Yet Another Value Podcast - Evan Tindell thinks Elon Musk will close the Twitter acquisition

Episode Date: May 25, 2022

Evan Tindell, CIO of Bireme Capital, discusses the circus that is the Elon Musk and Twitter merger agreement and explains why he thinks Delaware law and precedent suggest Elon would lose in court and be forced to close the merger on terms.My piece on Twitter: https://yetanothervalueblog.substack.com/p/twitter-the-circus-will-have-a-happy?s=wThis podcast was taped afternoon of May 23; things are moving quickly so just time stamping that!Chapters0:00 Intro2:15 Twitter overview6:45 Why bot followers do not equal mDAUs8:00 Why is Twitter mispriced right now?12:40 Specific performance versus the $1 billion break fee18:30 Defining a material adverse event (MAE)26:25 The LVMH / TIF parallels 30:00 Why Elon should avoid going to court in Delaware35:45 Could Elon actually get out of this deal on a bot miscount?38:25 Does Elon waiving DD hurt him in a potential court case?42:35 How risky will discovery be for Twitter?46:55 Elon's financing risk / what price does the TSLA margin call happen?50:15 Can Elon walk if Tesla stock blows up?53:40 Will TWTR's board fold?1:01:00 What if Elon losses and still refuses to perform?1:03:45 Potential for an activist like Carl Icahn to get involved1:06:00 Why a mediation and slight price cut might be the most likely outcome1:09:50 What's the downside if Twitter loses?1:13:00 Event path odds

Today's episode is sponsored by TIGIS. Understanding expert insights is table stakes for investors, and there's no better option than TIGS. I've been using them for almost two years to get up to speed on companies, and they've helped me immensely as an investor. TIGS also recently acquired BAM SEC, which adds a super fast way to access SEC filings and earnings calls and to incorporate financial data into my models. I run a monthly DeepDive series sponsored by TIGS on the blogs. I'll include a link to my cable deep dive in the show notes, and I'd encourage you to follow the link if you're interested in how expert interviews

can help you learn more about a company. Currently, anyone who signs up for TIGIS gets free access to BAMSCC as well. So check it out. All right, hello, welcome to yet another value podcast. I'm your host, Andrew Walker. If you like the podcast, it mean a lot to me if you could rate, subscribe, review it on wherever you're listening, watching, whatever. But with me today, I'm happy to have.

Evan Tyndell back on the podcast for the second time. Evan, how's it going? I'm doing well. I'm doing well. Yeah, what's the record for most number of times someone's been on the podcast? Oh, Jeremy Raper has it locked up at, I think he's at six, but if you want to you're a sharp guy, if you want to try and catch up to Jeremy Raper. I'm willing if you are. That seems like a lot of work. That's a long, that's a long road to get there, but I'll do my best. And Jeremy's a prideful guy, man. If he knows people are coming for him, he's probably going to try and help his appearances. We'll just keep one and up each other. let me start this podcast the way I do every podcast. First, the disclaimers remind everyone,

nothing on this podcast is investing in advice. We're going to talk about a really interesting, really hairy situation today, but everybody should just remember, I'm not a lawyer. I know Evan's a former professional poker player, but I'm guessing he's not a lawyer either. Not a lawyer. We're probably going to be talking about a little bit of law terms. So just remember, two non-lawyers selling you law terms, not investing advice. Please do your own work. Second, a pitch for you, my guest, you know, people can go listen to the first podcast for the full pitch, but you're a super sharp guy. You've got an eye for looking at these situations with skewed upside, downside, and swinging. And I think that's what we've got here. So all of that

out the way, I'm going to turn it over to you. The stock we're going to talk about is Twitter. I'm sure everyone's heard of it and knows what's going on, but I'll turn it over to you. What's going on with Twitter and give us a full situation overview? Well, yeah, just for some background, Twitter is a social media company. It was founded Yeah, I think everyone, I think everyone knows the story here. And just as a funny, as far as the disclaimer, someone noted that the last idea I pitched on here is down like 40%, which was 10 cent music. Someone, someone lobbed that in on Twitter.

Someone dropped that bomb right after your tweet. Down 40 is the new up 20 in these markets. So buyer beware. But yeah, I mean, Twitter is an interesting situation because I think a lot of people are confused, including apparently the market about what's going on. I mean, you have Elon, obviously, Elon Musk, in case people don't know who Elon is, offered to, not just offered, but you know, has a signed agreement to buy the company for $54 and, of course, the 20 cents on the end. And he's been making a bunch of rumblings about trying to basically back out of the deal.

And now the stock's trading for, what is it this morning, 37 something. And so I think, you know, it's pretty large. I mean, in the merger, our world, a, you know, 40% return to the deal price is obviously gigantic. And usually it implies that there's some, I mean, I don't know what your experience in this is, but it implies like there's some obvious regulatory or antitrust issue. or there is like some credible reason for the buyer to back out, although as we'll talk about,

that's almost never the case. A great example would be right now. Activision Blizzard has a contract with Microsoft to sell themselves for, I think it's $95 per share. And that is a, like no one doubts if regulatory clearance comes and everything. Microsoft, you know, they can take the interest on the cash in their piggy bank and pay for Activision deal. It's a big, it's a huge deal.

But, you know, nobody doubts their ability to close if they can close, nobody else that they want to close. But that's trading at about 77 to a huge spread because people are looking at then saying the regulatory environment is not great for big tech buying something else. So people price it at 77 because they say, hey, basically a coin flip if this goes through upside to 95, downside to 60, and we can debate downside. But they're pricing at a coin flip. With Twitter, $37, the deal price is $54.20. So it's an even bigger upside. And that's because people are doubting, hey, can and will this deal close? Right. And the reason that he's given, to the extent you would even really call it a reason, is because of what he's claiming are material misrepresentations in Twitter's financial statements. And the specific thing that he's claiming is that the percentage of bots and that they claim in their financial statements as less than 5% of daily monetizable.

Monetizable, that's the right word. MDAU, monotiposal and daily activists. Monetizable daily active users is less than 5%. And Elon thinks it's some much higher number. And I mean, there's a number of ways we could attack how we want to talk about this. I mean, the first thing is that he kind of, he barely pays lip service to the actual definition of what they're talking about. Like Twitter, because what matters to Twitter is the percentage of their users that they can actually serve with ads, right? Which is why it's monetizable daily active users.

It's not like, like if there's some spam bot that's just accessing the ability to post via an API, it doesn't really, and they're not like refreshing their feed and like looking at it like a physical person would. they're not getting served ads and advertisers presumably aren't being charged for any ads. So they're not monetizable. Therefore, they don't go into the daily active users counts. And therefore, the ways that Elon has proposed, like, I don't know if he, I'm not, I'm not sure if he even thinks this is a serious thing. There's no way that he can. But he like, he proposed counting the first hundred followers, like, oh, hey, everyone count your first hundred followers. And if more than 5% looks like bots, then I guess, like, is you just making up these, like, nonsense ways to count it?

Like, I don't know. I'm with you. It was absolutely crazy because, again, Elon is a master, like kind of salesman, attention grabber and everything. And so when he says, go look at your followers and tell me if more than 5% are bots and you'll see, it sounds great. But Twitter has been very clear. They're not saying that 5% of the users. the actual handle on Twitter are bots.

