Shouldibuytwitter.com – A tiny takeover arbitrage model for TWTR
shouldibuytwitter.com
shouldibuytwitter.com
When in reality it meant, "shop at my dog treat store."
I don't have a dog myself so I didn't purchase anything haha.
Technically, we just moved the really hard part to the question of "what will Twitter be worth if the deal fails". For this to work as value strategy, you either need to be really good at estimating that hard price or assign a really low chance to it.
I wonder if it's not easier to just project cash flows into the future. Or to play a number of other merger situation with more reliable participants, like Activision-Microsoft for 23% upside (versus Twitter's 42%).
1: Musk's team provides evidence that 18% of users are bots
2: TWTR's stock drops the next day
3: Musk argues that the drop in the stock value demonstrates just how material his team's revelation/accusation is, suggesting that the misstatement was material
4: TWTR argues that the stock dropped not because of any material misstatement, but simply because it changes shareholders' estimates of the likelihood of a settlement that is favorable to either party
Matt Levine has a customarily excellent analysis here https://www.bloomberg.com/opinion/articles/2022-07-18/elon-w...
But more generally, my point was that Musk could allege something that could create an MAE, and then the stock would drop and they'd end up arguing about whether the drop was due to the evidence, or due to the evidence's impact on people's belief that the deal would go through.
That said, I read both filings and thought Musk made a good argument that because the "drop dead date" specifically extends in the case of a legal dispute that both parties INTENDED that there was no need to rush a hearing beyond when financing expires. Where he goes wrong, I think, is his expectation of being owed significant discovery. Either this is a fishing expedition to find a justification after-the-fact, or else his briefing didn't outline key evidence of fraud that he's saving for later. My guess is the former, but we will see.
So I think we go a bit beyond the drop-dead date, but not much more because I don't think the judge wants a drawn-out process.
This isn't arbitrage at all. That is taking advantage of a price difference of an asset between two markets by buying and reselling it (nearly) simultaneously. If you are holding the asset longer than strictly necessary it isn't (only) arbitrage.
Your intended action is just timing the market: buying stocks based on the belief they will soon rise in price.
An example is Bill Gates buying DOS from SCP. The deal making wasn’t instant but he still bought it for a certain profit as he had the contract with IBM.
Sounds about right, to someone like me who doesn't know anything at all about stocks. They seem to generally always go up and twitter probably isn't going to go away until some better(For an average consumer) platform comes.
How did you build it?
FirebaseError: [code=resource-exhausted]:
Request failed with error: Too Many RequestsI was using it as the database to track results, but I guess we went over the limit. Fun problem to have! But it's back up.
I'm not a developer, so it's a real testament to how good and simple a framework SvelteKit.
It's currently being HN-hugged to death...
Sad day, because so far I'm just annoyed I couldn't get my allocation in.
Name: shouldibuytwitter.com Address: 0.0.0.0
Though it's important to note that his lawyers are well aware that this will never fly and therefore the actual court case is them trying to find an edge case where Twitter actually broke the contract (that's the shoddy talk about Twitter apparently rate limiting the data analysis). Which is still a hard sell, but there's at least a chance they'll get away with it.
But it would certainly be a major bargaining chip for Elon.
No execs want to go to jail for fraud. These execs are worth 50m+. Losing money is insignificant. Going to jail is a very huge deal
Anyway, this is just my unprofessional opinion, but for him to be able to prove intentional deceit is already going to be quite hard. Conditional on him managing that, he'd need to use a number he - by his own statements - hardly believed to clear the incredibly high bar of MAE in Delaware. I think it's very unlikely that he will be able to exit the deal this way.
To address your edit: I don't see how he'd manage to prove fraud without already providing enough evidence to send execs to jail. Also, the SEC would be the one prosecuting people anyway - he has nothing to bargain with. Lastly, this does not change the fact that the bot number, no matter how made up, will very likely not be sufficient to get out of this deal.
He took over twitter. Fire the execs. Opening up all emails.
You can bet at least one person out of 6000 employees disagree with how twitter counts bot number.
Pick that email, point out that execs discarded a concern raised by employee.
Change the calculation of bot number to be higher. Report to SEC in public earning. Allude that the previous number was just plainly wrong.
Sue the execs for fraud... since SEC accepts the new number and approach which is materially different from the old number.
To be honest, just opening up all emails is already bad enough for execs.
Yes; he is.
> he’s claiming that Twitter lied in public filings not related to the deal.
He explicitly claims that they are deeply related to the deal.
"Due process" is the legal steps that have to be followed in a court case (especially a criminal one). You can waive due process - if you're not going to make the government work through all the steps, because you know that it's not going to get you any benefit in the end, say.
Musk waived due diligence, not due process.
It’s just not a valid reason under the contract.
- he was buying the company in order to solve the bot problem, and it being worse just makes that more important.
- if Twitter is overreporting their real users then their revenue per user is actually higher and they’re a better business.
So my question is: what did he learn between the point when he decided to buy all those shares at a high price and the point where he started making a stink about bots? He hasn't made any claims based on new information. Did he just spend a massive amount of money on Twitter stock with zero idea of how much it should actually be worth, and only have second thoughts after signing a deal to buy the company? There's no scenario where his actions look economically sound, so the implausible-on-the-face-of-it "do it for the lulz" argument seems like one of the last best guesses available.
[0] the internet ad space is filled with players, and generally a low-trust industry for obvious reasons, so this claim strikes me as extremely dubious, but here we are
Or Musk is, was, and always will be, a financier, and is doing all this because at some point it made sense to his broader financial plans - dumping Tesla stock near its peak and minimizing the fallback.
Then there was you know, an economic collapse, shortly after this started going into motion. Maybe, I don't know, the financial collapse had some impact on the cost/benefit and changed the course?
Why do people always throw out the simplest most obvious solution in favor of conspiracy and cult-of-personality worship ("do it for the lulz")?
1) Musk wanted to offload Tesla (which he himself said was overvalued). Twitter was as good a reason as any to do so.
2) Economic collapse made the deal unfeasible.
3) When you owe the bank a billion dollars its the banks problem, Musk knows the deal is worthless and is more then happy to let the courts settle it to optimize his personal costs.
He disclosed his share in early April and then signed the deal in late April. TWTR today is about where it was from January-April pre-news-of-his-investment, so the value of his initial Twitter investment actually looks pretty stable even post-"economic collapse" (the Dow, for instance, is down 10% over this period, hence the square quotes - obviously no picnic, but did people think the crazy 2020 runup wouldn't lead to a correction?). TWTR has already largely corrected from it's 2020/2021 peak, other than that it fairly steadily went up to be almost double what it was worth 5 years ago, still seems like a solid buy if you're trying to diversify your Tesla holdings that grew way more quickly than that.
TSLA is down 37% meanwhile from April 4 peak before the Twitter drama started. If that's because of the deal, and if that's weighing on his plans now, clearly even in the most rational case he wildly mis-judged that one.
And in getting out of some TSLA he also got INTO a bunch of TWTR (unless possibly he already sold that at the peak?). Which he now seems determined to tank the value of.
But heck, since Twitter is still valued about where it was before, but Tesla has fallen, "getting out of some Tesla stock for something more stable" seems to still make a lot of sense. He thought it was worth buying at this share price before, he even made an offer to pay a big premium (against a higher price driven by the news of his move, of course), so... what of that was unforseeable or seems dramatically different.
If he wanted to sell some Tesla, here's a simple way:
1) Tweet something: "Batteries are overpriced! I will start or buy a battery company, but I need a warchest to do it!"
2) Sell some Tesla stock
3) Don't do the battery thing. If you really need to justify yourself, just pretend some private discussions convinced you not to do it in the end.
This has the nice benefit of not being on the hook for tens of billions of dollars while accomplishing the same goal.
If you don't have an especially clear answer to how that revision would harm Twitter's bottom-line numbers, my understanding is that you'd have essentially no hope of convincing the Delaware Chancery Court that a "material adverse event" had occurred. And that's, of course, before you get to the fact that the numbers we're talking about are hedged in the SEC filings.
darn
Had to upgrade my firebase plan...
Alternatively, Elon is a "normal" celebrity like Kanye. It might be more common to refer to people in that domain by their first name. I'd say Elon is closer to Kanye when it comes to public perception.
The formula itself doesn't require a direct answer to your question.
“Musks gets away with paying the ’things fell through on my end but without fault’ fee” (designed mostly for failure of financing despite Musk fulfilling his good faith commitments to make it happen) seems by far the least likely scenario, especially if the case reaches trial (it's just barely plausible as a settlement if it doesn't.)
However, I'd propose there is also a counter-intuitive case to be made that Twitter's management has an incentive to drag out the court case and delay the sale even at the cost of wrecking the company stock if it preserves their control for just a few more months because it gives them one last election cycle of popular narrative influence before the U.S. midterms. It's just a company that has made money for some people, but the party is facing an existential threat at the ballot box in November, and it's plausible they agree to damn the torpedoes and unleash legal chaos that sinks Twitter's stock price but hangs on to control of the company (and its narrative) for just a few more weeks in support of the elections. They would even have tacit support of establishment (R)'s who would be glad to see their MAGA problem handled for them with deplatforming policies.
The strategy there is like burning your ships during a retreat to prevent the enemy from using them after it overruns your perimeter with an (R) controlled house and senate, and a weak record going into 2024. These platforms are political operations, and they're not going to risk a repeat of 2016. This is wildly speculative, but maybe Twitter takes advantage of Musk's balking on the deal and holds on to content policy control until after midterms, then they scuttle the ship and hand over the ashes to him at the reduced price.
Crazy?
My understanding, at least from reading Twitter's lawsuit and other's commentary on it, is that Twitter lying about bot numbers is irrelevant because Musk agreed to, in contract, buy it regardless of those facts.
1. Twitter represented that they made sample, exercised judgement, and could be wrong
2. That is hard to falsify
3. For it to matter in this lawsuit, it would have to be so false that it materially adversely affects the company
If 10% of users are bots, #1 wouldn’t even be false. If 20% of them were, it might be, but you’d still have to cause a material adverse effect. Like a large change in expected revenue.
Twitter has been around for 16 years. In western countries, I think everyone who was going to join, has joined by now. What growth is left? Children becoming old enough to join, people with multiple accounts?
Twitter's done.
But that's not the point or where it value lies.
The product level stuff has huge opportunity, but I think the company became too indexed on their nannyishness, so much so that some billionaire got pissed off and is taking their toy from them.
Entering a crowded and poorly differentiated market where there already huge players with major network effects is the plan? Seems unlikely.
More likely he wanted to do exactly what he said: reduce content moderation (hence expenses) and get people to pay for verified accounts. But none of that is likely to pay back the 20B premium he'd have to pay for it today, so he wants out.
The whole media landscape seems to be entertaining itself and it's audience with that wholly unoriginal one, cuz they sure love their rich fictional anti-heroes.
I've speculated that the J6 committee might actually be the origin of Elons cold feet. Maybe he sees the assumed candidates position as far more tenuous than he previously thought, and thus the value of the platform is decreased as well. Maybe Elon sees charges coming for the assumed and in his calculus, this lowers the valuation.
46B to control the POTUS? Or at least be his golden child?
Also 3 months ago I would have given the election to the prior. Things are more mixed now. But if Musk delivers him Twitter? All bets are off.
Not crazy. More like a garden variety conspiracy theory that sounds especially silly due to its use of poorly cloaked expressions like "the party". Why not just say "Democrat[ic] party"? Obfuscation doesn't make the theory any more credible, and probably makes it less credible.
If Twitter was a Democratic Party institution they would have banned Trump in 2015. Instead, they bent over backwards and created a new policy specifically to justify not banning @POTUS when his rulebreaking[0] became apparent in 2017. The only reason why we even think of Twitter as (D) Media is because January 6th forced them to reverse course.
Your theory is inconsistent with Twitter's prior actions, too. While management initially geared up to take a poison pill, they never actually committed to it. Once Musk had actually lined up a purchase proposal, management actually agreed to it, and then Musk tried to bail out from that deal. If Twitter was actually (D) Media, they would have committed to the poison pill plan instead of backing down. Likewise, if Musk was buying Twitter with the intent of turning it into (R) Media he wouldn't be trying to back out[1], he would be following through.
A much easier explanation is that Twitter management was caught off-guard by Musk, and then later realized Musk was bullshitting in a way they could take advantage of. Conversely, Musk figured he could pretend to buy Twitter while unloading Tesla stock and then realized way too late that he was actually committed to buying Twitter.
[0] Which, interestingly enough, included ignoring DMCA 512 takedown notices
[1] Interestingly, Donald Trump has gone on a rampage on Pravda Social about how Musk is a bullshitter.
Doesn't that mean Musk was caught off guard (or in a self-own) by Twitter, not the other way around? Or that it seemed like a good deal for all parties until the floor fell out from under both Twitter and Tesla stock, at which point it became an incredibly bad deal for Musk.