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Comment by ckastner | Hacker News Reader

I strongly feel that the spammers thing is smoke and mirrors.

The deal at $54.20 was maybe OK for him a month ago (it was great for Twitter because nobody else was interested at that price). Since then, Twitter reported disappointing numbers for the past quarter, and the entire market took a nose dive, with tech hit especially hard.

TWTR stock price was in the mid-30s before Musk's offer. Without the offer, and with the disappointing numbers, and with the recent market development, one could reasonably assume that the stock would be below 30 today.

Musk should just pay the break fee of $1bn, and renegotiate for $42.69 or whatever meme number he fancies. Why pay $42bn total for something when you can get it for $30bn.

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When Musk started selling his TSLA shares to buy Twitter, TSLA fell by like $200 or like 20%.

It was becoming obvious that to buy Twitter, TSLA value would have to decline severely. IIRC, Musk only got around to selling $8 Billion pretax before quitting.

Musk thought he could afford Twitter. He sells some TSLA and the market collapses, and he suddenly decides against it.

Everything else is smoke and mirrors. Musk doesn't have the cash for the deal anymore (maybe he never had the cash for the deal). I guess Musk is looking at the $1 Billion ejection clause now and trying to weasel around it.

But at this rate, it looks like Musk owes Twitter $1 billion cash for this broke deal.

It will be hard to know how much TSLA's current value is due to this vs. how much is the current climate of the whole market.

Does it matter?

Under the original plan, Musk needs to sell approximately $20 billion more of TSLA stock before the original deal could be accomplished.

What do you think will happen to TSLA share price if Musk did that?

It's a hard job to find $40+ billion dollars. You gotta sell assets, and when you sell those assets, they fall in price significantly.

I think the parent was suggesting, without being so blunt, that TSLA is undervalued and grabbing some of those shares while they're cheap is his strategy.

And, of course, the counterstrategy is to wait until next Wednesday, when the price of TSLA moves upward, then sell and catch the falling knife when other institutional buyers ease off the stock price.

To be clear, I hold no shares of TSLA because you can get hurt trying to catch falling knives.

This is the pretty good point to all the "richest person" "net worth XX Billion" lists and calculations.

Most if not all of these people can't liquidate even close to their "net worth"

Which is why it's not at all unexpected that the Twitter board after some hand-wringing jumped on the deal because even at a "loss" someone who offers to turn your illiquid assets into cash without tanking the value of those assets is literally the dream exit.

Makes one wonder if they simply called his bluff.

Except the Twitter board had almost no shares between them (Jack being the only exception). I recall reading that none of them even tweet, but that's neither here nor there.

That said, it's clearly a good deal for their shareholders for this very reason, and the board should act in the interests of their shareholders.

> I recall reading that none of them even tweet

Good drug dealers don't get high on their own supply.

Drug dealers are just middlemen though. Would you really trust the chemist that has never tried their own goods and has an overall disdain for drug usage.

Kind of stretching the analogy, but you hopefully get my point.

> Most if not all of these people can't liquidate even close to their "net worth"

I think that's broadly true, though some of the older ones might be able to. Bill Gates, for example, has diversified his wealth out of Microsoft (and he doesn't control the company these days, anyway). I don't think the market would punish Berk or AutoNation, for example, nearly as hard as they've punished Tesla for Elon cutting his ownership stake.

It's not punishment. Stock price * shares != actual value of the company. As more shares go onto market, demand naturally decreases as supply satiates existing demand, thus causing the price to decrease. I'm sure this is covered in some basic economics course that I never took.

And yet we treat the market cap as the actual value of the company. Also, sometimes the actual value can be more—for instance if a buyer comes along who wants all of your company, to take it private.

It would be interesting if there were some way to calculate something like the "cash net worth" of individuals. Work out what they could actually reasonably expect to get if they liquidated all their assets. Obviously it would be a pretty rough estimate, but you'd definitely see some reshuffling of the richest people lists.

Call it what you will, I don't think it's just the economics of putting more shares on the market. When the CEO dumps ownership, he is signaling a lack of confidence.

What did Bill Gates signal when he diverted his Microsoft stock into the Bill Gates Foundation back when he was forced to step down as CEO after the antitrust lawsuit?

Not all sales are equal. Here you have a guy who essentially arrived at the end of the road and brought Microsoft where only Standard Oil arrived before.

Both had extinguished all their natural competitiors and had to be essentially stopped by the US Federal Govt.

Stark contrast with the CEO of a luxury automaker who inflated a financial bubble to enrich himself who is now selling to buy a social media platform.

The evidence against this is that tsla stock has gone up since musk said the deal was "on hold". This may be because the market expects him to not have to increase supply by selling more shares, but he's already trying to arrange outside funding to limit what he has to sell.

It could be that confidence in musk and his brand is having more of an impact on share price than supply and demand. He's behaving erratically and is clearly distracted from running tesla by this twitter fiasco. I'm not sure what weighs more on the minds of institutional investors.

If you can get several tens of millions of dollars, liquid, on fairly short notice, there's almost nothing you can't buy on a whim. You may as well have infinite money. It doesn't matter that you can't liquidate another 90-99% of your net worth easily. You borrow $60m for that second yacht, then pay it off as soon as the tax situation looks favorable for realizing some gains. No big deal. Live like (er, better than) a king, pay taxes like a pauper. It's the American way.

Larger sums are only really useful for making big-splash investments. Like this. As far as personal spending goes, it's no obstacle, so it doesn't matter that they can't easily turn their entire net worth into a literal billions-of-dollars balance in a checking account.

> there's almost nothing you can't buy on a whim

Twitter, you can't buy Twitter on a whim.

Right, big-splash, chest-thumping investments are about the only thing that might be a problem. Not ordinary purchases. But that's not so much buying something, in the ordinary sense, as shifting investment strategy.

Aka, you can't buy anything on a whim.