What they're saying is when we give you a monthly deal, a modusisal daily active user account, that number less about 5% of them are bots because they know that, you know, if they've got 500 cajillion people on the platform, they probably know that 4.9 cagillion of them are bots and they don't include any of them. So Elon's doing this really great slide up hand with a lot of the things that he's saying,

where he's saying, oh, count your bots. That's not what Twitter was claiming. But we can talk more about the bots in a second. just want to pause here. So I think we've laid out the situation. Twitter's got a contract at 5420. The stocks at 37. If it goes through, you and I are very happy because full disclosure, we both own shares. If it doesn't go through, you and I are both very sad. But let me pause here and ask the first question I do everything. This is a $45 billion merger. I think it might be the most watched merger and company of all time, right? $45 billion merger. Front page of CNN has

Elon Musk News every day, all this, every merger arbitrage in the world at least knows about this story. So when I talk about something with this many eyeballs on it, you know, the market's clearly pricing in some low odds of this still going through. Where are you and I, where are you and I divergent from the market? What are we seeing that the market's missing that results in a, you know, it's not guaranteed to happen, obviously, but results in a risk-adjusted alpha opportunity for us. Yeah, I mean, I think there's a number of ways. other reasons why people might be getting this wrong. I mean, obviously one thing, and I don't know, I'd be interested to hear how you feel about this. One thing with any like

really large merger is if there, like, and maybe Activision could be an example of this as well. Just like the physical, like just the amount of dollars that you need to arbitrage a deal of this size, you know, 40, 50 billion, 75, 80 billion is just a lot. larger than, you know, some smaller deal. So I think, I think, you know, to the extent there is a, you know, something to be arbitraged, just because it has the potential to get a little bit bigger just because of the absolute dollar value. And, you know, no, no, no, no, and no merger our fund is going to have more than, you know, five or 10 percent in something like this. This is the, look, say there's 200 billion a merger arb capital in the entire world, right?

Now I'm just pulling that number out of my, out of nowhere. But say there's $200 billion. And as you said, the risk limit is 5%. So of that $200 billion, the largest position you could get is 5%. That means there's a $10 billion risk cap on there. This is a $44 billion merger. So even if every merger are decided we're going to have a 5% position in it, that's $10 billion. Would that be enough to close the spread on a $44 billion merger?

I don't know. But it definitely could close it on a $2 billion merger. I don't know if it could close it on a $44 billion. million dollar merger. So I don't know if that's true or not, but it kind of feels true to me, especially spreads are for people who don't follow merger arbitrage, you know, anytime there's an announced deal that's a merger arbitrage. And speds are really wide right now because ours have had their heads beat in. They're panicking. And I wouldn't be surprised if that plays into it here as well. I think, I think another thing is probably the fact that because markets are

down, there's just other opportunities. Exactly. Yep. People are worried about, you know, what the price might be, the price might be like worse than you expect if the deal breaks because it's hard to know how much things will go down. I mean, I think, I think the other thing that's potentially at work here is it's, it's such an idiosyncratic situation. Like, it's, I mean, I guess it's not the, it's not the first time that a buyer has, you know, tried to claim some type of material adverse event and gotten out of the deal. So from that standpoint, there is a little bit of a playbook, but it's the first time you had like the combination of, you know, the single largest equity check written by a single person, right? I mean, 20 billion.

I think that's right. Yep. The combination of like Tesla shares being down 30%. I mean, they're still way above what, you know, they would need to like, you know, make him not have the cash available. Combined with Elon's influence. in, you know, the tech world and corporate America. You have the, you have like the activists involved and some of the, you know, whether it's Silver Lake or Elliott and sort of their board members potentially being conflicted that we can talk about because people are, you know, you have, so there's just so many moving parts that I almost feel like it's, I think a lot of investors, maybe traditional investors more than merger art people. Merger art people are generally better,

pretty good at like putting percentages on things because you kind of have to be. But I know for like the average person, it's like, well, there's two outcomes here. Either he somehow gets out of it or not. And so, you know, I can't really tell the difference. It's sort of like, you know, it seems like it's an opaque situation. And so I'm just going to split the difference and it's worth, you know, halfway in between. That seems like that's what people are doing. I am kind of with you. Let me. So Elon's trying to get out of this. And I know something's good when my mom, calls me and asks me for questions. And I gave her a 15 minute long rant over the weekend about why I don't think Elon can get out of it. But let me, the headline number, right? Everybody,

before Elon put or right when Elon put out that tweet that said the deal is on hold, which we can talk about how you can't put a $44 billion merger on hold. It's either on or off. There's a merger contract. But, you know, he put that out. And the first waiver response you would hear is people control effing termination fee in the merger contract. And they would say, oh, well, Elon can walk for $1 billion. And I still hear people say, oh, well, if Elon really wants to walk, he can just write a $1 billion check. And yeah, that sucks. Like, I personally cannot write a $1 billion check.

I don't know about you. My podcast or money isn't exactly supporting $1 billion. But, you know, lots of people say, Elon can just walk for a $1 billion check. And I think both you and I think slash maybe know that that is wrong. But I want to ask you. Like, Elon's trying to walk. Why can't he just write a $1 billion check and get away? Yeah, and I saw this from some from some smart people as well, like Hindenberg research put out a short report on Twitter at when it was trading at 50 bucks. And that actually seems like a pretty smart thing to have done in hindsight just because of how flaky Elon is. But I also saw Matt Levine talk about, you know, how it could be difficult to take Elon to court because like no one wants to take Elon to court, et cetera. Yes. But as far as the contract.

People should know that what the Twitter board negotiated, and this is, you know, somewhat standard in these contracts, is they negotiated a termination fee in certain situations, such as if they don't get regulatory approval, right, which seems, you know, seems likely that they'll get regulatory approval. But in the event that he tries to just completely get out of the deal, they have something what's called, and I know you know this, but they have something that's called specific performance. And it's actually not, it's designed to not be a termination fee. It's totally, it's completely separate from the termination fee. And it's the part of the contract that allows the judge to say, no, you actually have to specifically perform on what the contract says, which is you have to buy the company. And of course, there is clauses to that. Like, for example, the everything that, Twitter says, you know, said in the, in the, everything that they represented in the various documents has to be not, not false in a material way. But it doesn't actually have to be all true.

It doesn't actually have to be all true. They can have, they can have made some mistakes in their financial statements, as long as it's not false in a material, in a material way, which is very important, obviously. And I, I know we're going to come back to this, but this is basically saying, look, if Twitter said, hey, Elon, at March 31st, we had $500 million and 70 cents in our bank account. And Elon finds out it was $500 million in 65 cents or something, right? He can't cancel the whole transaction over a nickel. But let's go back to the specific performance. So what would have, this is designed for exactly what Elon's trying to do. I mean, he's claiming he's trying to get out because of the bot issues. But I think everyone knows the bot issues are an excuse. He has buyer's

remorse. He overpaid for Twitter. Tech stocks are down 20 or 30 percent since he signed the deal. Tesla's down 20 or 30 percent. And he's looking and saying, hey, Twitter stock price would probably be 20 if it was a standalone company right now. I'm paying 54. Frick, this sucks. So he's looking for an excuse. And this is what specific performance is designed to do, right? It says, hey, you've got buyer's remorse. That's not the reason. Delaware is a, they have based their whole state's business on we enforce contracts, right? Like, contract. and law is sank here, and Twitter can sue them for specific performance. Will they win? That's for the courts to decide, and we would see. But it seems a pretty clear cut case of

if you've got virus remorse, it goes to specific performance. You can't just take the break fee. Now, Elon could offer and Twitter could accept, but they can sue for specific performance if they want. Yeah, and that's, and people should know that there's a long history of the courts in Delaware enforcing specific performance. Like, just three examples that I was able to to pull when I was looking at this was just recent ones from the past couple years. So in 2020, KKR tried to back out of buying a company called DecoPack, which I guess was a cake company. And they signed the agreement March 3rd, 2020, I think.

And then literally, like, obviously two weeks later, no one was having birthday parties. And this, like, custom cake company was, they're seeing their business down like 40%. And so. I'm surprised it wasn't down 99%. to be honest with you, but yeah. It's interesting because they, and if you go back to the filings, the company was trying to tell KKR, like, listen, the grocery business is booming, like, this is going to come back, like, blah, blah, blah, but KKR still tried to pull out of the deal.

