The Twitter Post to End my Twitter Posts
Who am I kidding? This won't be the last
Yesterday I had the pleasure of sitting down with Andrew Walker from Yet Another Value Blog to talk Twitter v. Musk. You can find the link to the YouTube video here. Andrew’s insights and constant questioning/reevaluating of the TWTR 0.00%↑ thesis has made his blog a must-read and his podcast a must-listen for any arb aficionados.
We covered a variety of Twitter-related topics, but they largely all circled around one question: Does Elon have an ace up his sleeve? A smoking gun? A silver bullet? A… you get it.
I’ll let you listen to the podcast, but the abridged answer is: probably not.
As I’ve said many times, I can’t predict the future, but I can make an educated guess. We didn’t have time to address every conspiracy theory, hypothetical, and thought-experiment, but we did our best.
A couple of things we didn’t get to cover:
Pre-Judgment Interest
We didn’t cover either form of “PJI” (pre- or post-) because, if this deal closes on or before October 28, it just doesn’t matter. PJI will only be awarded following a trial.
Ok, so what happens if we do get a trial, and Twitter wins? Pre-judgment interest is almost certainly in play. Pre-JI is awarded from the time the injury accrues until a judgment is rendered. Here, the “injury” probably occurred on September 14—two days after the shareholder vote to approve the transaction, when the closing was supposed to take place.
What will the interest rate be? By statute it’ll be fed funds + 5%. The only problem is that the fed funds rate has changed a bit recently. So does Twitter get fed funds + 5 as of September 14? Or does it float? I honestly don’t know. At the end of the day, Chancellor McCormick is going to do the thing that makes her decision as appeal-proof as possible, and that might be to stick to the fed funds rate from September. Even that comes out to something like $9mm/day for Musk.
Timelines to close if we go to trial
We talked briefly about the timing of a potential trial, but not of the decision, the appeal, etc.
Let’s assume that, on October 28, Musk decides there are a host of new issues, particularly around financing. We’ll go through the motions of depositions and discovery disputes. We’ll bring in the bankers and we’ll see whether or not Musk told them they were kindly relieved of their financing duties. Musk will get deposed. We’ll do the normal pre-trial stuff and have our five day trial in late November or early December and McCormick will go back to her chambers and probably shed a single tear for her holiday season.
Could we have the trial sooner? Definitely, but you have to assume that if Musk is contesting this thing come October 28 that he has something new to deliver. Resting on his old arguments would be bold.
So let’s say we go to trial in early December. We’ll likely get a decision from McCormick 4-6 weeks following trial. If I were to bet now, I’d say it’ll be closer to 4. McCormick has been lightning fast with her discovery decisions, and I don’t think even the holidays will change that.
So now we’re sitting in mid-January, and Musk has 30 days to appeal. Twitter will have 15 days following the Musk appeal to cross-appeal, if needed, but it’s probably reasonably safe to say that Musk will be the one with the appellate grievances.
That puts us at the end of February. Last year, the average Supreme Court of Delaware appeal lasted only 29.7 days from the date of submission to the date of decision. That’s an impressive statistic. But it’s worth highlighting why—the Delaware Supreme Court recognizes that the Chancery is a specialty court. And while reversing the Chancery is certainly not unheard of, the Delaware Supreme Court doesn’t like to second-guess the Chancery. So although 29.7 days might seem like a rocket docket timeline, it’s more often than not a rubber stamp on the lower court’s decision.
So best guess? We get “S.Ct.Decisionfinal(final)(FINAL final)(USE THIS ONE).docx” by end of March.
And that’s convenient because that means we don’t have to think about the debt financing expiring, assuming debt financing isn’t why we’re having a trial in the first place.
CFIUS
We touched on it very briefly, and I said that CFIUS not going to be Musk’s saving grace. If it is, he has bigger SpaceX fish to fry. But I continue to see people tweeting about Musk’s foreign influencers, so it’s worth describing in a little more detail. Plus, it’s a fun hypothetical to play out.
Why hasn’t CFIUS gotten involved already?
CFIUS is the Committee on Foreign Investment in the U.S. In other words, we need a foreign investor trying to invest. It used to be the case that CFIUS would only get involved if the foreign investor was acquiring control of the entity, but under FIRRMA’s looser standards, this is no longer the case. Still, the foreign investor requirement stands.
We don’t have any foreign investors here. At least not yet. Remember, although Musk was born in South Africa and grew up in Canada, Musk is a U.S. citizen. The “X” entities—which are really just Musk and Birchall—don’t fit the bill.
But what about other equity investors? Can’t Musk bring in some Russian oligarch and tank the deal? He could try, but I can almost guarantee Chancellor McCormick would metaphorically draw and quarter Musk in his next appearance. Practically and literally speaking though, McCormick would tell him to cut that investor from the deal, and life—and the deal—would move forward.
In order for Musk to realistically get a CFIUS out, Musk would have to say “I am the foreign agent.” This is generally not a good thing to say. It’s a much worse thing to say when you’re the CEO of a rocket company with government contracts and massive potential effect on national defense.
Musk would have to somehow convince the executive branch that he is enough of a foreign agent to warrant dismantling the deal, but not enough of a foreign agent that the U.S. government would take any other action. That’s a hell of a needle to thread. This is the kind of result you can only get if your best friend is the president, and that president has unshakeable public confidence.
I’m pretty sure Musk and Biden are not best friends. I’m also pretty sure that Biden wants to get reelected. If this is Musk’s way of convincing Biden he should commit political seppuku, he could probably use a lesson in tact.