy and so you get to a termination date and he gets out because the SEC I mean we still don't have final approval of the definitive proxy yet I mean by by going early Elon gave up all of that optionality which I think was a tactical mistake and then B I agree with you like Elon's hands are very dirty by by not being able to not say stuff on Twitter you know there's that that old thing you can always tell someone to go to hell tomorrow put your phone away don't put it online all that type of stuff and Elon put this all everything he was thinking he was basically live tweeting in real time and yeah that got him attention got him followers and it might make Twitter uncomfortable but from a court perspective it was just awful and I did like how uh in the

in the hearing Elon's team said oh well Elon was tweeting bad stuff about Twitter Twitter constantly. And Twitter didn't sue Elon for tweeting bad stuff. So they didn't like respond in time. And both the judge and Twitter were like, we wanted him to close the merger. Of course, we weren't going to sue him because he put a bad tweet out. But we sued him two days after he tried to break. Like how much faster do you want us to go? So anyway, I'm rambling a little bit. But anything else from the suit, the hearing, anything more talking about with Twitter? I think I said three points. I'll just, I'll just take off briefly my third, which is, you know, so his whole career and his whole public persona,

and in a way he's been brilliant at this, he's really, really good at winging it. You know, in terms of maybe some people, including my skepticism of his, that has been wrong or early, but long enough now, you can call it wrong, is in the world of faking it until you make it, he is the world, maybe he's the world, one of the world's greatest, make it until you make it errs. And a different way to describe that is not burdening yourself, not putting the burden on yourself in a way that in all sorts of public scandal or technological delay or so forth, he'll describe something that's aspiration. And he probably, and he truly wants to.

And a version that I've heard of his promises or his plans or his kind of from, and this was actually very clear in some of the books written about him, was that the engineers would say, they were basically asked, you know, if you worked on this 24 hours a day and you had no problems and something that you have 17 problems a day, how many months would it take to get this new feature in the car? And they would answer that question. And then that would go out as a projection. You're like, yeah, if nothing goes wrong, maybe, yeah, that we would, you know, but so there's some kind of underlying reality to it, but it's highly aspirational. This kind of thing has served him so well in terms of getting Twitter followers, in terms of getting capital from the public markets. I mean, so many things.

He's tried this kind of stunt of basically, you say this. I say this, but somehow rhetorically making sure that I own the whole field other than the very specific thing you set, right? So like if it's anything other than your thing, I'm kind of more or less right. It's a rhetorical first that he's done countless times into really good effect. And so it's kind of like in this case, if your Twitter, it's like, oh, so you claim it's less than 5% monetizable daily active users. The cheap trick, his version of this, is kind of of dropping the M of MDAU and saying, okay, let's argue with the David Dishoniminator. Right when he tried to break, he did this thing where he was like, Twitter claims 5% of

MDAUs or bots. Like, that's not my experience with Twitter. All my replies are filled with 25, 40% bots. And it's the type of thing, it sounds so smart when he says it. You're like, oh, yeah, there's lots of, but then when you kind of break it down and you look at how Twitter defines MDAUs and stuff, it's like, that's the dumbest thing. like we're arguing two different things, but he's so good at switching the conversation like that. The rhetoric works really well. And then say, oh, so you claim this one specific thing. And then I will

kind of wave my hands over here about what I'm saying. But I'm not ever going to hold myself accountable to my specific claim. But when you go to Delaware and his whole schick is being unburdened, literally the burden is his. Literally he has to have something. He can't just kind of wave and say other than this thing that you said and the thing that you've said, you've disclaimed all sorts of ways as an estimate, as a, in no way have you claimed it to be specifically correct. And so he holds you to this impossibly high standard. He holds himself to no standard whatsoever other than saying stuff. And I don't know that he can get away from that tactic. I think his legal advisors would probably like him too. But if he goes to Delaware with that

in front of Chancellor McCormick, the likelihood that that works and that she kind of gets distracted and confused and kind of sides with him over the hand-waving versus the specific claim of the company, given that it's his burden to get out of this. Probably not. Yeah, I'm with, look, it's uh we're talking late july the trial will be sometime in october i see they're they're doing a little bit filings back and forth but i think the Elon must team said hey october 17th 24 21st i'm going to use that as a base case we're so we're less than three months from the trial if i'm kind of doing the math in my head right but you know to me anything can happen we'll get new information there are still a few things i sit out and disgust but like based on the facts of the case i've

