Yet Another Value Podcast - Chris DeMuth's State of the Markets October 2022 (with a large TWTR focus!)

Episode Date: October 26, 2022

Chris DeMuth joins the podcast to discuss the state of the markets in October 2022 and what’s catching his eye in event driven land, with a large focus on TWTR.My prior podcast on SPB: https://twitter.com/AndrewRangeley/status/1549013912133111808?s=20&t=6iWCDZC_8sPzlIuELTNwdQChapters0:00 Intro2:30 What's on Chris's mind this month (TWTR)4:50 Twitter's security review (or lack thereof)7:30 Jurisdiction for a potential TWTR security review13:30 What would a security review look like?21:40 The politics behind a TWTR security review29:25 Potential repercussions from a TWTR security block35:55 Last chance for financing and insolvency outs!41:45 How big will the cost cuts at TWTR be?45:50 Discussing Spectrum Brands

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They're moving incredibly quickly with many new features and data sets. As a bonus note, blog readers will know that I run a monthly, well actually buy-monthly, deep dive series sponsored by TECIS. In them, I go deep into industries and companies with fast, and questions using Teague's expert calls. I'd encourage you to check that out if you're interested in seeing how expert interviews can help you learn more about a company and industry. All right, hello, and welcome to the yet another value podcast. I'm your host, Andrew Walker. If you like this podcast, it would mean a lot if you could rate, follow, review it wherever you're

watching or listening to it. With me today, I'm happy to have my friend and the founder of Range of Capital, Chris Amuth. Chris, how's it going? It's going well. Thanks for having me on, Andrew. Hey, thanks for coming on for the monthly bit. Let me start this podcast the way I do every podcast. First, a disclaimer to remind everyone that nothing on this podcast is investing advice. That's always true, but probably particularly true today, since we're probably going to bounce through. I think we've got at least two, three, four stocks in different situations we're going to go through. So everybody should just remember, please do your own work. Nothing on here is investing advice. And then the second way I start this

podcast is with a pitch for you, my guest. But we don't need to do that here. We do one of these state of the markets every month. I was actually teasing Jeremy Raper earlier today. I was like, hey, Jeremy, I think Chris's state of the markets today makes him tied with you for most podcast appearances. So you're about to be the most popular podcast guests. All that out the way, we are recording this Tuesday, October 25th. It is 10 a.m. That timing might come into play. if somebody's listening to this in the near future, we'll probably discuss why. But I'll just turn it over to you. What's been on your mind in the markets this month?

Twitter has been on our mind a lot. I wish I had a more creative, interesting novel out-of-the-way answer. But that, if you pump me through with truth serum, I'd say that keeps coming up. It just won't die as a topic. If and when it closes, I'm going to miss it. in a sense because we've had some really good people to kind of work our thoughts through on this. And so in some ways, it's been really good. It's been a diverse level of quality of analysis. I'd say some terrible and some excellent. And so that's been probably our biggest

topic over the past month. Yeah. So let's just give some background. So again, I'm we're talking Tuesday, October 25th. And that's really important because, you know, the deal is supposed to close Friday, October 28th. So if you're listening to this podcast over the weekend, hopefully the deal has closed or else Chris and I are going to be going into a furious mad dash to figure out what's going on. But we, in our September podcast, I remember we specifically said, hey, we're not going to talk about Twitter because there's a good chance that Twitter is, you know, the trial was supposed to be last week. actually. So we said we're not going to talk about Twitter because we'll probably have

so much Twitter news to talk about next month. And there has been a ton to talk about this month, right? The trial got delayed because in early October, Elon Musk said, hey, I'm throwing in the towel. I'm going to close this deal by the end of the month, stay the trial. You know, last week there were there were crazy reports about maybe a Sipheus or National Security Review with Elon and Twitter. There's still, look, the stock is trading at, as we talk, about 5230. The deal, which is scheduled to close on Friday, is for 5420. That's a 4% spread, which might not sound like a lot. But if you've ever done merch or arbitrage, a 4% spread for a three days to close,

like the IRR and that is insane. So clearly the market is still saying like, hey, there's some chance Elon pulls, some weird rabbit out of sat and doesn't close, right? So I threw a lot out you. That's everything I think that's happened since the last time we talked Twitter. What do you want to focus on there? I've been mostly fixated over the past few days on the national security issue. I would say that I was carefully following Elon Musk's tweets on opining broadly on Russia and on China.

I would say that there were some unnerving things he wrote. I would say that for the most part, or maybe in. its entirety, his tweets are well within the Overton window of the kind of things one could discuss and play society on foreign policy, whether or not it's advisable for a public company CEO to be talking broadly about foreign policy. I thought his views were fine. There were a few things that were a little worrisome that I would say were vernacular that would be found almost nowhere in American policy debate, but very, very specifically in the Kremlin, phrases that are clunky in English that just come right from original Russian that

were awkward. And if I were professionally working on national security, it's precisely the kind of thing that would capture my interest. So the idea that people are looking at this as a defense contractor with secret clearance. It's just the kind of thing that would draw scrutiny appropriately. Whether that scrutiny is over Twitter is a very different question. And there were two things, and this really all came out of a kind of dramatic Bloomberg article. And it really kind of had been discussed casually. We had discussed it casually over the past few months.