And so they pulled out, they notified them that they were terminating the contract in April, and it went to trial, and the judge decided in, you know, roughly a year later in like April, May, I think, of 2021, might have even been February or January, of 2021, that they had no good reason to back out of the deal and that they needed to, they needed to perform on the contract. And I think KKR closed the deal like two days later or something. And this is a situation where there's two other interesting things. So first of all, as far as like a material adverse event, which is the language that these contracts use, like a cake company's business declining by 40% during COVID was not considered a material

events. And so that's notable just as far as like, so people understand the scale of what would have to happen to a particular company for it to be a material event. Can I jump in here for one second? So I do think Elon and I did a post on Twitter. I'll link it in the show notes everyone can do, but he didn't interview at an all-in podcast. And you could hear him use the term material four or five times. And that was not an accident, right? Because it's referred to as an MAE and in merger arms circles, material adverse event. And as Evan said, it's when you sign a contract and the business that you're buying gets so destroyed in between you signing and you closing that you can go to a judge and say, hey, like this is a different business than what we signed for. We can't buy this. And COVID was not an example of material adverse event. Right. And before COVID, people didn't build in. There's material adverse exclusion. So, you.

You know, now people have a pandemic exclusion. If there's a pandemic that destroys your business, not a material adverse event. But a lot of people look at the bot issue and say, oh, this is a material adverse event. And it actually is not, right? Because material adverse event refers to something that happens after the contract. What Elon's claim is a breach of reps and warranty where he's saying Twitter said it was less than 5% and I think it's 20, 25%. So it wouldn't be a material adverse event on its own. Anyway, I just wanted to clarify that because I do see a lot of confusion around that.

Yeah. And so a lot of the cases where buyers get buyers remorse and try to back out, like this KKR case, a lot of times they do, you know, they make a number of claims. And sometimes the reps and warranties issue is one of many. And but there's a very interesting case, another case where Boston Scientific was forced to close on the purchase of a company that had, there was like a, someone at the company was committing fraud. And so they had lots. on some FTA submissions. And what Boston Scientific tried to argue was that the appropriate test was whether a falsehood on the financial statements would have been material to the buyer, i.e. them. And what they said was that the appropriate test was actually something very different. And they got this from the case called ACORN, which you probably are aware of, is like, oh, I'm aware of it. Yeah, you're way of ACORN. So ACORN was like the one case, I think in the history of Delaware, where they actually concluded that there was a material adverse events.

Yes. But the test from that case was the event has to create a durationally significant loss of earnings power. That was the test. And so I think in this, in this case, I mean, even if the bot's not, was off, the idea that it would change the expected earnings power of the company in a in a durationally significant way, it just seems to me extremely, extremely far-fetched and basically impossible.

And for those who don't, actually, I'll talk about Acorn and once again, but the Boston Scientific case that you mentioned, do you know who they were suing? Do you remember the case? Just so people, including me, can go look the case up a little further. at Boston Scientific and it was a channel med systems. Okay. And just so people, the Acorn case, they had a buyer, I believe it was Foresenius. Yes.

Grade A buyer. And after the deal got signed, someone leaked to Fersenius and they investigated. And it was literally like acorn would make drops that go in your eyes, right? So you needed a complete clean room because if you put something in your eyes, it better be pretty darn clean and pretty darn pure. and there were literally roaches running around in the clean room, right? Like, it's bad enough there's roaches running around in the kitchen where your food is made, but there were roaches running around in the clean room. They were lines to the FDA.

And I know many people, including myself, who this went to trial. And Acorn said, we're suing you for specific performance. And Fresny said, clearly there's been a material adverse effect. And I know people, including me, who looked at this and were like, I don't know. Like, there's never been a material adverse effect ruling in Delaware. I think Acorn might win this. And ACORN lost that and basically immediately filed for bankruptcy after that. But that's literally how it can't be, hey, we're in a recession.

Your earnings are going to be down 5%. I believe what the judge ruled in ACORN was like, you need to have something that's going to vaporize like 50% of your earnings forever in order to be a material adverse effect. So I know you said there were three specific performance cases that you looked at that you thought were interesting. You mentioned one, the KKR. You mentioned Boston Scientific. What was the third one? The third one was Hill, Hill Rom versus Barty Diagnostics. And in this one, there was a big change in, basically it's another buyer's remorse case.

If you look at what the, what the judge says. And it was a case of Medicare rates changing significantly. And they were still, they were still not allowed to back out of. of the deal. Yep. And the timeline, one thing that I wanted to do, because people were asking on Twitter about the timelines. And that case was decided in July 2021, and they first signed the deal in January of 2021. Yep. I think it depends on whether the court grants like fast track status. They're normally going to grant, I think it's technically expedited, an expedited hearing or something, they're normally going to grant it because, you know, the business is in a lot of flux and

judges don't like businesses. Like, they realize for all parties involved, if you go through a normal trial that takes like two to three years, they realize that that's really awful for all parties involved. Like for Elon, he would have 44 billion like overhang for Twitter. They don't know if they can fire people. So judges realize we need to get these things on quickly if there's a material adverse effect. I want to go back to what you said, um, buyer's remorse, right? I think we've several cases of buyers remorse you've listed a few but one i thought was really interesting when because it kind of rhymes with what's happening here was louis baton tiffany and i'll let you tell it if you want i can tell it but do you read any parallels into the louis baton tiffany story to kind of twitter

elin yeah i mean i mean it's it's sort of similar it seems to the kkr case uh well kkkr and lvm h tiffany are probably the most similar but both of them kind of rhyme with the the twitter case where that when you buy it, you know, right after you buy it, something happens and the markets are down, businesses down. I mean, in Twitter's case, it's not clear that the business is down, but at least the markets are down, you know, 20, 25%. And so, you know, then the buyer just tries to use essentially the threat of pulling out of the deal. And, you know, and of course, So the thing that underlies that threat is the fact that your trading price of your, they know that the board is looking at markets and saying, well, hey, if we do lose this somehow, our stock is going to fall so much because the markets are down. Like, for example, like with LVMH and Tiffany, you know, obviously in, you know, March, April 2020, stocks had fallen a ton.

I forget actually what the time, I think by the end of the summer, though, they came to an. agreement, though. So I forget exactly what the, the timing on that was. Just for listeners, because I'm going to send this to my mom, and I'm sure she wasn't following LVMH Tiffany at the time. Just for listeners who weren't familiar, Louis Vuitton, one of the world's largest luxury goods company, announced a deal to buy Tiffany's. COVID hit and Louis Vuitton, they are run by a very smart, one of the richest people in the world. And they said, hey, guess what, we'd probably be able to buy Tiffany's for less today than we did a couple months ago because of COVID. And they tried to throw all sorts of excuses to

pull out of the deal. But the bottom line was, they had buyer's remorse. They knew they were overpaying. They tried to pull out. Tiffany sued them for specific performance for breaking the deal. And eventually, you know, it was really weird. Like Louis Vuitton actually went to a French, French minister of some form and had them write a letter to Tiffany's that said, hey, Louis Vuitton can't close this deal, even though the French regulatory body had like zero jurisdiction over the deal. It was very strange, but they were pulling all the strings. And eventually they, they settled. old and Louis Vuitton got a token haircut. The stock price went from, they were going to buy Tiffany's for 135. They cut it down to 131.50, if I remember correctly. So, you know, that's still

tens and hundreds of millions of dollars that they saved, but it was a very small cut in the grand scheme of things. How large, where did Tiffany try, I forgot where did Tiffany trade in the meantime? You know, it's tough to remember because this was a height, height of COVID. So there were margin calls going on and everything. But if I remember quickly, I don't think the stock ever went materially below like 100 or 105. So it traded a 30% spread. And I think people for a long time, you know, I read a lot into the Louis Vuitton Tiffany thing. And we can also talk Lear Abbott, which is another one I like. But, you know, I think there's a long history of if you have buyers remorse, the court is going to force you to close. I do think even at the height of COVID

