This morning, Elon Musk tweeted his Twitter deal was “temporarily on hold” pending details about fake accounts. The news sent Twitter plummeting to ~$38/share, an enormous spread versus the deal price of $54.20.
Compare & contrast the character of Warren Buffett, who honors handshake deals, & Elon Musk who does not even honor agreements reduced to writing. I bet Warren would never do business with Musk, which is why I will not. Life is too short.
I have similar to concerns to those voiced by others, including Elon's ability to engineer a collapse in financing when his shell-shocked backers discover that there are a few fake Twitter accounts. I'm guessing here that Elon may have gotten wet feet after being slapped in the face by the cold fish of TSLA's plunging stock price.
Bigger picture, if I were your colleague (should I email my resume?), I would caution that you are committing one of the cardinal sins of investing: reframing your thesis to stay in a poor risk reward trade now that reality has changed:.
If Elon bails, TWTR's shareholders have nothing more than the option value of a lawsuit against Musk. Could TWTR collect $1B or even compel specific performance? Maybe. But the option value isn't worth enough to stay in the trade given the risk of TWTR being abandoned at the altar. And even if it is, investing discipline demands that you immediately exit the trade and reevaluate now that reality has changed.
What do you think about the financing? It’s looking rough with Tesla’s recent drop. At current market prices, he will need to pledge 80M Tesla shares for his $12.5B. That makes roughly 168M of 173M Tesla shares pledged. Plus he would need to come up with $21B in cash, which obviously can’t come from sale of Tesla stock if he wants to keep his current loan agreement. From Musk’s perspective, the financing looks dicey.
I also think Twitter’s perspective should be pondered. What actually happens if Musk just says “no”? Would they go to court to compel Musk to buy the company if he decides to walk away? It would be a long, messy, and expensive process. I don’t think the board would want to pick a fight with their largest shareholder when the ideal outcome in no way benefits themselves. It might take additional activism to compel Twitter to compel Musk to buy Twitter.
Good analysis. One other correction to the mainstream media narrative is his downside is >$1 billion break up fee if he were to lose financing as he would presumably liquidate his TWTR stock at a substantial loss, probably at least another $1bn based on presumed purchase prices.
If bot accounts represent MORE than 5% of mDAUs (e.g 5.1%), does that represent a breach of reps and warranties? Have you found a settled definition of "bot accounts" between the parties?
That's what worries me -- that TWTR is defining them narrowly, and that Elon (and perhaps the court) will define them broadly.
He lost funding. It's pretty obvious he can't find any more Saudi Princes willing to trade sexual favors for pretending to care about free speech..
Looks like you were spot on with the LVMH analogy...
Compare & contrast the character of Warren Buffett, who honors handshake deals, & Elon Musk who does not even honor agreements reduced to writing. I bet Warren would never do business with Musk, which is why I will not. Life is too short.
I have similar to concerns to those voiced by others, including Elon's ability to engineer a collapse in financing when his shell-shocked backers discover that there are a few fake Twitter accounts. I'm guessing here that Elon may have gotten wet feet after being slapped in the face by the cold fish of TSLA's plunging stock price.
Bigger picture, if I were your colleague (should I email my resume?), I would caution that you are committing one of the cardinal sins of investing: reframing your thesis to stay in a poor risk reward trade now that reality has changed:.
If Elon bails, TWTR's shareholders have nothing more than the option value of a lawsuit against Musk. Could TWTR collect $1B or even compel specific performance? Maybe. But the option value isn't worth enough to stay in the trade given the risk of TWTR being abandoned at the altar. And even if it is, investing discipline demands that you immediately exit the trade and reevaluate now that reality has changed.
I have a couple pushbacks:
What do you think about the financing? It’s looking rough with Tesla’s recent drop. At current market prices, he will need to pledge 80M Tesla shares for his $12.5B. That makes roughly 168M of 173M Tesla shares pledged. Plus he would need to come up with $21B in cash, which obviously can’t come from sale of Tesla stock if he wants to keep his current loan agreement. From Musk’s perspective, the financing looks dicey.
I also think Twitter’s perspective should be pondered. What actually happens if Musk just says “no”? Would they go to court to compel Musk to buy the company if he decides to walk away? It would be a long, messy, and expensive process. I don’t think the board would want to pick a fight with their largest shareholder when the ideal outcome in no way benefits themselves. It might take additional activism to compel Twitter to compel Musk to buy Twitter.
Agree.
Good analysis. One other correction to the mainstream media narrative is his downside is >$1 billion break up fee if he were to lose financing as he would presumably liquidate his TWTR stock at a substantial loss, probably at least another $1bn based on presumed purchase prices.
If bot accounts represent MORE than 5% of mDAUs (e.g 5.1%), does that represent a breach of reps and warranties? Have you found a settled definition of "bot accounts" between the parties?
That's what worries me -- that TWTR is defining them narrowly, and that Elon (and perhaps the court) will define them broadly.