But it kind of came to a head with this Bloomberg article saying that there were concerns. And it really involved a situation where there's clearly going to be eager reporters, right? The reporters are going to all of their contacts, trying to dredge up whatever they can at a deal that's getting this much interest from us and from others. and people who are kind of broadly, casually interested in this kind of thing, including sophisticated people and senior people in good contacts that one might have in D.C., but Sipheus, there's kind of two issues that I think are instantly important here. One is jurisdiction and two is politics. Sifias is a serious organization.

These are serious people. There's a range in Washington in organizations that are kind of on the pedantic side versus on the casual political side. And there are some that are more easily weaponized against political opponents. I would put Siphyas at the very low end of that spectrum in terms of politicization. These are serious people. These are national security people. And the staff takes their jurisdiction carefully, which. I want to pepper you with questions then.

but let me just pause right there. So Siffy, a serious organization that you don't use to kind of harass political foes. And, you know, in a perfect world, we'd hope no organizations are used to harass political foes. But would I be wrong in saying, like, we've talked about the FCC on this podcast. And it's not necessarily the FCC is going to, I mean, if you were a pure dictator, you could use it to harass your political foes. But, you know, I do think the FCC, in merger processes, they can flex their political leanings a little more. Would I, would I be right to say you're kind of thinking about comparing Scipius to the FCC there, or is there other organizations that you think could be in the middle? I would put at the very top of the FEC, the Federal Election

Commission, where if we were running campaigns against each other, it's just kind of like part, it's custom to lob complaints against each other, and basically anything you do. So if you had a political action committee, anything you do, your opponents will claim was core. coordinated legally with the. And so even if, I mean, it's a perfect example of the process is the punishment. Eighteen months from now, there'll be a little blurb saying it's exonerating you. But meanwhile, it says investigation into illegal coordination with your candidate. That happens virtually every time. It is obviously by definition an adversarial process when you're running for a political office, but that regulatory body is weaponized as a political tool by both sides every time.

And it's just kind of part of it. And let's just put, we've said Sipheus several time. Just pause. We've mentioned it on previous podcasts. Sipheus is the committee for foreign investment into the U.S. If I remember the acronym correctly. That's correct. These are the people who generally when, especially China or maybe the Saudis,

when they make investments into the U.S., they review it and say, okay, like this is going into an industry that's not sensitive to national security where it's okay for a foreign investor to own it. You know, you could imagine if they were buying a railroad. Maybe the Siphyas says, oh, like, we don't want foreign investors owning a railroad because they could exert political leverage by shutting a railroad down or something. So please correct me if I've said anything wrong. That's correct.

I would say there's a particular emphasis on technology because the railroad, we could always send the National Guard to take it back in a war against somebody. But if we sold a militarily sensitive circuit to a company that was a state-owned enterprise, China, we couldn't take it back, we couldn't take the IP back the next day necessarily. So the reason why it's very focused on transactions is it's very focused on IP. If you look through the past several decades, it kind of rises and falls with whatever the political concern of the day. So you have, you know, it would be kind of concern about Arabs during the oil embargo against Japan and the 80s. Generally, my view of the economics of it is

whenever they're these big kind of nationalist or even xenophobic worries and that some foreign country wants to buy half your stuff, it's exactly the time you should sell them all of your stuff because they're almost always overpaying by the time people are worried. Like, oh my gosh, the Japanese are going to buy, you know, they're trying to buy half of California. We should have sold them all of California because they were paying absurd prices. Buy it back in distress. Buy it back in distress. Yeah, exactly.

They're literally, literally, buy the bank, sell them all the real estate and buy the bank debt. But that's been the history. Right now, it is very focused on China. You know, it's directly China or even if we're looking at, say, the Dutch, it's whether they will fall under our rules and concerns about China. So, you know, whether we're indirectly transferring. You know, we kind of have a hierarchy of our top allies and then kind of neutrals and then ones who are a little concerned about and then China, but it's very China focused. So look, anybody, again, anyone who's done a merger ARB, especially when it's come to semiconductors, MNA, has Sipheus and actually

China reviewing the semiconductor mergers. Those have been the two gaining factors for all these things. So let's go to last week. There's a Bloomberg article that says, hey, the White House has been concerned. And I remember, as you said, when Elon started dropping these tweets about Russia, Ukraine, you know, it's never a good look when the Russian embassy thanks you for your for your talking points on Russia, Ukraine, like that you probably said something that wasn't super, but anyway, he starts tweeting about Russia, Ukraine right after he announces, hey, I'm throwing in the towel on this deal. And I remember people were sending around, hey, is he playing 40 chess to get a national security review to get him out of this deal?

And I think both you and I said, you, like, national security reviews aren't generally something that you want to do. Like, that's kind of like not cutting off your nose despite your face. it's cutting off your entire body to spike your face. But so, but last Friday, Bloomberg reports, hey, the Biden administration is concerned about what Elon said, and they're doing a national security review to review all of his holdings. SpaceX is thrown in there. Twitter's thrown in there. Obviously, for our purposes, the worry is Twitter.