with Louis Vuitton, people did look at Louis Vuitton as a rational animal and said, hey, you know, if the judge orders him to close he will close if tiffany's offers him a big enough discount like he looks at long term he will whereas the one difference i see with elon twitter tesla is i don't know if people look at elon as a rational animal they think he's just like such a wild card he might you know he he told the cc he said cc three letter word middle word elons i'm going to give you hint that first s was suck and you can figure out what the c was uh you know people just look at if he goes to court he might just say screw the whole thing or maybe he files for personal baker like people don't know what Elon's going to do and I think that's getting baked in here

yeah and I think that's interesting to bring up because I have I have a kind of a theory around this so I mean a lot of the ways that Elon has kind of messed around and like kind of skirted rules throughout his career are you know the rules are a little bit fuzzy, like as far as, you know, what types of things you can tweet out, like, you know, disclosure rules. And I mean, obviously, he broke some rules as far as, like, when he filed some forms and whatnot with the, with the Twitter situation. But I think, you know, what was the word you used to describe him, like chaotic or, you know, he's not a rational actor. He's chaotic. He's a salesman. I mean, he's a non-rash, yeah, he's not. So I think the Delaware court,

are where non-rational, like, chaotic actors, like, go to die. Like, I, I remember, so we were involved in the Dell appraisal case at my old firm. Yep. And this was in front of Judge Laster. I know the case. I know the case. I know the judge. And so I will always, I will never forget.

There was a guy who was like, he was like one of the top people at either. either Bain or BCG, I forget which one. And he was testifying, he was being, he was being questioned. And he, on cross-examination, he wouldn't, like, directly answer the question. And the dressing down that he got from Judge Laster was everyone in the courtroom was like, oh my, like we were like all, like the guy's face turned red. Like, I thought he might cry, actually. like and I just I just remember thinking like this judge does not give a crap about like who you are like what like how rich you are or whatever like if you if you go in there and you try to and you try to bullshit him you're going to get your ass it's not going to go well for you look I'm I'm with you I agree like Elon's gotten out of a lot of stuff I thought Elon should have lost the SEC case I thought there were a couple cases he lost but the the fact that

and law are going to be pretty clear. And maybe Elon can prove that Twitter was just flat out lying about MDAUs and all this and he should get out of the contract. But I feel pretty good. Like if the facts and law are on your side and there's no smoking gun here or something like courts are where if you're a liar, if you're a huckster, it's where you get stopped. Right. You can look at in the current environment. You know, you see a lot of people who lie all the time when they're on TV and stuff. But then they go to a court and they're asked something and they're smart they know they say I don't recall I don't remember because you lie you perjure yourself in court the consequences that's the one place you can't really

lie and it will come back to bite you if you are proven wrong and like I don't even think I think Elon's smart enough that like these arguments he's making he's not even going to bother making them in court like it's not even going to get he's not going to he's not going to put in front of Travis Laster the argument that like a potent like him counting a hundred of his followers is like the equivalent to some type of evidence about their financial statements. Let's go back to, so this goes back to the MDAU point. And I do want to go back because I might disagree with you because the one downside here, like I think Twitter will win in court. But for Elon, what's the downside to go into court, right? Like you go to court and you don't purge yourself,

right? So you don't get yourself like thrown in jail or anything. But you go to court and you just rant and rave and scream about how the MDA use and some material adverse effect. And you get laughed out of court, right? The judge's rules in Twitter's favor six months. The downside is you have to close at 5420 and you spend a couple million on lawyers fees, which it doesn't matter to you. And maybe you boosted the value of Twitter because you're increasing Twitter engagement by this crazy court case you're doing, right? And the upside is you get the Hail Mary and they let you break the deal or the Twitter board is so scared that your Hail Mary is going to pay off. They come to you and say, hey, we'll take 46, but it needs to be buttoned up, all the money's in an escrow, account, like, we signed this, you closed the next day. It seems like it's, it's all upside for him

if he, the longer he fights this, right? And I, and I think, I think that is a perfect, a perfect description of why he will fight it, may very well fight it most of the way. I mean, I think, I think what you describe is, is probably why he has a huge incentive to fight it all the way up until the trial because I mean how long is the trial going to take like I mean I don't think I don't think the trial itself would take more than like a week or something a few days even like I don't know there'll be the lead up and stuff but yeah a week two weeks as far as like his time it's not going to take much but like I think he is perfectly incentivized to to continue kind of messing around with his public statements and kind of just trying to see like throw spaghetti at the

wall and see if the Twitter board, you know, just for some reason, caves, despite the fact the facts are on their side. I completely agree. I mean, we'll have to see whether he's actually willing to, like, go to Delaware and sit there and act like an idiot and like, and like rant and rave like you said. Because at that point, I mean, if Twitter is willing, if Twitter has like done all the discovery, like, I mean, the other thing is the discovery might not be great for him. You know, I mean, of course, it's all privileged except for stuff that's being used in the actual trial, which means, like, you know, they're going to have, you know, they're going to have to do like keyword searches of all his text messages and his email and whatnot.

And I mean, some pretty damning stuff would probably come out as far as his actual state of mind with respect to like this deal. Like, I don't really, I kind of think that the discovery would probably show that it was just of like you said, it was just a very transparent case of buyer's remorse and there's not really a real thing here. And at that point, does you really want to keep, does you really want that to come out? I don't know. For anyone who's never been like Delaware, lovely state, one of my best friends, he listens to the podcast who will probably hear this. He went to school at University of Delaware, like lovely state, but it is not fun going to Delaware and being in trial. I've done it

a few times. I served on a creditor committee. Like, you have to go to Delaware. You're in the courtroom for a long time. I'm sure Elon's got handlers who can russies that, but it is not a fun experience. I don't know anyone who would be like, yeah, let's go do it, you know. Let me ask a few questions that are just kind of lingering around. I'm going to hop around. Look, I think one of the interesting things here is Elon is claiming that, hey, Twitter's disclosures represented more than 5% of their monotubles of their daily active users, or 5% or less were the bots. I think it's way more, right? Elon's claiming that. And there's two interesting angles that I'm just always back and forth on

want to get your read on. Number one, obviously bots were a known problem. Twitter's been highlighting them in their 10 case for years. Elon, in the deal press release, Elon says, one of the reasons I'm buying Twitter is to fight back on the bot problem, right? And now, Elon would say, well, he even said it on Twitter. I relied on Twitter's filings when I made this, and now I think that the filings are misrepresented. Do you read anything into, hey, this was such a known problem? It's going to be difficult for Elon's back out on that. Or do you think, hey, if Twitter misrepresented it, he will be able to get out on it. I mean, I think that technically my understanding of the law and the way these contracts

are written and interpreted is that if there really was a misstatement in their financial statements that would cause a material adverse effect, then I think he could, I think he could probably still get out of the deal regardless of whether or not, like, someone could prove that like he might have suspected that the, yeah, that the, because it's one thing, I mean, it is one thing if, like, let's say, let's say it turns out that, you know, 100% of, all of even the monetizable daily active users 100% of all the monetizable daily act users were bots no one actually uses the platform and like and like it's just you and me deemming each other every now and then about interest yeah maybe Elon himself is a robot you know um but

and therefore like the business was inevitably going to unravel once advertisers figure this out which I mean, of course, isn't true because they can see when people come from Twitter. They can do ads that are only on Twitter and they can see how that impacts like polling data and purchases and like the companies understand like digital companies more than other ones are good at like helping the advertisers understand like, yep, their ads are having an impact. So I don't think it's really credible. But in that situation, I don't think it would save Twitter to say like, well, he knew that there was some bots. Like, yeah. Let me go to a different one that. I think that answers this, but let me ask another.

