I saw the "Buy my dog treats" link at the end and assumed it was the same as "Buy me a coffee". And I was like, "heck yeah I'll purchase some snacks for their puppy".
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.
> Normally, valuing a stock is hugely complex. But every once in a while, circumstances come along that make the math relatively straightsforward[sic]. This is one of those moments.
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.
That's only part two of the hard question, part one requires knowledge of M&A law, Delaware corporate precedents and Delaware chancellery psychology/game-theory to establish odds of the deal being forced, cancelled or in-between. Then part three is establishing the probability Elon Musk of all people will follow thru any given ruling and what happens if he doesn't play ball.
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
What is your take on what would constitute an MAE? I haven't followed the transaction as carefully as some, but I have seen some coverage of it, including from fellow lawyers. I've not heard anyone claim that news regarding the number of bots has nothing to do with MAE.
IDK seems most lawyers covering this are saying that bots are a stretch for MAE, unless the bots somehow suddenly start to impact Twitter's revenues ...
Have you read the merger agreement that Elon signed? Bot’s aren’t even mentioned. For anything about bots to be relevant to the deal Musk’s team don’t have to show that their were more bots but that Twitter’s statements about how they measure bots were incorrect and that the difference caused by those incorrect statements caused a materially adverse change. Since Twitter’s statements about bots are very specific and caveated (they label a small random sample, and estimate how many bots there are in the overall population using the number of bots they see in the sample, they use “significant judgement” and the number could be higher than what they say) it’s really hard to see Elon prevailing on this question.
It seems like he overlooks the possibility that the bot issue would turn up evidence that Twitter's executives knew that it wasn't quite following the described protocols.
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.
If advertisers discovered that there are more bots on Twitter than they were told (and consequently that the audience of real humans is smaller than they were told) future revenue would probably decrease.
Sorry for not being clearer. I wasn't suggesting that the stock price dropping was an MAE. I was suggesting that the thing that caused the stock price to drop could arguably be an MAE. That's the whole point of my comment — there would be an argument about causation between the revelation/accusation, the stock price, and anticipated impact on revenue (as a sibling commenter pointed out).
Good chance TWTR is going up 10-15% tomorrow (Tuesday) when the court approves Twitter's request for a fast trail. (risky of course cause the stock can drop even more if the court rejects the request but I think it's unlikely)
My guess is that the Court picks a date in between what each party has requested. I do think it'll be closer to Twitter's proposed date than Musk's.
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.
> Just a little app to model the arbitrage (gamble) opportunity.
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.
How do you short "Elon Musk" stock? You can only short companies the acquirer owns, not the acquirer himself, so this does not count as "merger arbitrage" under the definition you linked.
the world of arbitrage calls this arbitrage. there are other, more pure, arbitrages - but this is very mainstream one. you are buying the stock at the market price, while you think it will be worth the offer price - there's a risk that it blows up. risk arbitrage. (not to be confused with garbitrage)
It doesn’t need to be simultaneous, just be very low risk. Usually simultaneous execution is a factor in having low risk though, but some deals take longer.
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.
People seem to be discounting the fact that Elon still owns 9% of the company and is one of the largest shareholders. He just wants a chance to renegotiate as he know if he actually walks away he will lose around $5B.
If he's allowed to actually walk. Legally speaking he waived due process and twitter is suing with the specific performance clause. If it were just about anyone else I'd say there's 0 chance they'd be getting out of this, but since it's musk he might be able to walk.
He signed that he knows everything he needs to know about the company and wants to buy it. Now he wants to back out with the claim that he actually did not know everything, which is a pretty hard sell.
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.
As Levine has pointed out repeatedly, the statements he's claiming are false are pretty hard to falsify, as they essentially include the string "this statement might be false".
And the "not related to the deal" part is the problem - even if he wins this claim, this does not necessarily constitute MAE and therefore does not get him out of the deal. Due diligence includes verifying those numbers or at least checking where they come from, especially if they are as important to the deal as they now appear to be.
"Due diligence" is the diligence (= carefulness) that you should exert before signing on the deal. Don't trust what the other side tells you. Instead, check.
"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.
They don’t mean the same thing, but the reason he’s giving for walking away (an estimate of the fraction of mDAUs that are bots) is not a valid reason under the contract. It would have to be a material statement (ie. affect the value by 25%, iirc), plus the phrasing in the filings was “In making this determination, we applied significant judgment, so our estimation of false or spam accounts may not accurately represent the actual number of such accounts, and the actual number of false or spam accounts could be higher than we have estimated.” The filing basically says nothing, so it can’t be wrong in a material way.
Of course, if Elon's right, and Twitter has been showing ads to way more bots than anyone else has realized[0], than that's gonna seriously tank Twitter's value.
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
You may not have thought this out. Why would an upwardly-revised bot count number, even a drastically revised number, tank Twitter's value? Click fraud has been an open secret for decades and did essentially nothing to harm Google's financials. People who buy large blocks of Twitter advertising do so for outcomes they themselves measure financially, not based on synthetic metrics.
