Positions: +300 $TWTR; -3 19Jan24 55 C.
I am an attorney.
An anonymous source “close to” Twitter claims the contract to sell the company to Musk is “bulletproof.” M&A contracts are typically rock solid and there is no way out for either party after execution, unless the deal is blocked by regulators.
https://arstechnica.com/tech-policy/2022/05/twitter-deal-leaves-elon-musk-with-no-easy-way-out/
Musk does not have the option of paying a $1 billion penalty to walk from the deal. It is completely Twitter's choice whether to take a $1b penalty or sue for billions in legal damages or specific performance.
Twitter says Musk did not do any due diligence and did not ask about bots/methodology until after he executed the contract. In my view, there is no material misrepresentation because Twitter's SEC filings are adequately hedged and make clear the true number of bots might be much higher than 5 percent. Musk does not have a legal reason to get out of the deal.
https://www.reuters.com/markets/deals/twitter-committed-elon-musks-44-billion-deal-2022-05-17/
If Musk and Twitter get into a legal dispute, the most likely result is the deal gets a small haircut and closes at a slightly lower price, not the 25 percent discount Musk wants for the bot issue. The most comparable case is Tiffany v. LMVH where Tiffany sued for specific performance to force LMVH to close. The lawsuit settled with the deal closing at $15.8b, which was only a $425m (2.6 percent) haircut on the original contract price of $16.2 billion.
https://www.theguardian.com/business/2020/oct/29/lvmh-agrees-158bn-takeover-of-tiffany
This past Friday, the window closed for the FTC to bring a lengthy antitrust review of the deal. In my view, there is little risk of antitrust enforcement given Twitter's business is not related to Musk's other companies.
https://finance.yahoo.com/news/twitter-says-waiting-period-musks-123424926.html
Musk is sending buying signals: selling equity in $TSLA, restructuring his financing to eliminate the margin loan, and bashing work from home. (Twitter had the most lenient WFH policy of any tech major.) Twitter is sending signals it has been bought: working on the edit button, telling staff the deal will close, and redirecting employees to focus on user growth rather than niche projects.
At current prices, upside if the deal closes at $54.20 is 35.5 percent. Twitter's all-time low is $20 representing a 50 percent downside. However, for the reasons above, it is much more likely than not the deal closes. Further, downside risk can be managed, for example, with stops at $32.
In my view, $TWTR represents one of the best risk/reward profiles, is event-driven with the deal expected to close this year, and the stock is showing good strength while the rest of the market is selling off.
Any counterpoints?
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