Elon, he was so eager to buy Twitter that he waived due diligence, right? And I have been, I was of the opinion, A, I think it's going to lead to a really negative paper trail for him that he waived due diligence. But I've had lawyers say, hey, you can't read anything to waiving due diligence because he, he can say he relied on Twitter's statements. and if they were materially false, as you said, he could get out. But I don't know, because my two things would be, Twitter makes very clear in their financial statements that our NDAU bot number is an estimate. And if Elon, who he knew about bots, if Elon was really concerned about bots, he could have gone and looked at how they calculate them.

The algorithm, they could have shown them the assumptions. He could have tweaked them. That would be number one. And then number two, Elon says, hey, this is a material adverse thing because, advertisers are going to be bamboozled by it. And as you said, advertisers know that bots are a thing. And advertisers figure out a way to judge their ROI. And in due diligence, like, I was at private equity before I was at consulting before. One of the first things you do in due diligence is you would call up a major Twitter advertiser and say, hey, talk to me about why you choose

to buy a Twitter. How do you adjust for bots? How do you adjust for getting gained and stuff? And he had the opportunity to do all this due diligence and he waived it. I don't know. I just think, even if that's not a smoking gun, I do think a judge is going to look really negatively on that. But what do you think? Yeah, I agree. I think that it's not, it's not technically like an out. Like, they can't technically say like, well, just because you didn't do due diligence means that like anything we said in the financial statement. Anything goes. He can say, because he can actually say, he can say, well, the whole reason why I was able to waive due diligence to get this deal done so quickly is because I thought that your financial statements were

accurate. Yep. You know, so he can kind of use that defense. But I do think that, I do think it will help a judge see through the very thin veneer of the buyer's remorse situation. It just makes it all the more clear because while it's not technically illegal out if Twitter was like it completely like on purposefully lying about the number of of bots that are in the monetizable users,

I think what it does is it shows that this is not really something that Elon thought was like a make or break thing for the deal. Like it just creates a very transparent situation where he's just obviously lying because, like you said, regardless of whether, because it's entirely possible that, it's entirely possible that the bots thing is a major problem. Twitter was was was accurate in how they described their estimate and that must could have learned something important that maybe would have made him not want to buy it given the bot issue if he

did due diligence and so the judge is going to say like in that scenario it would have been if bots were so important it would have been really important for you to do due diligence because like you can't really rely on just like backing out the next day over the over like over like supposed lies in the financial statements. So I think what it does is exposes the transparency of, it exposes the, just the bald, the baldfacedness, the baldness of the, of the, of the lie. And so I don't, I think that will be very tough for him to overcome. And due diligence, I agree with you, right?

Like, they're going to be able to go in and get all of Elon's thing. And if there is one email after the deal was signed, it's like, shit, tech stocks are down a ton since I signed this. My financing is going to be more difficult. I kind of wish I hadn't signed this. That is going to be such a smoking gun. Now, there is the counter to due diligence, right? Like, if they get to do diligence, or sorry, discovery, sorry, I'm saying D-D because

I'm saying discovery, Discovery. If they get to do discovery on Elon, Elon gets to do discovery on Twitter. And I do know some people who are thinking, hey, again, this is a free role for Elon. For a couple million dollars, maybe he can break this deal that he majorly overpaid on. do you worry it all about diligence where he goes in and he finds out he finds one smoking gun from a mid-level employee that says bots are way worse than we expected or something I don't know man I mean it would have to be it would have to be you'd have to argue that even if they knew that the bot there was more bots like they it would he would still have

to prove that it would cause a material adverse effect. effect on the overall company. And I just, I just don't see how, because as you said, everyone already knows there's bots. And like, whether it's 5%, 10%, 20%, like, it just, it doesn't seem like that's just very difficult to prove that that's going to cause a material adverse effect. Like, the bar is so high. It's literally only been jumped by one person, by one company that was like, that immediately went bankrupt afterwards, right? Like, Twitter is not going bankrupt. I can guarantee you advertisers are not like, oh, man. man, there's bots. Elon said there's bots. Let's pull all our ads. Like, that's just not

what's happening. It's one of the things that, again, I hate to keep referring to the Allen podcast, but this is the podcast he did a week or two ago where he went on. And every host is like, oh, yeah, Twitter's so bad with the bot problem. It's like you're talking to the man who's supposed to be the best business mind of our generation. He just signed a $45 billion deal. We've known about Twitter bots for ages. And two weeks later, all of a sudden he discovers that bots might be a problem and everybody's applauding him for pointing out this thing like what are you talking about it just boggled my mind it's so it's yeah i mean it's it's it's it's so transparent what he did because obviously i mean also like what changed what changed in any of the bot information between

when he's in the last month like he only signed the deal in april like i mean nothing changed in the last month with respect to bots the other thing about the all in podcast is like they they they i like listening to them because they are smart and they're kind of like tuned into the VC world and uh but i i often think they're there a little bit they're just giving you like the zeitgeist of like for example like when net when netflix is down like 30 percent they're all saying like oh i never use Netflix like blah blah blah like they're like oh i'm HBO all the way like they're just like piling onto whatever the the popular thing is it seems and uh and you know and Elon's a popular guys so they're all team team Elon and teams yeah look I don't

Nothing to disagree. It's just like it really got my hair up that they were so egging him on when it was like this, this was a disaster of a deal from the start and you're egging him on for this thing. And then one of them, the host who was like really egging him on was trying to raise an SBV that he would make like tens of millions of dollars off of. Right. Trying to raise an SVV to support Elon taking Twitter public while at the same time encouraging him like these bots are a disaster. It's like, wow, that's really, I don't know the term, but it's not good. It's not great, Bob. It's a, it's very, it's very strange unless, unless you think about the fact that everyone, everyone that is on Elon's side of the deal, they actually would love to somehow get a lower price, right? So actually, maybe he, maybe that's no worse than just talking your book, right? Because like, if the bots are an issue and it causes Twitter's board to, you know, cave for abys.

absolutely no reason. Like they just blink and they say, fine, screw it. Like, you can buy it for 46 or something. That would actually, that would actually help his SPV. So maybe he's just, you know, you're just looking out. I do hear you. But it's, it is just, it's, it's not a great look where you're out trying to raise money from smaller investors in a, in a vehicle that's laden with fees at 5420. And while you're doing that or two days after you've sent that email out trying to do that, you're bashing the Twitter deal as overpriced because of these spot issue. It just wasn't a great look for me. Let me ask, again, I could go everywhere this thing, but let's drill it on the financing

here, right? Because one of the risks to Twitter, and I, my head goes crazy every time I try to figure this stuff. When the deal was signed, the biggest risk to the deal, aside from Elon being mercurial, was financing. And this has committed financing, but a big piece of the financing was a margin loan on Elon's Tesla stock. At the time, the deal was signed, if I remember correctly, if Tesla stock went below 600, I think, where the margin call would hit. And, you know, a margin call is not, hey, the financing has gone. The margin call is, Elon, you have to put up more margin or try to find a replacement financing, but it would have let him get out of the deal if he got margin called and he couldn't

replace the financing, right? But since then, he's raised a lot of equity from co-investors, from selling Tesla stock from all this sort of stuff. And because of that, the margin call level has gone down. However, I don't know where exactly the margin call level is currently. So I want to ask you a couple of questions here. And I realize I'm throwing a lot out of you. What do you think about the financing risk here? Do you know where the margin call level is at this point? I don't, yeah, I don't know. I don't know exactly what the, what the level is right now if you kind of back out the, because it was like $7 billion in external, like either current minority,

investors that are rolling their stake or external capital, right? And he's already sold eight or nine billion of Tesla stock. I think that's right. Yeah. The actual number of us. And at the end of the day, he has to come up with a $21 or $22 billion equity check. And then a $12 or $13, you know, he has to put $12 or $13 billion of margin loan, essentially. And, and, you know, but he has, I mean, he has two things.