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.
> "do it for the lulz" argument seems like one of the last best guesses available
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.
This theory certainly has logic to it but, at this point, is "acting before he thinks" really not an option for "simplest most obvious solution" for Elon Musk's non-SpaceX/Telsa-core-business-decision actions? How many more 4/20 references does he need to sneak in?
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.
Off-topic, but am I the only one who finds it incredibly grating to speak of Elon Musk with his first name? You don't do that with other people, other billionaires or tech people or whatever, you say Bezos, not Jeff, and Bill Gates, not Bill. What gives? I find this irrationally annoying.
I personally don't find it grating. My supposition is that is it not very fun to say the word "musk" so people call him Elon instead. So perhaps your dissatisfaction with him being referred to by his first name can be offset by the understanding that he is unfortunate enough to have a last name that people seemingly universally do not like that much?
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.
Seems like "Chance that Elon Musk forces Twitter to divulge really embarrassing info about their business prospects during trial" should be in here. If he gets away with just paying the $1B, it makes a big difference to how much Twitter is worth without him. But, even if this info exists, there is a <100% chance of it coming out in trial; Delaware court may anticipate this strategy and try to stop it.
One of the questions is, "If Elon doesn't buy Twitter, what will the share price be?" If you think embarrassing info is likely, then you could answer with a lower price there. You can also factor whatever odds of him doing well at trial into your answer to other questions.
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.)
I think this is contained in the question of what the share price will be if Elon gets away. In fact, the math in this test only rounds to straight-forward if you either have a good idea of what the value of the stock will be if the deal falls through or you think is very unlikely.
Imo, the only hypothetical reason for Musk not to buy it would be because the real numbers on the bot issue showed the company has seriously defrauded investors, and the stock goes to almost zero. That's implausible to me. It's kind of an outsider case where shorts could get squeezed pretty hard if they're wrong about that, as a Musk owned Twitter has huge growth in front of it.
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.
You know its funny that you mention this through a political lens because the entire time I've been watching this narrative play out, this is the exact reason that I think Elon made his play. The value in twitter would be in delivering it to the 2024 R assumed candidate. If you can't hold the office, control the office.
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.
But is there a 46 billion USD value in getting Trump (I'm assuming you're referencing him) back on Twitter? He lost his last candidacy while still having a Twitter and Facebook account, I don't think just restoring his account will be enough to tip the scales in his favor.
> Imo, the only hypothetical reason for Musk not to buy it would be because the real numbers on the bot issue showed the company has seriously defrauded investors, and the stock goes to almost zero.
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.
Based on information publicly available deemed correct and accurate by the company. This is false representation and downright fraudulent. If indeed Twitter lied about their not numbers, there will be a major lawsuit against the company.
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.
Even 20% would not fly, winning with MAE in Delaware is basically impossible - the one case where a buyer actually proved MAE there is still referred to as unicorn. Given that Elon waived due diligence and even openly talked about the bot problem, this would probably still be a coin toss if he somehow proves that there are 90% bots.
The outcome I'm rooting for is that Twitter's suit resolves quickly and they're granted specific performance, and Musk's lawsuit gets dragged out until he's suing the company he just bought.
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.
Yes, very crazy, but not for the reasons you think.
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.
> 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.
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.
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?
An internet protocol for short message services with an established user base. This was Dorsey's vision, and one Musk appeared to nod to. A t.co product could compete with Signal, Slack, and WhatsApp. Further Slack has wasted what I thought was a huge opportunity to create a Twitter competitor where channels could have public facing boards that published curated highlights from Slack chat. They could have done federation without the body odor. A t.co product could just adapt their existing userbase into using private IRC-like experience, with all of their celebrity and social proof stuff intact.
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.
> A t.co product could compete with Signal, Slack, and WhatsApp.
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.
A fully adopted protocol with whole new products on top of it will make the 20B back. It's a platform killer. Elon's basically building an internet Deathstar, and we can only hope he will use it for good.
Ah right, how could I have missed the "great sorcerer" theory of Musk.
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.
Stepping back a bit, assuming one can grow a social media platform to XX% of the population, what makes it any more or less valuable than the next fad/platform that grows to the same XX%? If you are selling eyeball-time via ads, the two platforms have similar value. Maybe it's a little bit different with better ad targeting. But any arguments based on "our audience consists of well educated 18-35 year olds with disposable income" lose merit once growth plateaus and you realize that your audience is just the same general population that cable reached 20 years ago.
Matt Levine ( https://www.bloomberg.com/opinion/articles/2022-07-18/elon-w... ) laid out an argument today, that the reason for Musk wanting to fight on the bot numbers is precisely to drag this out until April 2023, when his financing commitments expire, at which point he no longer has to close (and Twitter loses all of their upside). I have no dog in this fight, but this incites Twitter to move as fast as possible (which they seem to be doing).
You have a whole lot of assumptions baked into this theory, but they all seem a bit irrelevant given that Twitter is the party pushing for speedier resolution...
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.