At least one reason it matters is the gigantic numbers poison public discussion of wealth. People commonly claim things like Musk can single-handedly end world hunger because he has enough net worth to buy everyone food for the next 20 years. That isn't true if there is no way for him to liquidate enough of that worth without destroying the worth in the process. What these people actually can do is give away equity shares to the poor, but you can't buy food with equity shares. Or, in Bezos case, since he owns Whole Foods, I guess he can just give away food.

Didn't he end up not helping at all after previously committing billions to it?

I feel like he's not obligated to do anything, but ignoring his commitment makes him a worse person, and there are probably amounts greater than zero which do not encounter the issue you describe

No, not at all. They didn’t actually detail how they’d spend it.

It seems to me like they did, they came up with a plan and everything.

Are we sure Elon isn't just claiming that he forever wants more detail, like a sealioning troll, because in actuality he wants the money for himself more, and never actually intended to make the donations he committed to? Occam's razor would suggest that is actually the case.

I mean, if we was serious about it, after he received the plan, did he ask for more detail on any of the items he didn't understand?

The so-called “plan”: https://www.wfp.org/stories/wfps-plan-support-42-million-peo...

It doesn’t say how they’ll spend the money aside from allocations here and there, and it wouldn’t solve world hunger.

>the so-called "plan"

it's actually just a plan, not a 'so-called "plan"', whatever that means

>It doesn’t say how they’ll spend the money aside from allocations

the way the money will be spent, is by allocating money to the items that it will be spent on, which are detailed in the plan.

that seems good enough to start for me, but where did Elon ask for more info than that? I asked this in the previous post, but very conspicuously got no answer.

surely he didn't just _forget_ about _billions of dollars he committed to donate to charity?_

That's true but wealth at that level is essentially relative anyway.

There's little you can do as a billionaire that you couldn't do as a hundred-millionaire when it comes to simply buying things for liquid cash. You can buy all the houses, boats, private islands, etc. that you want.

The only meaningful difference in wealth at that scale is buying fundamentally scarce things: specific real estate and private islands, favors from politicians, private time with other powerful people. For all of those, you are competing with other wealthy people to win them, so it's relative wealth that matters.

I agree with your point in general, but I think you'd need to scale the two example numbers each up by an order of magnitude. A hundred-millionaire is definitely rich, but can't buy all the houses, boats, private islands, etc. that they want. A single property or a yacht can easily cost well into the tens of millions. Plus if you're living in a $10M+ home, your annual expenses are presumably significant, so you'd want to keep a fair amount to live off of.

It's probably ridiculous to most to think of hundred-millionaires being financially constrained, but I do think there's a material difference in the buying power of $100M and $1B without getting into unique goods.

I would be more inclined to believe this if every other similar company wasn't also taking a 20%+ hit right now.

To further compound the problem, a significant chunk of Musk’s financing for the deal relies on leveraging (some of) his TSLA for a $12b or so loan. The loan mechanics require TSLA to maintain $740 or higher. When the deal was announced, it was $1,026. It has closed below $740 for the past two days currently at $728.

Yeah, I don't remember all the details.

IIRC, Musk makes Twitter a 100% cash offer. Twitter accepts, but writes the deal such that if either side pulls out of the deal, then a $1 billion penalty will be applied.

Musk goes to the banks and secures a $20 billion-ish loan, putting TSLA as collateral.

Musk starts to sell TSLA for the other $20 billion of cash. Stock tanks as a result, only ~$8 billion sold on public filing documents.

Musk runs around looking for another $12 billion for the last week or so.

And now we have today where it looks like he is failing his side of the deal. If Musk lost the $20 billion-ish from the banks due to TSLA being too low, it makes sense for him to give up.

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All that is going on right now is Musk trying to blame Twitter for the failed deal, so that he avoids the $1 billion penalty written into the contract.

I am curious if his inability to raise money for the acquisition is a strong signal of the sliding value of social media. Facebook and Twitter seem to be on a streak of trying to pivot, Reddit is in private equity. Musk is fairly well-connected, so if he's unable to get other rich people to invest, their speculative value (at the height of their value) may be vanishing.

The value of internet forums and discussions is roughly the value of the advertisements hosted on those platforms.

The value of ads drops during a recession, and things are looking more-and-more bearish this year.

It's a signal of a) market situation b) faith in musk c) valuation of the deal d) other terms.

It's completely nuts for 'one guy' to spend $40B on something, too much possibility for self delusion.

Musk should have had Private Equity lined up before the offer as part of a consortium. They would have called out his bullshit.

It's really, really telling that he did not.

Imagine Musk having to sit a table with 'mere bankers' telling him he doesn't know what he is talking about.

It's easy to be full of bluster when you're sitting on top of zillions in inflated valuation.

> They would have called out his bullshit.

Had you posted under any other topic relating to Musk before today, you would have had replies here claiming "Musk is highly intelligent and helped create at least 3, multi-billion dollar companies, with 2 more in the pipeline (neuralink and boring). How dare you question his genius".

Since there aren't, I'm using this comment as a reminder against confirmation bias.

He is all of those things. But he's also full of shit.

Those two thing can be true at the same time.

I follow many VC Twitter accounts and it seems to me, even the 'nice' ones are giant turds when it comes to any kind of social or communitarian understanding of the world.

But they understand startups very well.

It's common among successful people, I think, to be really great in their core competency, to have fairly astute understanding of other things and yet be completely glib at the same time, and lack the self awareness to recognize it, supported by the fact that 'nobody challenges them' on anything.

> strong signal of the sliding value of social media

It's not sensible to make ANY assertions with the market as it is today.

No, that is outdated information. He's been working on financing without leveraging his shares with one of the banks.

And that is outdated information, as we clearly see that Musk is now thinking of pulling out of the deal entirely.