So let's talk about Twitter. We've said Siffy's a lot, but, you know, if Biden administration was really concerned about Twitter, what steps could they take? And we can probably, what steps could they take? what levers would they have to pull. And we can probably talk about why that's not the case, why we hope, why we think, why we're pretty sure that's not the case. So I wanted to go through the jurisdiction, the politics, and then also I'll tap briefly

on the incentive from Elon's perspective. So jurisdiction, a problem with Siphyas is the second word, foreign, I guess third word, if you count on, but the second letter in the acronym, foreign, Elon Musk is an American citizen. And his minority equity partners, some of whom are foreign and some of who might raise some issues, do not have control. The control issues in Scipius is by statute and is formally followed. No board seat, no observer status, no special information source, no control. in fact, not even more equity passively than they had before when it was public. So they don't have any increase in their status.

Elon is an American. And so that should be that. If there was a different interpretation among staff, and I don't believe there is, then there is the issue that under the contract, the equity minority holders have to be approved by Twitter, and they could simply reject it. And Elon's still responsible for his duties, which would require him to try to cooperate with, not name Sipheus, but approvals and reviews that Sipheus would come under. My very strong sense is that this is something that they had been considering from the beginning.

And even though they did not file a Sipheus application, they have Sipheus Council. And Sifias Council has been in communication with the government in a kind of collaborative, normal way like any big company would on a big issue like this. Can I jump in on just one point? So that was a great explanation. And right at the beginning, you said, look, Sipheus, again, committee for foreign investment. Elon Musk is an American citizen. So I wanted to ask two questions here. A, has Sipheus can or has Sipheus ever reviewed an American citizen's investment into an American company?

That would be number one. ignoring the foreign investors, because again, I think Twitter could kick them out if they were problematic. That would be number one. And then number two would be, you know, Elon, he's not just an American citizen. He has secret level security clearance from SpaceX. You can look this off. There was, he smoked weed on a Joe Rogan podcast.

And I remember people were saying, like, he's going to get his security clearance for because he smoked, he took ahead of weed, which was crazy. But, you know, considering he has security clearance, even with the American citizenship, isn't that like another thing that says, hey, like, if Sipheus is blocking this man from buying companies, like, how are they even reviewing this guy when he's got security clearance? So I threw two things out at you. So, no, they did not investigate the American citizen. They have investigated deals with an American majority with foreign minority.

So the minority status is not a get out of jail free. And in fact, in 2020, they've actually raised the standards for what could be reviewable. So, no, they've never reviewed an American for bad tweets or for foreign-ish, you know, for the binary of American citizen has been sacrosing so far. Because I guess what I'm like, look, is it, I think it's extremely unlikely that Syfias does anything here, right? But is it possible that at the last second, like literally we're 72 hours from closed, but tomorrow, Sifia says, hey, we need to review the minority investors.

you know, the Saudis are coming in here and we don't like the Saudis having any say in Twitter, we need to review this. And then I think Twitter would just say, all right, Elon, you've got to kick him out of the group or whatever. Yeah, I guess it's possible. But I just don't see a way, like the real risk is Siphyas says, hey, Elon, you owning Twitter is a national security risk. We need to review you and we might reject you from buying Twitter. I just don't see a hook for Sipheus to do that. That's a zero. Of course, in Washington, you could always have incentives and jurisdiction be separated so that they could be concerned about Elon, but use the excuse of the minority equity holders. And then Elon could contest or play fast and loose on

the merger requirements on duties, which he's already fallen short of in other ways, or play fast and loose about just not asking Twitter for approval. And then that would have to be litigated and change the course of the litigation. So it's structurally conceivable that they have these two parallel concerns. One is their substantive concern. The other is their jurisdiction, but they do not have jurisdiction over Elon Musk in Sipheus, and they wouldn't try. And let me transition into the politics, because I think that's the jurisdictional answer. Yeah. What the politics would entail would be staff proposing this, which I think they won't. And then they would have to take that to the general counsel of the Treasury Department.

who would have to approve it, and I think he would not. And then they would have to go to the Treasury Secretary who would have to approve it, and I think he would not, for increasingly political reasons, because it would be a really bad idea. I mean, they have access to this tool, but they also have access to armed drones. I mean, they have access to armed drones with, like, swords on them that can kill one guy and not the other people in the room. So they have cool tools, but not tools you would normally use against a domestic political adversary just because you have them.