seen the kind of body language on the judge's up. This is the best legal case I've ever seen. I don't know. I mean, I'm sure there's been better legal cases, but in public markets in M&A, it's the best legal case I've ever seen. I just, I don't know. Elon's pulled rabbits out of his head before people thought he was going to lose several trials that he won, but those trials had, this is just, this is right up the middle for merger contract law. The judge has experienced with tougher cases than this. I just don't know how he's going to lose. he's going to win. I don't know how Twitter loses. I'll give you the last word on it. Anything else on Twitter or anything else in the market you want to talk about? Let me just, I can jamming two

little things on Twitter that I wanted to get in. There were very few factual discrepancies between the two sides that makes me think less likely to have a smoking gun or some huge change. I think there's going to be low volatility in your view of what you're looking at over the next three months. The only factual thing that was glaring to me was whether or not Musk was notified on the firing that they had a incompatible description of. I don't think it's going to be salient to the ultimate outcome here, but I think that's notable in how little factual discrepancy there is between what the two sides are talking about. Yeah, so I think that that's, oh, and then the thing that keeps bringing me back to this topic because every once in a while I think, you know, Andrew, we've thought through this, let's just turn to other topics.

What keeps beating me over the head is maybe the market's right. So maybe this is the correct market price and it's, you know, net present value, all that kind of risk adjusted, you know, this is the expected value. But then within minutes, I stumble on just a utterly incorrect. factual claim in a major publication or an analyst on television or on the price. If it's based on that and it's just plain reading of the contract says that's wrong, you know, like five minutes after I say, let's turn to other topics. Maybe we're wrong.

Maybe we should be more humble about this. So he's like, well, he can definitely walk for a billion dollars. He just has to pay that tomorrow. So he keeps saying that. And so if that's what's leading this market price, it's hard to stay away from it. The worst was, I didn't want to dunk on it too hard because, you know, especially on the blog when I post something like it's in tax, the blog gets enough traffic that it will probably find something a way back to the person. But there was a lawyer and a portfolio manager who

published an opinion in the Wall Street Journal. And the opinion was Twitter can't sue. Twitter can't win this suit because Elon's harm are to, Elon is harming Twitter. shareholders, not Twitter, the company itself. So Twitter can't sue and Elon will win this case, which is maybe the dumbest thing I've ever heard. Like, you can't sue someone for breaching a contract to buy you out because the shareholders were harmed, not the company itself. Like, ignoring that the company has certainly been harmed by Elon's actions, right? Like, that's an argument for every person in the history of the world can get out of any deal with a corporation because it's harming the shareholders, not the corporation itself.

particularly merger contracts, obviously, but basically any deal if you took it to its logical conclusion. The above the law blog had my favorite reaction to that in their headline. I'll just read the headline in the article that does it justice. Elon Musk will beat Twitter. Wall Street Journal says it's obvious, assuming you change every single fact and law. Yeah, that's exactly it. I mean, I could not believe.

And it was, again, it's not like this was published on, you know, a seeking out of a blog that wasn't even read by editors or something. this was published in the Wall Street Journal and to a lawyer and a portfolio manager put their names on this thing. And I was thinking the whole time I was reading. I was like, if that guy was my lawyer, I certainly might be interested in finding another lawyer because I'm probably they're breaking some laws or getting taken advantage of pretty hard right now. And I'll see if I was a portfolio manager, I'd be like, this guy might not be, might not understand exactly how things work. I certainly wouldn't be happy if every time something bad happens to one of my portfolio

comes to me, my portfolio manager said, well, something bad happened. But unfortunately, I'm only a shareholder and They only damaged me, so my company can't get anything from it. But anyway, last thoughts. Anything else from you? Just one positive on sources on this, just because it's your alma mater, I'll mention. Ann Lipton is a professor who's been weighing in on this. And she's been as proportionally bad as the Wall Street journalist. She's been proportionally good.

She's just one of the kind of brightest lights on this topic. And it's been, if people are looking for people other than us to listen to on this, She's been fantastic and a testament to too late. She has been great. I wish she would stop sharing her word of scores on Twitter because she's making my world all scores look bad. But anyway, I think we'll wrap it up here. Chris, famous last words.

We'll do an August podcast. I think we'll have less to say on Twitter because we're probably in the dole drums for Twitter filings, but Elon always manages to cook something up. So maybe we'll have more. But Chris, thanks so much. Thank you. Thank you.

We're going forward to podcasting with you tomorrow. Looking forward to seeing you in person and New Canaan tomorrow. podcasting next month, seeing you in person tomorrow, and we'll talk then. I'm in for both. Thanks.