When Elon Musk's networth is almost entirely tied up in TSLA shares, when the price of those shares declines by 20%+, it changes plans. Banks are less likely to take Elon Musk's collateral (almost certainly TSLA shares), Musk himself loses a chunk of networth and loses an ability to raise dollars, etc. etc.

Yesterday when he started running into trouble with the margin loan, the headline was that he was in talks to secure different financing. That doesn’t make my info outdated.

He has enough partner investors that he doesn't need the margin loan

Yeah, this looks like a way out of the deal.

TSLA has a problem with its stock. It's way overpriced for the size of the company. For Tesla, the company, to grow into its stock price, it has to make more cars than Toyota, GM, Ford, Volkswagen, and the rest of the top 12 car companies put together. Toyota alone makes 5x as many cars as Tesla.

Which means TSLA is a meme stock. And the bottom is falling out of meme stocks.

> For Tesla, the company, to grow into its stock price, it has to make more cars than Toyota, GM, Ford, Volkswagen, and the rest of the top 12 car companies put together.

You’re right that Tesla is valued on future performance but this part is just factually wrong. They will need ultimately to make more profits than those companies combined, but the number of cars is not that important. Apple has a ~25% share of the phone market but makes most of the profit.

> They will need ultimately to make more profits than those companies combined, but the number of cars is not that important

That climbs pretty linearly with car sales. There's only so much margin you can make with a vehicle in any market. Apple manages to have higher profit at lower sales because selling a phone for $1000 that cost $200 is possible since millions of people can afford $1000.

Selling a $100k car that cost $20k is a much bigger margin than maybe Toyota has, but there are very few people who can afford $100k cars. Eventually you need volume. Apple itself has huge volume, they are outsold by around 20-30% against Samsung, not by 5000%.

Yes, automakers can push the "more car per car" thing. Luxury cars don't really cost that much more to make than low-end cars, and the profit margins are much better. But the market for high-price cars is limited, and there are too many companies in it already. The volume is in the low-priced cars.

No. Tesla literally has sold for years the right to a software only $10k upgrade. Who cares if that’s crazy or not they’ve done it.

And they have vertically integrated, after automakers spent decades spinning out. Much more value capture.

And they have secured better rights to raw materials (lithium).

These sorts of discussions start to seem nitpicky when you're talking about the sheer magnitude by which they're overvalued. Whether they have to make more _profits_ or _cars_ than every other car company combined doesn't really matter because it's so ridiculous.

Truly, it’s not. Many industries have single companies making the majority of profits. It’s really not uncommon.

Can you say "margin call". His tune has changed - he realizes he cannot do it with Tesla stock. Bringing in other investors now. They will want a return on their investment other than "freedom of speech" if you believe the BS he used for a reason in the first place. There are some things even the riches man on the planet cannot have.

TSLA does make way more EVs than anyone else. They are valued on their potential as the clear leader going forward.

Every step of the way some armchair comes up and concludes that Elon is broke and this deal won't go through.

Why wouldn't he put up more Tesla as collateral? How do you know he can't get more financing? How much BTC, Doge and eth does he have? No one knows how rich this man is, people need to stop acting like they do.

> Why wouldn't he put up more Tesla as collateral?

Because he didn't. If Elon Musk had easy access to Tesla-as-collateral, he would have put more of it up as collateral.

> How do you know he can't get more financing?

Because he's cutting himself out of the deal. That suggests he has run out of options to get money.

Besides, surprise +50 BPS from the Fed just made it incredibly more difficult to get financing from the banks, and -20% to TSLA's stock price in the past couple of weeks compounds upon this fact, and makes it more difficult to use TSLA-shares as collateral.

> How much BTC, Doge and eth does he have?

Whatever amount he has, it is worth about 25% less than two weeks ago.

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EDIT: I mean, maybe Musk has the money and is just trolling all of us? Which sounds on-brand for him frankly. I don't know why he'd want to do that, but he's not exactly a "stable" figure.

> If Elon Musk had easy access to Tesla-as-collateral, he would have put more of it up as collateral

Just because he doesn't put up more, doesn't mean he doesn't have access to more. You shouldn't use more collateral than necessary.

I tought Elon is much smarter thatn that, he could have purchased twitter with TSLA stocks in an exchange deal without dumping them on the market.

That would mean Tesla would acquire Twitter, not Musk personally. I have a hard time believing that wouldn't have hurt the Tesla stock.

Well if his only goal was to get Trump back on the platform, perhaps it's better he loses 1bn and fail instead of 42b and Trump back on? - and even if he loses the billion, Trump might still get back on.

I strongly doubt that this was his goal.

The $1b is not a simple breakup fee. He can't just say, "I've changed my mind, here's $1b, the deal is off." It's not a $1b option to walk away.

The merger contract provides the option to pay $1b to walk away under only limited circumstances: either the acquisition is blocked by a government, or Musk fails to get financing for the deal. The latter can't really be easily faked: if he said 'sorry, I thought I had the money, but I checked my couch cushions and it turns out I don't,' and paid the $1b to walk away, Twitter would sue and this assertion that his financing broke down would be tested by the courts.

In fact, out of those limited allowances to pay the $1b and walk away, Musk is bound by the contract to 'specific performance'. That is, he's bound to actually do it. Pay the $54.20.

A good M&A analysis of the situation is below.

https://yetanothervalueblog.substack.com/p/quick-twtr-though...

Yeah, I didn't realize this since I guess I've only paid attention to the surface-level facts.

But digging deeper, the "people in the know" are now pointing out that this $1 Billion escape clause is actually very restrictive and unlikely to be invoked. Musk might be forced into buying Twitter at the previously negotiated $54.20 price.

But there's also the question: will Twitter's board really go to court to force Musk to buy it at $54.20? There's also the question of politics here. Even if Twitter's board is in the legal-right to do so, forcing Musk to become the new owner is bad politics.

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There's also the possibility of the Twitter Board's incompetence. Maybe they don't realize the advantageous position they're in and give up before testing Musk in court?