And the lawyers would get a little sniffy about suggestions otherwise. And then it would go to the White House. And I think it would be stopped at every single step along the way. So there's kind of a series of people who would have to make a terrible political decision right before midterm elections. So just if Sipheus wanted to review this and stop this deal at this point, what you're saying is it would take the general staff of Sipheus to say, hey, we think there's. there's a national security risk here. We need to block or at least put this deal on pause while

we review the deal, which would go up to the general counsel at the Treasury, then the Treasury secretary, and then that would pass over to the president. So at every step, people would need to say yes to that. Every step they'd have to say yes. And it's, I mean, I guess we talked about the foreign aspect and that being a problem on jurisdiction. I would say the committee aspect would be a problem on both speed and on a sort of innate conservatism in institutions like this from not being embarrassingly bad in the politics, right? They might have a lot of sins of omission, but sins of commission, they're just not going to be bold and fast. When this article came out last Friday, I think the first email I sent to you was like, I don't, like, to stop this, they'd have to

block this within a week. I don't know if they could schedule a meeting within a week. That's just how committees work. It's really hard, it's going to be, especially at that high up level. This is almost a cliche, and I apologize that I've said it in our conversation in these podcasts in the past, but one of the biggest, probably the biggest difference living inside the Belt Lane in Washington between what it's really like and outside theories amongst smart, sophisticated people who imagine is it's just far too complicated, complementary to DC competence to imagine kind of convoluted, sophisticated conspiracy.

theories, you know, when they were asking about whether Trump was coordinating with the Kremlin, my answer was he barely coordinates with the White House. And that they could do this very quickly and competently would require just an enormous amount of kind of political will. And I think the political alignment would be opposite doing this now. Oh, no, go ahead. Go ahead. And so I think, I say I think the politics for it are bad and there are lots of steps on the way for somebody to self-interestedly notice this before it's too late. Yep. So let's just, so I think we've talked about all the reasons why Siphyas won't do this,

why they can't do, but let's just play out the political games a little bit, right? So let's say Sipheus comes tomorrow and says, we are pausing this deal on Elon Musk and, you know, the president approved it, the Treasury Secretary approved it. I mean, look, if they've got a text message from Elon Musk to Vladimir Putin that says, hey, Putin baby, I'm going to take all of the Americans data and give it to you and I'm going to help you overthrow, like, American democracy. Yeah, I'm pretty sure that they're going to be able to justify that in some way, shape, or form. And he could renounce his citizenship. He could, Putin could give him a passport. He could renounce American citizenship, become Russia. I mean, just. So we can go into all those

angles like look i do think people have to say like Elon's a wild card but if he does that type of stuff like you're talking about business self-immolation on an epic scale like just to get out of the twitter deal like he's going to lose all of SpaceX he's going to lose he can't be it so we can talk that route of people really wanted us to i guess it's just you and me so i don't know who the people would be but the main routes would be let's assume that Elon hasn't done that and the white house blocked this right i think there's two angles we can go there's the immediate political immediately immediate political implications and then there's the long-term political implications. So do you want to talk immediate or long-term first?

I would say immediate. And a couple of reactions. One reaction is I wouldn't put it past him to have a trick up his sleep, but this would be about the sloppiest trick he could come up with because there's just no way to emulate a Twitter deal that he doesn't want and protect SpaceX that he does. I think one of our colleagues who's been a long-term Elon Watcher really is good at keeping track of how thematically Elon has these interests. They're largely space-related, and he's pretty consistent about doing all sorts of different things in a way that is kind of focused thematically. I mean,

it seems kind of chaotic in terms of organizations and things he says. But the one thing he does is he really does protect this Mars stuff. And as a defense contractor with a secret clearance, you can't protect that and blow up Twitter. If you're going to the Russian stuff, I mean, one thing that's so interesting to me is we approach kind of the geopolitics around China and that gets increasingly fraught is how much bigger China is than right? I mean, Russia is a trillion-dollar economy, and China's $17 trillion. I mean, there are provinces of China that probably the average person can't name that are much bigger economies than Russia is.

And it's just... Especially after these same shit. I mean, Russia's going back to doing things with rocks and stuff. It is such a big deal. So if you're really going to sell out, sell out to the Chinese, don't sell it to the Russians. But the... So it would be if we were in a completely... a moral framework. So forget about patriotism for a second, forget about justice or even just

sensible geopolitics, and just kind of think in mercenary terms and even set aside the law and say what's just rational and self-seeking. This would be a dumb move for Elon. Yep. And then on Elon's end, it would be a dumb move. But I also think if you had a block politically, it would be a dumb move for the White House in two ways. We'll talk long term a second. But in the short term, you know, I sent you guys, there was last Tuesday, Tucker Carlson ran a segment, and I only saw the screenshot because I don't watch the Fox News, but the screenshot was the left attempt to stop Elon from buying Twitter has finally failed. And this was last Tuesday. And what I thought was curious about that was, you know, the news on a potential Sipfius review that I think we think is a long shot

came out on Friday. Like the only thing that stopped Elon from buying Twitter before last Friday or today or anything is Elon stopped Elon from buying Twitter because he came out with bots and all these other issues and finally tossing the towel. So I was just looking at it and I was saying, look, like Tucker Carlson's running things saying the left is stopping Elon from buying Twitter when it's completely not true three weeks before the midterms. Like if they came out with a Sipheus block right now, it would be a political disaster. You would have every single Fox News segment, every single Republican center would be going up probably rightfully saying, claims of, hey, we're hurting political enemies, we're controlling free speech, like all this