Obviously, he has, you know, over $150 billion worth of Tesla stock, even at, even at current prices. Some of that's already encumbered by margin loans. But he also has, you know, he also has his 40% or whatever of, of SpaceX that he owns. I mean, so one thing that's interesting is, he. can't just, if there's a, if there is a margin call, he can't just back out and say, oh, it's, it's no longer, like you said, it's no longer, he has to use like reasonable commercial

efforts to seek, to seek financing. And actually, that was an interesting part of the KKR, decopac decision. Their financing, um, their financing actually, they claimed it wasn't available. And what happened was it wasn't basically after COVID hit, KKR went back to the lenders and said, hey, listen, like, we need all these concessions in terms of, you know, leverage multiples, like, you know, because the company's profitability has fallen. We need like all these concessions, blah, blah, blah. And the lenders said no. And they claimed that that made the financing not available and that that allowed them to walk. But the judge, said, no, actually, you know, because the banks were still willing to lend at the original,

on the original terms, you can't just, you know, essentially you sabotage the financing. You said you sabotage the financing. That brings me to another interesting point. I do wonder, so, A, I think the Tesla like kind of margin call level is around 3 to 350. It might be as high as 400, but I don't know for sure. But I do wonder if Tesla, you know, A, the stock has to get cut in kind of half for this to come up. But if it happened and Elon went and said, Judge, I can't raise this money. Like, he has to use reasonable as efforts. I wonder if Twitter could go back and be like, Judge, he can't raise this money because

he's out here in breach of contract. This is another question I was going to have. Everything he does on Twitter right now is in breach of the merger contract that says, basically he won't slander Twitter or the deal. In breach of contract, he was out there blowing up the deal, telling lenders he didn't like this, all this sort of stuff. I wonder if Twitter could argue that. And a judge would say, hey, Elon.

You actually do still have the assets, right? You could sell SpaceX. You could sell all your Tesla stock. The reason you can't perform is because you blew up your own financing. I wonder if a judge would hold him to that and make him perform on that. I think it's low likelihood, but I think it's a possibility. Yeah. I mean, it does seem like, I mean, he is obviously saying things that are negative about Twitter in general, right?

So I agree with you. I do think it's possible that a judge could look at his comments and say, you know, you contribute it. And because like you said, it was in the contract that he's not supposed to disparage the company for this exact reason, right? Like one of the reasons is so that, you know, the deal goes through. The banks don't get scared. The banks don't pull the financing, you know, other equity investors, you know, write their checks, et cetera. So, yeah, that does seem like a possibility to me, although I'm not an expert on like the legal or the precedence there and whatnot. The co-investors in the deal, right? And there's a bunch of co-investors. One of the Saudi

Arabian foreign wealth funds owns like 4.9% of Twitter and is just going to roll their equity into the deal. I believe one of Brookfield's funds writing a $100 million check to co-invest in here. Does how Elon's talking on Twitter at all, does that impact their obligation to fund the co-invest or anything? I would love to know about the discussions between the co-investors and Elon. I mean, I actually wonder if part of what's going on here, I mean, who knows, but I wonder if part of what's going on here is the co-investor saying, listen, I know we're committed here, but like, please try to get us out of this. Like, the stock would be, the stock would be 30, 40, 50 percent lower. Like, we don't really want to do this. Like, please let us

out of this gently. So I have no, I don't think, I don't think it would affect their, you know, their contracts. I don't, um, I don't, um, I don't think he has filed those contracts, uh, as far as their commitments. But even if he, even if, even if it did, he would still be on the hook because, you know, any, anything that he does to personally, like, affect the, the availability of financing. I mean, he has to actually proactively try to keep the financing. And if he doesn't, the judge will, the judge will rule that he still has to pay, It still has to buy the company. One of my big worries, and just making a complete shift, one of my big worries which I have

gotten much more comfortable on, but look, Twitter is a mess. This drama, this is a circus with Elon Musk. And one of my big worries was Elon's going to try to break and the Twitter board is going to look at that and say, we've got a lot of work to do. Elon is a wild man. We can't rely on him. You know, there would be some back and forth, but eventually they just say, let's just take the billion dollar check from Elon and let's walk and lick our wounds. Or maybe they could

get up to $2 billion. But, you know, the difference between getting a $2 billion check and walking and the stock price would go down a lot. We can talk downside in a second versus specific performance is huge. So I was kind of concerned for a long time that the board just wasn't going to have the Cajonais to go in like Sue Elon and court. I've gotten more comfortable on that, but I want to ask you, what's the risk that the board, the management team, kind of just say, hey, but it's, Elon's being Elon. It's, I mean, it's obviously been the biggest risk from the beginning, given like the other fact patterns.

And it's very strange because it's like one of the only times where, I mean, maybe you can think of another one, but I can't remember a situation where like all the facts are on one side and the main thing you have to worry about is just like people not giving a shit or like people not doing their fiduciary duty like that that that that is pretty rare in corporate America that you have that as like your main your main risk I mean usually it involves some like very strong conflicts of interests um but in in this case I mean obviously they that has been a worry and of course there's a couple of them that are conflicted right I mean you have jack Dorsey who is if you look at the merger uh docs it he obviously was talking about

to Elon for a long time about taking it private. He's been, he's like on team Elon like all the way. Like they're clearly like just boys. Yep. And so, and he's been rumored to potentially be rolling his, I don't think he was on the filing that Elon did as far as like committed financing and people who are rolling their stake. But I think people have been talking about him, you know, he has been in talks to, to roll his stake into the new entity. And I mean, clearly anyone that's rolling their stake into the new entity is conflicted because, you know, you want, you actually want a lower price in that scenario because you're own, either they'll be less debt or you'll just, I mean, you'll own a higher percentage of the enterprise, including

yep, right? So, I mean, I think also the, the Egonne Durbin, who the Silver Lake partner, he, he, Silver Lake's also rumored to be potentially involved in rolling their stake into the new, into the new entity. So he's also potentially conflicted. but everyone else is pretty independent, I think. And, you know, I know, people have heard sort of, I mean, people have heard rumors about how the board feels about Elon. I mean, if I am the board, I am furious at how he is trying to rip up a contract in broad daylight through like the most transparently, in the most like brazenly, dishonest way. I would be absolutely furious. and I would be like just salivating over the opportunity to to take him to court, honestly. So I don't know. I don't, it doesn't, nothing that they've done so far has explicitly shown me that that's

not how they feel because they haven't, they've said, I mean, they haven't said much, but they have, they did, there was like a couple articles. There was a couple internal emails and stuff saying that where they're, they're telling their internal people that like, there's no such thing as putting a deal on hold and whatnot. So if I can, if I can disagree. with you on i think the board i've gotten much more comfortable based on since i again my my notes will be in the my post will be in the show notes i've gotten much more comfortable so on may 17th they filed a

press release that says twitter files preliminary proxy for acquisition by yelan musk and in it it said twitter is committed to completing the transaction on the agreed price and terms as promptly as practical as practical now maybe you look at that and say oh that's boilerplate but i have never seen a include that line in a filing of, I don't think I've even seen press, I haven't seen a lot of press release saying we filed the prelim for a merger agreement. I've never seen a company include that line. And that, plus there was a Bloomberg article that said the board was going around telling people, we're, we're going to close this on terms. We're willing to, I think they even said, we're willing to go seek legal remedies if, uh, if we're going. So I've gotten a lot more

comfortable there. And then the second thing that I thought was interesting, I'll just rant for a second. This deal was agreed on April 25th is the day they put the press release out of saying Elon Muskery-Sacquire Twitter. They filed the prelim proxy for this deal on May 17, April 25th to May 17. That's what, three weeks? I, 45 billion dollar merger pre-lim proxy in three weeks. I can't think of, I've never seen anything that close. I mean, maybe somebody with better skills on the computer can find an example. I can't think of, that's like tender offer fast for getting those docs filed. Normally it takes two, three months to get the prelim proxy out. They filed that so quickly. And if I was the board, my best strategy would be let Elon rant and

raid. We're going to meet all of our requirements. We're going to file the proxy. We're going to get the shareholder vote approved. We're going to get all the regulatory stuff done. And then we're going to go to Elon and say every condition has been met. We would like you to put $45 billion into a checking account. And Elon cannot and we're going to sue or Elon can and we'll close. And based on what I'm seeing by that prelim timeline, you know, Twitter just casually saying, we're committed to doing everything on terms. It seems like that's the strategy they're taking. Yeah. I mean, I think it's, and it is the best strategy because there's nothing, nothing that they can say is going to, you know, at least in public, nothing that they can say is going to certainly convince any of the