> But there's also the question: will Twitter's board really go to court to force Musk to buy it at $54.20? There's also the question of politics here. Even if Twitter's board is in the legal-right to do so, forcing Musk to become the new owner is bad politics.

Is there some kind of politics more important for corporate decision making than claiming the $20bn or so you're entitled to by contract?

> Is there some kind of politics more important for corporate decision making than claiming the $20bn or so you're entitled to by contract?

Corporate politics are politics like any other. They're very complicated.

https://www.engadget.com/musk-twitter-lawsuit-florida-pensio...

> Is there some kind of politics more important for corporate decision making than claiming the $20bn or so you're entitled to by contract?

Sure. It's the principle-agent problem. Twitter as a whole might make more money under scenario A, but the people who make that choice on Twitter's behalf might make more money under scenario B.

Of course, that's short term thinking if you're a C-level executive. Because scenario A gets you more money at your next job. But if you're thinking about retiring, it could work.

I really don’t understand this comment. You think the Twitter legal team are so dumb to not have negotiated an agreement in their own favour?

I don't mean to be snarky but we're talking about the same company that shut down Vine and let TikTok happen. Their decision making has been baffling.

You're making a category error. The legal team is not the product team.

And Tesla has recalled nearly half a million cars mfg between 2017-20[0]. That's a solid percentage of all the cars they've manufactured during that time. I shudder to ask what you think of its leadership.

https://www.cnbc.com/2021/12/30/tesla-recalls-475000-model-3...

What? How is Tesla's car quality relevant to this conversation? You're really stretching here.

> I really don’t understand this comment. You think the Twitter legal team are so dumb to not have negotiated an agreement in their own favour?

Oh, the agreement is absolutely in Twitter's favor if Musk pulls out of the deal.

But that doesn't mean *suing Musk* to complete the deal is actually their best move. As usual, the best move is probably some kind of plea-agreement (or starting to sue to get into the position of a plea-bargain), where the details are figured out.

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There's really no "political benefit" to forcing Elon Musk to become the new owner of Twitter. There's a lot of room for creativity here. Maybe Twitter manages to extract a $2 billion concession or $5 billion concession from Musk (rather than the limited $1 Billion in the deal, since that only applies to very restrictive terms)

Or maybe Twitter just bans Elon Musk from their platform for wanton trolling and collects the $1 Billion. Who knows?

Just because Twitter's Board is legally allowed to do X, doesn't mean that they will do X. They will use X to threaten Musk into doing Y (and Y is what they really want). I'm not sitting in Twitter's Board of Directors right now, I don't know what their "Plan Y" is. But I have reason to believe that X (ie: forcing Musk to buy Twitter at $54.20) isn't in their best interest.

How about the obvious fact that Twitter is not currently worth $54.20/share? It's probably worth half of that if it weren't for the offer, given this week's climate. Surely it's at least partly their responsibility to negotiate the best financial outcome for the shareholders.

> How about the obvious fact that Twitter is not currently worth $54.20/share?

Shame on Musk for writing $54.20 into the contract then.

Just because the value of something changed after you wrote the contract doesn't mean that you can break the contract unilaterally. Musk could have gotten around this with an all-stock deal (ex: I'll give the Twitter board 100,000 shares of TSLA or whatever), or other ways to write the contract without setting a particular dollar amount.

But Musk wrote $54.20 and signed it.

And the contract even says the Twitter Board can force Elon Musk to buy Twitter and finish the deal at $54.20. So they made it crystal clear to Musk (and his lawyers) that the $54.20 price points stays, no matter how Twitter's price changes over the next weeks.

But 54.20 ends in 420, which means weed. Musk loves to memelord.

I think offering a direct swap for his TSLA shares at 20:1 would have been a smart move. It would have cost him like 5% of TSLA, which is a lot but still would have left him with the same % that Bezos has of AMZN

TSLA is way over valued at the moment. That would be a big risk compared to cash in hand.

To accept it, yes. But it avoids the macroeconomic questions and would have been a good idea for Musk to offer

If they did that they would get sued by their own investors.

Not if the board negotiates a lump sum settlement for breaking the contract instead. That's free money for Twitter shareholders.

I don't think people are aware that the Twitter Board knew they were calling his bluff and are going to make him pay one way or another.

I mostly agree with this

That is indeed the big question. The court case would go on for a long time, and in the meantime they'd be in this weird limbo and the business would suffer.

What we're really seeing here is: can a very rich person completely flout a contract, ignore legal obligations he signed, and abuse the legal system to the point that contracts are basically unenforceable against him? Sure, he has no case, and there is no real conventional legal way to wiggle out of this, but that's not really the question, is it?

As Matt Levine said in his column today, a merger arb told him that "if you're reading the contract, you've already lost."

In all likelihood, it seems the most probable outcome is a modest adjustment of purchase price to further "secure the deal" (whatever that means). But Musk is a bit crazy, so while that's the most likely outcome, it's hard to say it with much confidence.

One particularly tricky nuance of contract law is that their must be someone with legal standing who wants the contract to be enforced. If Musk doesn't think he can put the funds together without damaging businesses he cares about more than owning Twitter, then he can pretty much just invoke the $B walk away if he wants to. The Twitter CEO and board were pretty clear they did not think Musk's acquisition was in the best interests of the Company, but they were legally obligated to consider an accept a fair offer of acquisition because it would be in the best interests of the share holders.

Suddenly getting $1B without having to accept Musk as the new owner is beneficial to the share holders, and crucially tying up the company in a years long lawsuit to force Musk to acquire Twitter would be expensive, and until the contract is either completed or dissolved Twitter's fund raising options are greatly limited. Suing Musk for wanting out would not be a sound financial move and could even result in Twitter becoming insolvent. Their stock price could crash, their funds to continue the lawsuit exhausted, and most likely under those circumstances Musk would win and immediately turn around and buy Twitter for a far lower price.