sort of stuff. It would be an absolute disaster. What are we eight days from midterms? Like, I just, I struggle to believe that. So I'll pause there to let you talk about the very short-term political implications. There would be longer term, too, but the shortest term political implications. I think he's kind of one of the more interesting jump balls in American politics because he's not a conservative. He's not a Republican. He's not a true. right winger in any way. But he's somebody who's tried to do business in California. And I think that this is one of the most precarious things for Democrats going into a midterm. It's not people who are attitudinally against them, which is some part of the country, a bit of minority. I think the

problem is when conservatives and normals are kind of added together, that is a majority. And so you add people who don't like Democrats philosophically and people who are indifferent or maybe mildly willing to go along with things but are just terrible in practice, such as trying to build a factory in California is, I think, an honest liberal Democrat would say, well, that's terrible in practice. There are things that are tough on consumers with prices that are high and the California political establishment's reaction is let's, let's make supply harder and subsidized demand to deal with high prices. Yikes.

And so I think that somebody who isn't kind of, I don't think he's spiking the football on a lot of this politics stuff. I think he kind of would have probably been happy to stay out of it. But if you look at his move to Texas and if you look at kind of the number of people who follow him, including young people. One problem for Democrats is young people tend to be very apathetic about midterms. So sometimes Democrats can kind of zoom in presidential elections because younger people who are less consistent at voting and minorities who are less consistent at voting will vote in a presidential year, not always in the terms. Elon can bring a lot of

these younger followers in and a lot of kind of non-traditional voters to the Republicans. And that's the kind of doomed scenario for Democrats. So I think that they would be careful about that. Biden's political machine is pretty good, and they would not exacerbate that worry that they might have otherwise. Yeah. So that's the shorter term that like immediate, I think it's really bad for for Democrats up and down the ticket, unless, again, they can come and say, hey, we're blocking this because of look at this text message to Vladimir Putin.

Any other case, I think it's a disaster for them politically, fires up the other side, really demoralizing all that sort of stuff. Then there's the longer term implications. And, you know, when you were talking Sipius, you said, hey, first the committee makes the recommendation, they'll move up to the general council, then to the Treasury Secretary, and then ultimately to the White House. And, you know, if you think about using Sipheus to punish political foes, I do think you're talking about it's something that's going to get reviewed. We saw on Friday, you and I were emailing, there's a senator, I can't, it was Senator to me, who I think is

from Tennessee. I can't remember for sure. Pennsylvania. Pennsylvania. And he said, hey, look, it's really concerning that Sipheus even leaked. That's concerning. But if this is actually the process, we're going to have a massive investigation. And I do think you have to think, if you use this as a political tool, you're not just talking investigation. They will get to the bottom of that. I think it's impeachable at every single level. So you're talking about a potentially impeachable offense to do a really bad idea to punish a political enemy over something that, you know, anyway, I'll pause there. Do you disagree with anything? Do you agree? I think that that is right. I think that you have two dangers, a small one and a big one. The small danger you have is people who are

deeply concerned about the due process in the Republican Party. Those people are few far between and politically imperiled now. Liz Cheney and Mitt Romney, they all have political opponents in some cases who will win in the coming years, that's a small problem as people who really care about the due process. The big problem is the people who will get right back at you

using the same tools and kind of every time the Democrats look at something that would be kind of weaponizing the process against domestic opponents, I would say Donald Trump would be first in line, but there'd be a long line of people who would do at least

the same right back at them. And that would be something that, you know, with parity or close to parity in elections, possibly for the next few cycles, would be worth thinking about. Biden's been pretty explicit in his kind of one government philosophy about using all sorts of different tools to coordinate a kind of coherent philosophical view on what they want government to do. And they certainly have brought, say, antitrust into that. But they haven't brought national security into it. They haven't said we're going to, they haven't brought armed drones into it either. And I think, I think Sipheus would be on the kind of armed drones end of the spectrum, not the let's use antitrust to Pastor Jeff Bezos. One other thing that's,

me about this is, like, if you're scared that Biden's going to punish political enemies by using Sipheus, like, the way to punish Elon Musk is not to use Sipheus to block the Twitter deal. The way to punish Elon Musk is to let the Twitter deal go through and let the man, you know, burn $5 billion, $10 billion of his own money overpaying for Twitter. So it's just kind of funny. I heard several people be like, oh, using Sipheus to block Elon Musk, that sounds like something the prior administration would do. That sounds like something the prior administration would do. like using political tools to hurt your opponents. And I was just kind of thinking, actually, this would be using political tools to help your opponents, even though it would be a broad misuse

of political tools. But I just thought that, I just thought that was kind of funny. Yeah. And in this case, there really is no IP transfer. It's not the case that it would be with a kind of very advanced computer technology that once the eggs scrambled, they can't do anything. They absolutely have national security jurisdiction after the deals done. So they don't really lose flexibility on Monday morning, if Monday morning, in fact, the deal is closed. The other thing about Twitter is, gosh, you know, we've gotten an enormous amount of information on the company since the suit was filed. And when, they kind of went into data gathering on their, on their users, I was a little disappointed

as a Twitter show. I thought they were going to have all these fantastic things of kind of, these kind of, you know, deep insights into every person. And they kind of said, oh, well, we know their phone numbers. I mean, they used it. It was pretty crude stuff. So even on the kind of data kind of customer track. doesn't seem to be all that important relative to what other social media platforms have.