Elon fans. I mean, the only thing that matters is whether they get regulatory approval, whether they cross cross all their T's and dot all their eyes. And yeah, I agree. That's that. I actually didn't think about that the line because I saw that, but I didn't, I didn't actually think about how rare that was. Because of course, every company that's getting acquired for a large premium is trying to get the deal done, right? But so that, but I just threw that in to make absolutely sure that everyone knew that they are doing their best to get the deal done on the original terms. My partner at Rangely, Chris, he likes to say one time he was listening to Britney Spears and somebody asked her about if she was a virgin and she said, how dare you ask that question? And if you

were just listening, you wouldn't have taken anything from that. But if you had listened to her the past five years, everyone who had, every time she'd been asked, she said, of course I am. So it wasn't what she said. It was the change in what she said that you notice. And that's kind of how I view that proxy line in a not too, not too appropriate. analog. Let's see. Last thing I want to ask, one of the crazy things you'll hear. I think Matt Levine had this is, what if Elon goes to court and he loses and a judge order specific performance and Elon refuses to specifically perform? I think that's a crazy risk, but I'll flip it over to you. Yeah, I mean, I think he goes to jail. Like, because so if you look, you can look up,

there are cases where the court of the court of chancery, has ordered people to jail for contempt of court for failing to follow a court order. Like, I don't know if it's, I don't think it's ever happened in the case of a company failing to specifically perform on a merger agreement because that's just completely nuts. Why would you do that? But, you know, like, if you, you know, agree to, like, it was, actually it was Gore versus gore versus woo and if you look on uh delaware litigation dot com which i think it's just the court of chance or the delaware courts uh like website um uh or it might be a it might be a third party website

i'm not sure it's like it's like backslash woo order for prison and i'm just like imagining that that being like musk order for prison i mean there's just i don't think you would ever let it get to that point but i mean that's the at the end of the day if you don't do what the court says like they can find you some ridiculous amount, but it would have to be like a million dollars a day or something or $5 million a day. I don't know what else. If you run the conspiracy theory down, I've known people who've been like, well, Elon's just, Elon's in Texas. He's just going to go to the governor of Texas and be like, don't extradite me to Delaware. This is political prosecution. We'll try to score political points. And you can keep running down that. But what I

come to is, look, Delaware knows if we let a billionaire get out of specific performance because of this, again, the whole merger contract system is screwed. And, guess what? There are a lot of counterparties to Elon that Delaware can start going after. Delaware can go to every bank and say, hey, all of you are headquartered in Delaware. You guys do a lot of business here. You guys want to keep doing business. We're putting a freeze on all of Elon Musk's assets. Like they can just keep escalating. Yes, Elon's a wild man, but if a court order specific performance, I feel pretty good that we're going to recover there. Maybe he ends up in jail. Maybe he doesn't. I think he's not going to because people are going to say, hey, this is

one thing you don't want to mess with, but they're going to find a way to get the assets. Let's see. Tesla's a Delaware company, right? I believe so. I would be pretty surprised if they weren't. But Tesla's not a party to the contract. I think where you're going is. As far as seizing his assets, right?

I mean, they can certainly put a freeze and not let him transfer any Tesla shares. Yeah, but that would probably be easier to just go to the banks, though, right? You just go to the banks and do it. But, yeah, if he loses, they're going to recover unless he takes his Tesla shares, lights them on fire, and then flies off to Mars or something. Let's see. I've got a few floating notes around, but anything else you wanted to say, anything you think we missed here? Sure. Yeah, I have one thing.

Do you think it's probably too early for this? But what do you think about? What do you think the likelihood is of someone like a Carl Icon or a Dan Loeb or someone like that? I think Icon would be the perfect. It would like fits his kind of MO the best. But I'm curious what you think about that. So what Evans referring to is an activist most likely comes in, buys up 5% of Twitter at today's 37 price. And they say this is an ironclad contract.

I am going to like force the board to enforce on this. Like, we'll replace all the boards before this, all the board before the contract even breaks. And our one goal is to go force Elon to encourage on this contract. I wouldn't be crazy shocked. I agree with you. Carl Icon fits. If you want to get really fun, if you're Jeff Bezos, why not buy up 5% of Twitter and say, hey, I'm forcing Elon to specifically perform on that?

I think it's possible. Look, I think this is a really good risk reward. It is completely idiosyncratic for the markets. this is, if you go back to the 80s and 90s, this is one of the things that activist funds were like kind of formed to take advantage of. You think of John Paulson making his fortunes on CDS, a non-correlated, asymmetric trade. Like, yeah, there's a lot of people and a lot of these activists have legal backgrounds. I think there is a chance. I think ICON would fit particularly well because he, a lot of what he does, he tries to couch it in terms of sort of improving the

the functioning of corporate America. Yep. And I mean, this is this perfect, that fits that to a T because, I mean, this is really a question over whether contracts matter and whether boards are willing to pursue the fiduciary duty of minority shareholders, even at the expense of pissing off the world's richest person. And so I can't, you know, I can't think a better person to enforce something like that than than Uncle Carl. Yep.

I guess the last two things I've just got floating around. I mean, we've been saying specific performance. I do think one downside I've heard from people is while courts will rule for specific performance, courts really don't like to go to specific performance just because they're forcing people to close. Like, I do think the courts are going to be nudging everyone. Mediate, mediate, settle, settle. So I would not be surprised if you see a slight price haircut here.

But, you know, Louis Vuitton, Tiffany. height of COVID, they cut from 135 to 131.50. Alir Abbott, which I mentioned in my note, that was a disaster. That business was falling off a cliff. There was some fraud. There was a DOJ subpoena for bribery for incorrect practices. That one from 56 to 51. Like the precedent is everyone goes into mediation and the buyer realizes,

ooh, we have a really bad case. If we can get a token haircut, that's probably the best we can do. I think that's probably the most likely endgame. Again, Elon's a wild man. Maybe he just runs it out to the end. How can the board, I mean, I guess if you put it all in escrow or something, but like, yeah, how can the board read a new contract when he just, you know, pooped on the last one? In order to get something, you have to give something.

And I think you say, let's choose 50 as the number. Elon, we will close at 50. That will save you $2 to $3 billion, which is big in terms of the margin loan. It's big in terms of everything. That is a mammoth win for you with how poor your court case is. But you need to put everything into escrow. and the moment the all the conditions close like it's not even you transfer assets like the moments we just release them from the escrow account right like we've got 20 billion in escrow we've got

a claim on all your margin loans you agree to waive every single condition like I think that's what you have to do I like how you had to explain why two to three billion is a lot of money you know the margin loan and the you know it's important well you know you in a 44 billion dollar deal two to three billion dollars it's material but it's not it's probably not the most material but to Elon who you know he's getting a lot of debt that cuts a lot off equity check you know it's a huge amount for him so i do think that the last thing i wanted to say uh just when i was diligent to seeing this morning for it i discovered hexman hexion versus hutzman are you aware of this uh no what's that case listeners can google this this was like a 2008 case so it is very dated but uh

It was another case where buyer alleges material adverse effect, and there's, I'm saying it because there's some really clear rulings on it. It says, hey, material adverse effect, the buyer loss, it says, if you're the buyer, the burden of proof is on you to prove that material adverse effect. And then it goes to a lot of the other things that you talked about earlier. It has to be a long-term view of the material adverse effect. Misforecast, don't count it. Yeah, it's just a lot of things that back up everything we said. But if anyone wants to Google, Haxian versus Huntsman, I thought that was a very clear case. Now, in that case, it is interesting.