With that said, the only real question here is what will Musk do under the circumstances? Funding the acquisition could cause his other businesses to suffer or even fail. SpaceX is particularly vulnerable, and it wouldn't take much to end the Borring Company if Musk's finances are in a dangerous position. If he just walks away he's out $1B, assuming they'll allow it. That can't be a super attractive option. Most likely he's going to exhaust every avenue in an attempt to raise the cash without putting his other businesses at risk. But there's a clock on that, and he could end up owing Twitter a shit load if he stalls for too long.

>One particularly tricky nuance of contract law is that their must be someone with legal standing who wants the contract to be enforced

> but they were legally obligated to consider an accept a fair offer of acquisition because it would be in the best interests of the share holders.

Musk buying the company at 30% over market value seems like it would absolutely be in the best interest of the shareholders as well

> Suing Musk for wanting out would not be a sound financial move and could even result in Twitter becoming insolvent

Why not? This seems like an easy case and a huge win for shareholders. I feel like shareholders could sue Twitter into insolvency if they didn't pursue Musk for massive reparations if he flouted the contract

> There's also the possibility of the Twitter Board's incompetence

This has been repeated at nauseaum .

Just because you don't know their names and aren't shitposting on social media they are not incompetent.

They managed to screw Musk over, they basically looked at macroeconomics, regrouped after the initial no and sold Twitter to Musk at the very top of a 13 year old bubble in the making.

If you look at Musk carrer each and every time he sold onto bigger fools. Compaq, Ebay and of course all the equity raises of his overvalued businesses.

Twitter board managed to screw him over and demonstrate that only idiots don't change their minds, all in one swoop.

They have the upper hand now.

If everything goes as it should this would be like Trump election loss. Meaning a defeat that makes it so that you don't hear from a guy for a long time. A severe wound and an existential threat to the ego.

We can only hope.

The poster suggested the possibility that they're incompetent to create a counterfactual, not that they are.

Oddly however, the other counterfactual of Musk being incompetent did not come up. This is after all, a person that paid the SEC $40m and has to have a company lawyer review what he tweets about Tesla.

It would not have made sense to discuss Musk's competence in context because Musk doesn't have autonomy over how Twitter chooses to respond to this.

He has autonomy into buying the absolute top of the 13 year bubble. Locking the purchase price at t minus 4/6 months. In 4/6 months when the acquisition is completed the S&P could be at 3210 and he'd have paid 54.20/share.

Or even sub 3000 if inflation becomes deeply entrenched in the economy.

If it gives him a cover story to sell $TSLA shares when that company is valued more than the next ten automakers put together, he’s at least getting a bit diversification and is winning on that side while losing on the Twitter side.

This. I'm surprised it's not talked about more.

yeah TSLA has to be feeling like a big of a golden cage at this point. 20 more years of making cars? sounds exciting

Musk's competence has to do with "this" being a thing at all. He started it!

> digging deeper, the "people in the know" are now pointing out that this $1 Billion escape clause is actually very restrictive and unlikely to be invoked. Musk might be forced into buying Twitter at the previously negotiated $54.20 price.

Matt Levine had a pretty different take, pointing out that if Elon Musk suddenly appears to be unwilling to buy Twitter, his financing might see that and - suddenly, but perfectly legitimately - evaporate, which would be a valid reason for Musk to walk away.

It really is true that lending someone a lot of money to make an investment they aren't interested in is a much worse financial move than lending the same money to the same person to make an investment they are interested in.

There is a best efforts covenant. They are in every merger agreement. Musk can't do this without being sued.

Look at Section 6.3

I mean, if that's true it just goes one step back. Then his action breaking the contract would be to express equivalence or hostility towards the transaction.

> Matt Levine had a pretty different take, pointing out that if Elon Musk suddenly appears to be unwilling to buy Twitter, his financing might see that and - suddenly, but perfectly legitimately - evaporate, which would be a valid reason for Musk to walk away.

That was awhile ago. Since then, the funding agreements have been made public, and Matt's most recent take is that the funding basically can't disappear unless Musk can kill the deal via another route.

> There's also the possibility of the Twitter Board's incompetence. Maybe they don't realize the advantageous position they're in and give up before testing Musk in court?

Yeah. Wealthy individuals advised by the best experts can't figure out what is good for them. Only if they would have someone in their orbit who knows how to read hacker news comments. </sarcasm>

You have a hilarious amount of confidence about the competency of America's oligarchs. Elon is a financial scammer, his money all comes from government subsidies.

He ain't as smart as you think he is.

I'm pretty sure the comment came from the other direction - that Twitter's board/CEO wasn't so inept they needed to be advised by HN.

Just like Boeing, Lockheed, GM, etc.

Those companies don't have people worshipping them like they're a collective of geniuses. Musk's companies certainly aren't any worse than those companies - but they're no better either, and he's no Messiah.

> he's no Messiah.

Saying that on HN is just cruel: you know full well you have exactly the niche in your grip that simultaneously wants to exclaim.. the behavioural tendency of the child that he is, and bears the feeling 'no no, not here'...

Have you seen him give the everyday astronaut guy the boca chic tour? Yeah, he's pretty damn smart.

If you mean he has poor financial judgement, that's something else - but there are billions of reasons why you might be mistaken.

> He ain't as smart as you think he is.

My comment didn’t say anything about Elon. Please read it again.

One thing to consider is that if he can show that something potentially material like the fake account percentage was incorrect, then that may offer him an out.

Musk can claim that he relied on these numbers when making the offer. "Material misrepresentation" is the term he'd use and it just might work. There's an implied good faith in every contract, so irrespective of how "strict" the terms are, Twitter may have difficulty enforcing the agreement in this scenario.

That is, Twitter would have had to literally disclose that these numbers were unreliable, and have Musk agree under those terms in order to not have a fight on their hands.

Why would Musk have to pay if the government blocks the deal? It's not like it's an out - he's legally prohibited at that point.