Yep, yep, I totally agree. Just the other thing with Elon, you know, at this point, the three ways that we could not close are a SIFI's review. I think we just spent 30 minutes talking about SIFI's review. I mean, are there any other tools the administration could use to block this other than Sipfias? We've obviously very much focused on Sipfias. I want to back up and say, I think my short answer is no, but I back up and say this administration has done several things that are outside of the jurisdiction and the tools that they have. They also can't simply forgive the student debt from a broad swath of society. They can't do a number of things they've demonstrably done already, says,

me and says precedents. So they have done unprecedented things that are broader than the authority that I think the executive has. So I would be a little bit humble in, so I would say, no, they have no their tools. I say humbly and warily, having seen them do things that I don't think are permissible in the past already. This would be more egregious, but they have, you can always do anything and wait for a judge to sue you. And they've, This would be more egregious than the other examples on my site, but they've gone broader than I would in terms of use of their authorities and a number of occasions. So I think the other two ways this could break between now and Friday, because again,

this is supposed to close on Friday, are the banks could refuse to fund, so that's your financing now, or the banks need a solvency certificate from Elon in order to fund this, and Elon could refuse to sign the solvency certificate and send this all back to the courts. you know, both are risks, both are ones we've thought about a lot. I don't know if you want to talk about this state or process of either. Yeah, I think if you look at since there's just nobody like Elon, there's nobody who has so much wealth and so much discretion to say and do wacky things that he sort of traumatizes us in terms of what crazy things could happen. He's wacky. Morgan Stanley isn't. And when you listen to them described,

their quarter on their call, their CFO said, you know, we hedge. We're careful. We net out what we're making or losing on debt financing versus the very big fees that they get and against the relationship. So, you know, you say, okay, lose, you know, you're clawing back 10, 20, 30 percent of a mark-to-market loss, which you're not even going to show because you kind of hold on it, hold it on your books initially, you cause a significant back just on direct fees and then a lot more on the potential for a SpaceX IPO or kind of future business with a very wealthy person. I mean, if you look at banking relationships, you do a lot of kind of lost leaders for great relationships. And so net of that, this was bad, but not that bad. And she sounded very

under control and poised and normal as if they're just going to do kind of normal banking stuff this week. Look, again, Elon's been a wildcard, but I've always come back to like, hey, let's try and figure out what's most rational for all parties. And like, I've said many times for the banks, like, hey, I knew they could hedge. Nobody knows if you hedge these things or not, but I do think it's common bank best practices. The day you puts a commitment on the line, you hedge out every single thing you can do. So they were going to make money on hedges every which way. But for them, it was, hey, you have a contract that you've signed. If you don't fulfill this contract, you're probably going to get forced by a court to fulfill it. And you're going to destroy your reputation

along the way and incur millions and millions of millions of dollars of fees. So like, why not just fulfill it? You know, it just seems to me. And as you said, if you don't fulfill it, you don't get a lot of the fees that we're going to come along with it, then you'll be forced to do it anyway. You're, you know, who knows if Elon rewards you or it doesn't reward you for not doing it, but yeah, it just seemed to me from their standpoint, it made all the sense in the world to fund. And I think we've gotten, at this point, we've gotten very consistent reporting from multiple credible sources, Wall Street Journal, Bloomberg, and Faber slash CNBC, and all of them had said, the banks are ready to fund this. It's funding this week. And guess what?

Morgan Stanley basically said, yes, we're ready to fund this. So I think financing that kind of settles that up. What about the insolvency out? It would just go right back to Delaware. Yeah. It would be novel. He could do it. So I would never say like, oh, he would never, he would never.

And it would certainly be a tone shift from the amount that Elon seems to be on board in his behavior with trying to talk up this deal at this point, right? I think that it would be, I think the most likely outcome of that would be going back to Delaware, losing on specific performance, but threatening possibly both the debt and equity. So he could be on actually personally on the hook for four. $44 billion. So his, I think he has a ton of downside there. Whereas if he goes smoothly through this week, he'll have some equity commitments, he'll have the debt commitment. And heck, he could even pull what Paul Singer did on Citrix recently. You know, you could come back and

Elon could buy some of the debt. Elon could buy the debt at a discount. He could work things out with the banks and kind of back into what they want to take. And he could save a significant amount money there. That's exactly as, like, for Elon, a lot of people said, oh, take the insolvency out. Keep delaying this. And my point was, okay, yeah, you do it, but it's not like it's risk-free to do it. You take the insolvency out. You're going to court. If and when you lose, you're going to have to pay a billion dollars extra, a billion dollars extra for the specific performance. You're going to have to pay both sides legal fees, which are going to run tens and 20s of millions more dollars. And you just claimed an insolvency out. Right now it's one thing to

go back to your debt and equity partners say, look, I was really concerned about bots. We've thought out a lot. We were wrong. Or maybe we think we're right, but we think we can, you know, 10x in 10 years anyway. We can really fix this platform. That's one thing. Going back to your equity partners four months from now and saying, hey, I claim Twitter was insolvent, meaning I thought the business was worth less than $13 billion. I'm going to need you to go ahead and pony up $7 billion of equity. Hey, thanks. I claim Twitter was insolvent.