Huntsman won, but I don't believe they got specific performance. I believe they ended up settling for, this was height of financial crisis, but they ended up settling for like a boatload of money, but it was not specific for it. So I'll have to diligence that a little bit more, but that's an interesting one. yeah i mean one thing that we've been a little bit worried about is that is that test as that twitter would try to negotiate for some like giant settlements that would maybe seem like it was going to make them whole but the amounts would have to be so large i mean you're talking about however many like what is there like 800 million shares outstanding or something times uh you know times like 30 i mean it's it's gigantic ignoring if they got like a third

billion dollar settlement check or something, right? If Twitter breaks tomorrow and you can say they get the billion dollar break fee, you can say they don't. But if Twitter just walks away for some reason, where are you running the downside to you for Twitter? So I think if you look at, so I mean, one interesting thing is, I mean, normally in a case like this, you, if the deal breaks, it should have if the person was paying a premium, it should have like gigantic downside because you have to like reverse all that premium. In this case, interestingly, like most of that premium has already fallen away. Like the stock's gone from 50 to 37.

And I think it was training at like 33, 34 before, like low 30s. However, the market's down since then, right? So I think if you, my numbers are like if you, if you, if you purely based on like the return of the market, it would be something in kind of the mid to high 20s. But if you then assume that there's like, negativity around the stock. And I don't know what your take is on their earnings report that came out. Like maybe it goes to low 20s. I don't know. What do you think? I was using low 20s, but I had a couple conversations with people last week. And one person was like, they don't have a

position, but they think they've got a great case. And they were also like, if you read the proxy, Twitter's in the proxy companies give earnings forecasts, right? Not forecast, but they say what their internal forecasts are. And their 2023 and 2024 earnings forecast. I believe we're well ahead of where the street is. So they were like, look, maybe the downside isn't as big as people think. But then I had another person who was like, Twitter told you 18 months ago at their investor day what their earnings and MDAU targets were. And they're nowhere close to that.

Like, who's going to believe in earnings target in the proxy? And by the way, Twitter's a disaster and Elon Musk's proving this. So yeah, you can run your downside to 2250 if you want. Like that would be kind of nine or 10 times forward EBITDA if you believe that. that's kind of where Facebook is. Do you really think Twitter is going to trade at Facebook multiples? I think the downside is way lower. And I hear both sides. I just kind of think like, hey, I don't think this contract is breaking. I think we're getting a price cut or we're getting specific performance, to be honest with you. But yeah, I don't know. But it's a really interesting

question. And obviously, it really affects it because the odds you're paying if the downside is 30 versus the downside is 20, you're a poker player. You don't even need to tell you. It changes how much, how big I mean, yeah, I would argue to that guy, like the, you know, Twitter is a, what did he say? Twitter is a dumpster fire or something, or Twitter's a mess. That's, for a long time, that's kind of been the opportunity at Twitter, right? I loved when it might be proving all the margin opportunity that exists. When Apple changed all the tracking data and everybody got really messed up because of all the tracking data changing and all Facebook, Snapchat, all these guys that eventually really hurt them,

and Twitter could just keep coming out and be like, our operations are such a mess. We couldn't use any of the tracking data. It's all upside from here, baby. I loved it. Last question, put you on the spot. Sure. Odds that the deal closes at 5420.

Odds that the deal closes at a price cut, you know, nothing crazy, let's say 10 to 15% max, which I think would be huge in the scheme of price cuts. But odds the deal closes with the price cut and odds the deal just flat out breaks. I think it's something on the order of, I think there's a decent chance that the board will figure out a way to, to like do some type of price cut just to like have this be, have this be done. So I think it's maybe, but I mean, this case is so strong.

It's really hard to get into the mind of the board. And because of all the positive things they've said, like, like you mentioned. I think it's maybe 60% 5420, 30% some type of some type of haircut, which I hope would be tiny. And then 10% case, 10% chance of like, you know, something disastrous that, you know, somehow the deal breaks and he walks away with the only a billion. I think just knowing how much certainty would close for the board, I think it's like 40% close on terms. 55 plus to close with a small price cut. And then, I mean, look, one thing people have told me is you never put like less than 5% chance on something happening in the world because the world is full of right tails.

But if you gave me truth serum and I looked at this contract, this is such a good contract, like I don't think this breaks for any reason other than Tesla stocks at 100. And he goes to a judge and he gets a finance out. And Twitter throws out the 50, 50 shot of, hey, your finance. is off because you blew this deal up yourself and a judge rejects that. That's how I see this deal breaking to be honest with you. Right. And I think that's a very small chance. But that's how I see the deal breaking. So that would be my odds. Don't hold me to it. I mean, I'm certainly not not size, like I believe this is 99% to go through. But that's kind of how I see it. Yeah. I think you're,

I think you're, I think you're right. It might be because I agree it would be, it would it would optically provide some certainty for the board. I think they would feel better and just knowing this was behind them. Although I still, I can't get, I can't wrap my mind around like the fact that they already have an ironclad. They already have an ironclad things. Like a separate. I mean, but you're right.

If the money's an escrow, maybe that makes them feel better. They've got an ironclad thing, but it could get even more ironcloth if they could get a contract at 5320 that said Elon waives everything, right? He waves the bot problem. He puts it all in escrow. So they could get more ironclad, but I'm with you. Last question. And then I will actually let you go.

A lot of interesting stuff in the market these days outside of Twitter. Anything interesting? Our listeners should be thinking about. I should be prepping the third podcast. We're with you. Anything catching your eye? Yes, but I am still working on it, so I can't tell you. I hear you.

I put a blog post off the other day. I just think there's so much interesting going on. Like, you know what? I haven't had full time. to dive into, JetBlue, Spirit, Frontier. I don't know if you're monitoring that, but I've never seen a board so entrenched. That situation is Spirit is selling to Frontier and the merger price is like $20 at the current price. And JetBlue's out here offering $30 per share and cold hard cash. And the Spirit board is just like, no, absolutely not. Regulatory risk,

all this sort of stuff where their current deal has regulatory risk. JetBlue's offering a massive breakup fee. It's one of the crazy. And that's just one of the many, many, crazy situations out there. Markets are scary, but I'm telling you, event-driven is really interesting right now. That's not investing advice. That's just saying it's interesting out there right now. It definitely is. I mean, one of the only, the only problems is that, you know, when the market's down this much is that your current portfolio looks pretty interesting as well. It's hard to know where to spend time. You know, Twitter, if it closes, it's 37 to 54. That's going to be the best thing in your portfolio. That's going to be great. But it is true.

like one thing I've heard for many people who are around in the global financial crisis, which I was in college, so I can't even claim to have really been investing there, was there were a lot of spreads that were trading at 10% spreads in March 2020, which looks great. And they would close in two or three months, which sounds great, it looks great. But the opportunity cost of buying those versus buying, like, some of these companies were priced for liquidation and stuff and would go up like 4x in a couple months, the opportunity cost was pretty high.

And, you know, I would say, hey, that's, markets could have kept going down. Markets didn't have to bounce this hard, you know? So I do hear you, but when things start to get this rocky, the opportunity costs of every different asset class and security is the real holdback, I would say. Yeah, definitely. Cool. Well, hey, Evan, we've run really long, but that's because this was a lot of fun. It's a great situation. I really appreciate you coming on.

I'm looking forward to you trying to catch up to Jeremy Raper with podcast number three in the near future. But Evan Zendell, thanks so much for coming on. Thanks for having me.