Because he signed the agreement.

The lawyers came up with the terms and contingencies. Once signed, you're expected to hold up your end of the deal. I'm sure the lawyers have experience with court-cases / whatnot and have the precise court-cases which led to this style of agreement... but that doesn't matter anymore.

Musk agreed to it, so it must be upheld in that manner.

ATT had to pay T-Mobile when their deal fell through due to the government. Look at this way Twitter just made a whole bunch of business decisions based somewhat/mostly on Musk's takeover. If he pulls out, Twitter will be hurt financially. Or suppose it was a hostile takeover by a competitor - they could fein a takeover - hurt their competitor - then walk away.

I don't think he did. Section 8.3 deals with the termination fee and it doesn't list 8.1(b)(i) as a reason it gets paid. 8.1(b)(i) is the government blocking.

Because if he didn't think the government would approve the deal, he shouldn't have made the offer in the first place. By making the offer he is creating a massive amount of distraction and uncertainty for the company-to-be-acquired, and if in the end the deal is voided because the government blocks it, then the company-to-be-acquired need to be compensated for all the wasted time and effort that went into a failed deal.

This is very common in large acquisitions and mergers. Remember, Must didn't have to include the $1B walk-away fee. But if he didn't, then the board may have been much less likely to accept the offer.

mediaman’s comment (and the article they linked) says that the government blocking the deal is one of the limited circumstances in which Musk wouldn’t have to pay.

I may have been unclear. He wouldn't have to buy Twitter if the government prevented it, but he would be required to pay $1b. Outside of those circumstances, he is contractually forced to buy Twitter.

The government issue and the money issue are basically the two scenarios in which Musk would be unable (not just unwilling) to complete the transaction. So that's where he has to pay the fee. Otherwise, he can't change his mind.

No, I think you were clear, and I wasn't. :) I understood that it was more "he won't be on the hook to buy Twitter if the government prevented it but there's still a kill fee," but bungled describing it.

(I know "kill fee" isn't the right term, but that's what we'd call the equivalent in publishing!)

Because the contract says that

Twitter would have to be run by people that don't want the $1B payout and for Elon to just fuck off. News flash, they current executives and even the founder do not want Musk to acquire Twitter. Everyone with the legal responsibility to sue Musk for taking that way out have no interest in doing so. The $1B walk away clause requires musk to pay because being in a position to be acquired negatively impacts their ability to raises funds. They're even under a hiring freeze, and the reason is probably due to a combination of uncertainty around the deal and partly because they can't due things like sell additional stock or bonds, and their ability to acquire new lines of credit are greatly reduced until the acquisition contract either completes or is dissolved.

Presumably a class action lawsuit of TSLA shareholders might force him to buy their shares at 54.20. Which, hilariously, might then get diluted by the poison pill.

> Everyone with the legal responsibility to sue Musk for taking that way out have no interest in doing so

They wouldn't be suing him to make the courts force him to buy them.

They would be suing him for damages - loss to Twitter's reputation and stock market value as a result of Musk's shenanigans.

Which would be....very tough to prove, but I wouldn't say they DON'T have a case.

They'd probably have a duty to try.

This is incorrect. The contract says that they can indeed to legally force him to go through with the deal and price that he agreed to. If it turns out to be more than twice the current valuation of twitter, they should do this. But they probably won't

Keep in mind there's the very real possibility of twitter just negotiating for a $2 billion (random number between $1 billion and $44 billion) break up fee to use a different reason

This is the agreement:

PDF: https://d18rn0p25nwr6d.cloudfront.net/CIK-0001418091/e61e437...

I don't see mention of the number of Twitter users and investigation on fake accounts. I guess that falls under the misrepresentation of accounting section. It looks like a fairly standard acquisition/merger contract.

The mention of the 1 Billion penalty is however pretty easy to find.

It seems like he only needed to put up $4bn of his own money. The rest of the financing was leveraged with loans. And some investors would also keep their shares (like the Saudis)

I'm pretty sure "funding secured" in this case.

It would be utterly, glibly and completely insane for Musk, or anyone, to buy Twitter outright with their own money.

Musk should be in for several billion, surely, but the rest of the money should have come fro Private Equity / Buyout partners.

I assumed that this was the case, not just him putting up Tesla stock as collateral.

>TSLA fell by like $200 or like 20%

Everything is down this year - TSLA isn't down as much as Ford in 2022... I'm not sure twitter had tons to do with TSLA stock being down.

i mean...that's one way to get the next round of VC funding (or equivalents...)!

> Musk should just pay the break fee of $1bn, and renegotiate for $42.69 or whatever meme number he fancies. Why pay $42bn total for something when you can get it for $30bn.

That's not really how the break fee works. There's a specific performance clause that allows Twitter to force Musk to go through with the deal as long as he has the money (which, shockingly, seems to have come through). They'd only give up on that and take the break fee if the deal was truly over and they were prepared to say no to a lower offer.

Interesting. Is this deal public somewhere? Does it include any clauses relating to Twitter misrepresenting of their userbase?

Yes, it is public though I don't have a link. To the best of my knowledge, Twitter is accountable to the SEC if they materially misrepresented any numbers about their business. I don't think the deal has any specific language about that.

https://www.bamsec.com/filing/119312522120461/2?cik=1418091

4.6

I looked it up and the news seems to be reporting what you said, but it is not true. Section 9.9 of the agreement is contingent on a bunch of conditions being met, after which the deal is forced through if it is also funded. For some reason the media misreported it out of context. The break fee is paid by either Twitter or Elon, depending on who cancels the deal.

I admittedly haven't checked the full agreement, but if that is the case, then the angle over the less than 5% spammers/bots makes even more sense, if that number was indeed part of the agreement.

1) That number was not part of the agreement 2) What is part of the agreement is that Musk waived his right to due diligence 3) That number is part of Twitter’s usual investor disclosure, but with a caveat that it may be wrong; besides, Musk may only break the deal if any incorrect disclosure constitutes a “Material Adverse Event” which in Delaware law means he must prove it affects the value of the company by at least 40%, which this obviously does not

If bots are over 15% of Twitter it might effect value by 40% due to network amplification effects.

If you look at the reps and warranties - section 4.6 probably gives musk an out if the 5% is materially off.

> We currently estimate that false or spam accounts represent less than 5% of our MAUs. However, this estimate is based on an internal review of a sample of accounts and we apply significant judgment in making this determination.

Here's the actual quote from Twitter's IPO. 0% chance Musk is convincing a judge this statement is "materially off" given the amount of disclaimers attached.

Similar statements in more recent fillings have all come with similar disclaimers to the best of my knowledge.

Yep, agreed. It doesn't seem like he has much of a shot. The only way it seems possible is if they knew it was materially off, there are internal docs with analysis showing something like 10%, and they just lied and put some language around it to give them wiggle room.

That's maybe a 20% chance?

You should definitely read Matt Levine's coverage of the fiasco.

Quote from his newsletter:

> That contract does not allow Musk to walk away if it turns out that “spam/fake accounts” represent more than 5% of Twitter users. We discussed this last month, when Twitter admitted in a securities filing that it had (slightly) overestimated its daily active users for years. The merger agreement contains a provision that allows Musk to walk away if Twitter’s securities filings are wrong — and this 5% number is in its securities filings — but only if the inaccuracy would have a “Material Adverse Effect” on the company. (See Sections 4.6(a) and 7.2(b).) That is an incredibly high standard: Delaware courts have almost never found an MAE. An MAE has to be something that would “substantially threaten the overall earnings potential of the target in a durationally-significant manner,” the courts have said; there is a rule of thumb that an MAE requires a 40% decrease in long-term profitability. If it turned out that 6% or 20% or 50% of Twitter accounts are bots, that will be embarrassing and might even reduce Twitter’s future advertising revenue, but will it be an MAE?

There isn't a way for him to exit the deal – Twitter can compel him to go through with it based on the contract. The main question remains though: Will Twitter go through the arduous and potentially ruinous process of forcing him to honour his obligations? Is this a negotiating tactic on his behalf (Is he trying to get a better deal)? If he does want out, will Twitter compromise and take a settlement (they could ask for way more than oft-discussed $1B exit fee)?

This is Musk being Musk, and personally I hope if he does try to back out or renegotiate, he gets punished severely.

Matt's understanding of M&A is... a little shallow. An MAE or MAC is about something changing between the time of the deal being signed and actually closing.

There doesn't need to be an MAE or MAC for a deal to fall through if a representation the target makes is false. In this specific case Musk can walk if any of the reps & warranties are false (or any of the covenants are breached).

I am not a lawyer, let alone a securities lawyer, but from what I have seen over the years, I suspect that if he just backed out but did not renegotiate, or did not do so with a plausibly-acceptable offer, he would likely be sued by Twitter stockholders claiming his actions had done harm to Twitter's valuation - a claim which can at least be made even though the market is falling broadly. If that puts pressure on him to renegotiate, that pressure would seem to strengthen the Twitter board's hand in seeking a considerable premium over whatever the then-current valuation of Twitter will be.

It is not clear to me that the personal cost to Musk would be less than what he initially expected it to be, measured in units of Tesla stock, though I agree it could be less than if he completes the current deal.

As for the spammers thing, Musk waived an extensive due-diligence investigation, and now he is complaining about issues that should have been covered by that investigation.

>Musk should just pay the break fee of $1bn, and renegotiate for $42.69 or whatever meme number he fancies. Why pay $42bn total for something when you can get it for $30bn.

Perhaps because the board and shareholders will be far more inclined to reject an offer from Musk after he feigned buying it one time and backed out?

> Perhaps because the board and shareholders will be far more inclined to reject an offer from Musk after he feigned buying it one time and backed out?

He didn't feign anything. On the contrary, he's proved that he was dead serious about it.

All he'd be doing would be renegotiating the price, which is something that any reasonable person would do when the circumstances change so drastically (assuming, of course, that a renegotiation would be possible).

Don't think for a second that Twitter would walk away from Musks's offer if someone were to offer $60 a share.

Is this legal? It seems like such a devious exploit.

1. Announce buyout (priced at a premium, of course) is "on hold"

2. Stock drops due to bad news

3. Re-negotiate for lower buyout after manipulating the stock to a lower price

No, that's not legal. Trying to back out of this deal because market fluctuations caused the company to be worth less than he wanted would be very, very much against his contract.

He can only back out is Twitter's securities filings are so wrong that profit projections are more than 40% off (MAE standard) or he was unable to secure financing. Spambots being a bit higher than projected is not enough to break the contract, especially given that Musk waived due diligence and that the Twitter filings have always said that the bot number is an estimate. Elon Musk's lawyers are probably more than a bit panicked right now.

Being one of Musk's lawyers sounds like possibly one of the most stressful jobs in the world!

Doubt it. They have a client who makes things difficult, but that's nothing compared to the stress of being in a job where a wrong decision costs lives.

So Tesla's lawyers probably aren't doing great either.

I think you underestimate the human ability to feel stress. I recently heard about a video game developer/director having a stroke due to stress from extended crunch. A video game! No lives at stake there. Heck, you should have seen how stressed I was in grad school ... I was nearly suicidal on occasion. But absolutely nothing substantial hinged on the work I was doing.

Man it sounds like guaranteed lifetime employment.

If everything is on fire, all day, every day, then nothing is on fire.

Coupled with decreased life expectancy due to hypertension, risk of stroke/aneurysm.

Sounds like it. There seems to be two paths due to the due diligence not being done by Musk.

1. Accept the 1bn backout and accept that Musk will look like a fool.

2. Sell enough Tesla stock to finance the deal, while risking a total meltdown of the Tesla stock price.

The lawyers are most likely trying to devise a third option, but it's very hard to see how that can play out.

Feels like you'd have to offer substantially more premium, or more breakup fee, or (probably) both, if you've intentionally broken your last deal and then you turn around and propose another.

Now that's premium starting from a lower base, but...

Also, it does feel a little "manipulation"-y to tank the price on news of you yourself trashing your deal, then taking advantage of that to make the same deal but cheaper?

Of course any analysis is assuming Elon actually means it and didn't just tweet this as a joke or on a whim.

> Also, it does feel a little "manipulation"-y to tank the price on news of you yourself trashing your deal, then taking advantage of that to make the same deal but cheaper?

Elon Musk's past behavior has shown him to be extremely comfortable with this tactic.

> Musk should just pay the break fee of $1bn, and renegotiate for $42.69 or whatever meme number he fancies. Why pay $42bn total for something when you can get it for $30bn.

I just assumed this is his plan here? He manipulates the market with his shenanigans and trash talking, lowers the price of Twitter by a massive amount, then buys it for a bargain.

He breaks, says his independent investigation says 5-30% of Twitter is bots. Price tanks even further than natural market would dictate. Buy at a much lower price.

There is no way the bot share is so low among active users? When I look at replies to some celeb tweet there are so many obvious bots.

And yet you've probably never seen my tweets, because I'm generally not replying to celebs' tweets. Bots (owners) are trying harder than most people to maximise their visibility before getting banned, so it's expected that you would notice a higher proportion than they actually represent. That's not to say I have any reason to think the bot share isn't higher, just I don't think it's possible for any single person to judge anywhere near accurately considering the huge scale of Twitter and that therefore any one of us users is only seeing a tiny, tiny fraction of the accounts/tweets being posted.

Conditional probabilities. Celeb replies is the most likely place you'll find bots.

Maybe consider where you're looking is more likely to attract bot replies? It's like an NFT discord you're more likely to see spam for eventual rugs because they're hunting people already proven to be likely to invest in stupid NFTs. Step off celebrity twitter and there's a lot less bot activity because it's less profitable to spam there.

I'm dying to know how they're defining "bots" for this purpose and whether it's specifically defined in the agreement. I suspect a (perhaps feigned) argument over the scope of the definition will be the deal's undoing.

Twitter would pocket a billion dollars - ~5x its net cash flow for last year - why on earth would it sell for _less_ when it can invest that cash in just about anything? He'd be buying the company years of runway to build... whatever it wants - at that point I'd invest in twitter as soon as Musk's check cleared.

This isn't a renegotiation, this is him paying points on his mortgage for a lower rate - but where the points paid go towards the previous owners either way.

The offered price to buy Twitter is ~220 times its net annual cash flow? Something about that does not compute.

The break fee is not an option, it's a penalty. Twitter can sue him to force the deal to go through unless it's off for a specific reason.

Musk is worth 2-3x Twitter. I'm guessing he can afford better lawyers to win this case. He also has much more at stake.

Better lawyers isn't a fool proof trump card you can use to just get out of anything. This isn't like Trump stiffing contractors on a job site where he has all the money and the contractors are (relatively speaking) penniless.

Musk didn't really think this through before he acted.

A great way to spend a billion!

Does it stipulate that the billion has to be in cash? What if he trades rides to the ISS for the board members? If it doesn't have to be in cash, then it could cost Musk less than the number of the contract.??

That's some out of the box thinking there. Have you considered working for Musk as his M&A strategist? Just tweet at him until he hires or blocks you.

Not sure if you're serious, but no, he can't pull crap like that and neither can anyone else who signs a contract specifying a penalty in dollars. Rides to the ISS aren't dollars.

Of course I'm not serious. If the board accepted payout equivalents for themselves and not the remaining stock holders, they would not be upholding their fiduciary duties. Oh, and then you know, accepting of bribes and what not.

I'm sure he could pump some shitcoin with a tweet and defray that expense with his winnings.

It's more likely Musk never intended to go through with it but got caught up in his own bravado. Now reality is coming in hard. He was going to lose a lot on this deal.

Without this deal TWTR could easily be $15-$20 right now.

It's probably with this highly evident fact: https://bird.trom.tf/elonmusk/status/1524909413462573058#m

You always need to pay much more on payouts than the current stock price. There is no chance he could buy it for $30bn. Unless history and future predictions suggests that there is no chance for stock to grow in foreseeable future.

I mena, he’s obviously rich as hell, but the imaginary la la land of his reported net work isn’t real. When it comes to actually forking over real money he can’t afford to buy twitter

Did Hindenburg call it a few days ago? :

> As a result of these developments, we believe that if Elon Musk’s bid for Twitter disappeared tomorrow, Twitter’s equity would fall by 50% from current levels. Consequently, we see a significant risk that the deal gets repriced lower.

https://hindenburgresearch.com/twitter/

Damage to Twitter is terminal even if Musk walks

The board and execs consented to a takeover by an ideological adversary...the company culture is smashed and will never return

If he walks, the stock craters and employees know the board is no longer invested in the future...if the deal goes through, employees will have to March to Elon's beat or be fired. Either way...bye Twitter

plus they just fired 2 high level employees yesterday.

This sounds like some kind of ancient samurai lore wrapped in traditions of sacrifice and nobility.....instead of a business deal happening in the United States of America.

"Consented to takeover by an ideological adversary" -- why, because Trump is banned? Is Musk going to try to bluff Facebook with an offer too?

What if the deal fails? How will Musk ever live down the dishonor?

He specifically said this is his final offer and he does not want to do back and forth to negotiate the deal. Then why would he do it now? It would look like he is not keeping his word/promise by not respecting his "final offer". He should just admit that he paid too much for the deal and just pay up and move on.

Yeah and he's said for half a decade now full self driving was coming next year. Never believe a Musk timeline.

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