I'm going to go ahead and need you to pony up the debt anyway. I think banks and I think the banks and equity partners are out in that case. And as you said, Elon's got up on $44 billion plus specific performance, plus all the lawyers fees. It's pretty irrational for him to do that unless he really believes it. He can prove it. And he thinks he's got a real good chance of the job. awarding it, which I don't think any of that is true.

He seems to be shifting his energy. I mean, I think if he wanted to be clever about the deal at this point, I think the tools in his toolkit include buying back debt at a big discount. I think he could do that. I think it's jawboning the head count down, which I think is absolutely consistent with his interest. I mean, I think one of the really interesting things here is that 75% cut, but somewhere between today's head count and five is a number that's optimal. And I think it's

going to be very interesting if he can show how much he can cut while making it better or while preserving it. Just on the head count count, the reports are he's going to cut 75% of Twitter's head count. And it doesn't strike me that it's not past me yesterday. And, investors sent meta slash Facebook a letter saying, hey, cut costs, cut employees. And, you know, I look at Twitter's on pace to spend about $1.6 billion in research and development costs this year. And I look at the platform like, how the hell are they spending $1.6 billion? And I think everyone in Silicon Valley is going to be watching what Elon does with Twitter to see how lean these tech companies really could run. Because look, I don't doubt Google is doing interesting

stuff in research and development. I also kind of doubt that Google is the best person to do it. You know, it's kind of weird that a search engine is funding autonomous cars or something. So I think people are really going to be looking at this. And nobody's going activists on Google or Facebook. But I think there are a lot of tech companies that if Elon's running Twitter with, you know, 25% of the employee base, it's profitable. The service isn't breaking down left and right. A lot of tech companies are going to be seeing activists and private equity firms come to them and say, Oh, hello there, cost base. Yeah, and the kind of skunk works, kind of quirky stuff they do on the side.

I just think the market shift this year is going to have a lot less sense of humor for that. When you have a good platform, that's a profitable platform, they just run it for value and then have something else either spun off. You know, pharma has really kind of rationalized this. You know, almost always you have the big commercial pharma company and then you have the little kind of biotech company. really don't have big farmer wasting that much money on these kind of novel things. Humorously Valiant is one of the companies that kind of spurred that, that pushed them along that line and then obviously blew up and think. Yeah. But I think that that's going to be a tool. And then, of course, just encouraging people to leave on their own, which they kind of do sometimes sound

a little spiteful, really serve his disinterest. It's much more financially attractive for him to come in with a lower count than having to fire thousands of people. It's interesting to see just in terms of how his reputation precedes him on the internal Twitter employee chats, people wondering if he has any tools to separately screw them out of comp and equity rewards that they have. And even after there are contractual promises, people have been saying printed out on paper so he doesn't come in and delete the server, the electronic records, make sure you have backups on everything you have in your contracts. Look, a reputation, it's weird, but, you know, something this public, this visible, I think Elon's already done himself a lot of long-term damage with this. But, you know, if he doesn't

close on Friday, we've talked about all the ways it would hurt him. But another one is, I think reputationalally, if you go to a judge and you say, hey, I'm going to close this on Friday, and then you don't do it. Like I just think reputationally people are going to, it's going to have a longer term impact. We have talked a lot about Twitter. We've almost, we've almost hit our full time cap here.

I know there were some other things we wanted to talk about. We can talk about them now. We can save them for next month, whichever you want to do. I'm happy to talk about anything you'd like to discuss. Let's see. So I know we've been looking at some other DOJ stuff. I don't know if you want to talk about that.

I know we've been looking, a couple other things we've been looking at. I don't know if you want to talk about either of those or what do you want to do? I'll touch on DOJ for a moment. Okay. Whereas I think I sounded, in the Twitter case where you have this kind of zany buyer, I would say I sounded pretty respectful of Sipheus. I would say I'm extremely respectful of the chancellorate court. I'd say maybe put that at the highest end of the serious people doing serious work and

and not playing games. The DOJ, I would like to put up there, but has been kind of degraded in some ways and how political and how much kind of in the day-to-day political tussle they are. They've been losing a lot of cases. I mean, they've just had case after case stuffed back at them from judges, and it's going to emboldened parties to go to court and take their cases to the judge. It's going to be harder for staff to reach good settlements. It's a DOJ that doesn't seem to like settlements right now, so that might be fine with them. But one of the very interesting ones that I would just touch on right now is Spectrum Brands,

SPB. And it is a not precisely a merger of situation and that it's not selling the corporation, but a huge asset sale for the company. You know, with proceeds, it would be more than, you know, the market cap of the company at this moment. It's high-end locks and fixtures for doors is the overlap. And I'm reading through 60 pages of this, I realized how relatively dull, the normal kind of litigation that I look at, the normal kind of market definition stuff that I look at compared to, you know, there were no poop emojis on it or anything like dealing with Twitter. So it's just kind of reading all about this. The government has a plausible case against it just in current terms of market share barriers to entry and so forth.

like it, don't love it. I think they could convince the judge, except that the companies had offered to fix the whole thing before they had sued. This was not something where the government needed to push them. The companies came to them early on and said, here's the overlap, we'll clean sweep the whole thing. So it's as if we now have this government that just kind of revels in the fight, that they just will want to be seen kind of pushing their weight around. They want to go to court. They want this battle. And the judge is going to look at this and say, you know, they're probably going to have a buyer in

hand by the time they get to court in the spring. So I don't know what the DOJ wants. They just want the spectacle, apparently. But I think it's a very weak case litigating the fix. So it is a liberal Democrat judge in D.C., they will have to go to. But I think really, despite the fact that somebody who is historically might be sympathetic to the government, and it's not a particularly, it is consumers, but high-end consumers, it's not a particularly emotionally fraught cases if it was health care or tech,

where the government's really particularly concerned on. So I think it's a weakish case until they find a buyer in hand. If they have a good buyer that can compete, it'll be a very weak case. The divesters are, the buyer of the asset very much wants to go through this deal. And then the final thing I'll just mention here is the really interesting piece is if the DOJ is going crazy with a half dozen other suits, if they want to bring big suits against Microsoft and Amazon and Google at the same time, they might have to just settle this one because you could settle in a day on terms of companies have already offered just to get it out of the way if you don't have enough litigators.

And I will just, for listeners, I did with my friend PJ, we did an episode on Spectrum Brands. I think it was July, maybe August. This was before the DOJ actually came out and blocked this deal. and, you know, we walk through all the fundamental values and everything there. So I'll just refer you to that. And the stock was actually a decent bit higher because people thought this was going to go through. They didn't think the DOJ was going to block this. Just to give people an idea, this is right now a $1.8 billion market cap company.

It's got $3.3 billion in debt. So about $5 billion. They're selling HHI for, I think it's $4 billion, but the net proceeds to them after taxes and fees and everything is going to be $3.5. So we were talking about, like, this is a massive, massive deal, right? This goes through and you can go look at how much the stock dropped when DOJ rumors of block happened, when the DOJ block happened. I think there is a lot of upside here. And the downside, you know, it was a big COVID winner. A lot of the products, home and garden, that type of stuff were big COVID beneficiaries. There's clearly a lot of near-term issues.

But I've heard people say both ways, like if you're kind of willing to look past the next couple of quarters, there could be a lot of downside here. And again, PJ went into all that. I want to ask you one question on this, Chris. So I have a feeling we'll be talking about this more in the future on future podcast. but just real quickly, you know, this is a little different where most of the time when ARBs look at something, they're looking at Twitter, right? Deal is signed. If the deal goes through, we will get X dollars per share or, you know,

we'll get shares of company or whatever. Deal breaks and we're left with the standalone value. This is a little different where it's deal assigned. If the deal goes through, the company gets the cash and who knows what they do with it. If the deal doesn't go through, we're just left with the standalone business. Do you think this one is, I don't want to say flying under the radar completely because I have been approached by ARBs and eventy people about it, but not that much. You think this one is like a little bit flying under the radar different just because it's a big deal. It's a huge cash balance for the company, but it's not a, hey, the cash in your account,

this is done deal. So maybe ARBs aren't quite looking at this one as seriously. Does that make sense? Yeah, somewhat. I mean, I think that when I was doing, you know, kind of before managing capital and I was doing kind of consulting work for hedge funds. There were really these kind of two classes. And I think the one class that was very much exemplified by the prop desk was very narrow

mandate, very clear. We want no exogenous risk. We want just to capture spreads. We can call any amount of capital. We can lever up. We just need the things that won't break and that we can have, you know, even if it's a three or four percent annualized spread, that's fine. We'll just lever that up.

as long as it won't break, those type of ARB funds would have no interest whatsoever. There's the kind of broader kind of event special sit funds that are willing and able to do interesting things. So funds with broader mandates should possibly be interested in this kind of thing, but tight mandates and the kind of research services that just list spreads will miss something like this. And so it could be kind of a little bit of an extra opportunity because of that. cool well chris i need to talk especially because we got to get this posted because if we don't

get this turned around and edited quickly it's going to go up and people are going to be like they're talking about twitter the deal's already closed fingers crossed but so uh really appreciate you coming on we will obviously we'll be chatting soon but we'll have another one of these probably around or after thanksgiving so thanks for coming on and i'm looking forward to that i think this is our last twitter one so we'll see you know and it's funny because we probably spent, what, 80, 85% of the podcast on Twitter, and that's probably 80, 85% of our, my mind space, at least my mind space is getting taken over by Twitter these days. So I have dreams every night about Elon Musk and Twitter close. Oh, gosh, I'm very ready for this to be done. We'll talk

soon, Chris. Thanks so much. A quick disclaimer, nothing on this podcast should be considered an investment advice. Guests or the hosts may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks.