REGRET:
Elon already regrets buying Twitter and it’s not surprising why. According
Elon himself, the current market value of Twitter is less than half of the $44 billion that he paid
to buy the company. This means that he has lost over $22 billion with Twitter before even owning
it for a single year. That’s the same as losing $2.4 billion every single month since the purchase
and that’s just the loss in market value. Twitter itself was already burning money when Elon took
over, so it’s likely that Elon has lost even more money running the company as well. Zooming out,
this really doesn’t matter for someone like Elon Musk given that he’s still up nearly a hundred
billion dollars year to date thanks to Tesla and SpaceX but despite this, it’s not surprising that
Elon still feels like he got the short end of the stick. In fact, he’s so salty about the deal that
he’s trying to sue the Twitter lawyers who forced him to complete the deal. You see, when Elon
Musk started trying to back out of the Twitter deal an year ago, Twitter went out and found the
best lawyers they could which turned out to be a firm called Wachtell, Lipton, Rosen & Katz. As
we now know, this law fim was indeed successful at getting Elon to follow through with his offer
but in return they charged Twitter $90 million for essentially 4-5 months of work. Twitter’s own
staff itself were stunned when they saw this fee. In fact, a Twitter director named Martha
Lane Fox would email the general counsel quote “O My Freaking God” after seeing the fee. But,
while the fee was indeed exhorbitant, this didn’t really matter for Twitter’s original executive
team because, they weren’t the ones paying the bill. This bill didn’t come in until after Elon
had agreed to buy Twitter again, so ironically, it was Elon who had to pay the lawyers that
forced him into the deal. It’s no wonder why he’s so butt hurt but does Elon actually have a
chance at winning this case and recouping his $90 million or is Elon just about to burn even more
money on legal fees trying to win this lawsuit. THE CASE FOR ELON:
The case for Elon is pretty straight forward. It breaks down into two parts with the
first part centering around Twitter’s executive team. Essentially, he’s arguing Twitter’s
executives did nothing about the ridiculous bill because well they weren’t the ones paying the
bill. So, they weren’t exactly motivated to act in Twitter or Elon’s best interest. In fact, paying
these lawyers $90 million was just one of the executives’ many lavish expenses as they headed
out. So, in that context, all of Twitter’s actions before Elon’s takeover should be questioned
because the people in charge simply didn’t care about the final outcome more than just winning the
lawsuit. They were essentially lame ducks who were collecting their last paychecks before they were
gonna get fired. When you really think about it, by fighting Elon Musk and forcing him to close,
these executives were literally putting themselves out of really good job. So, it’s safe to assume
that they would not only be unmotivated to work in Elon's best interest but that they were
actively resentful against Elon. Don’t forget, Twitter didn’t even want to sell themselves to
Elon. In fact, they were actively trying to avoid getting acquired by using things like the poison
pill. The only reason they eventually agreed to the acquisition is because Elon’s offer was just
so stupidly high that they would open themselves up to shareholder lawsuits if they didn’t take
the deal. And now Elon was trying to get a lower price by threatening to back out of the deal
and they were the ones who had to fight for Elon to close? Yeah, it would more surprising if
these executives weren’t pissed off. So, Elon is attempting to argue that the actions of these
executives were not only reckless and actively not in Twitter’s best interest. The second part
of Elon’s argument claims that Wachtell leveraged this situation to get away with ludicrous
pricing. There’s really no question about this. In terms of hourly billing itself, Elon
claims that the Wachtell charged Twitter $15.6 million. Many of these billing invoices didn’t
even have proper time entry descriptions. In fact, they were completely blank. Yet, Twitter paid them
anyway. The likely reason for this was that simply that the hours were probabaly unreasonable even
with a massive hourly fee. Wachtell pulls in a whopping $3.86 million in revenue per lawyer per
year. Given that the average lawyer bills around 1900 hours per year, we’re looking at an hourly
fee of about $2000. Twitter likely went for the best lawyers at the firm, so their hourly fee was
likely a higher but they did get a 15% discount, so we’ll just assume an hourly fee of $2000. This
means that to rack up $15.6 million dollars worth of hourly fees, Wachtell charged twitter for
roughly 7800 hours of work all within a matter of 18 weeks. In other words, Wachtell is basically
claiming that they were consistently putting in over 400 hours of work every week to defend
Twitter. I don’t know about you but Elon feels that this itself is completely unjustifiable.
But that doesn’t even encompass the vast majority of the $90 million fee. You see, most of the $90
million was charged to Twitter after Elon agreed to buy Twitter as a sort of “success fee”. The
only problem with this success fee was that it was never mentioned in the original deal and it
seems that Twitter’s executives were well aware of this considering their reaction. But despite
this, paying the invoice was literally the last thing they did presumably in a screw you type of
manner. In fact, the wire payment was completed just 10 minutes before Elon closed the deal and
the executives were fired. So, the evidence does suggest that there may have been some bad faith
from the Twitter team. And this is what Elon is really trying to hammer in on. Wachtell was
over here handing out invoices that didn’t even have proper hours and charging unagreed upon
success fees in the tens of millions. Meanwhile, Twitter didn’t even question a single invoice. In
fact, they made sure that they were paid before Elon tookover but this doesn’t mean that
Elon has a victory in the bag by any means. THE CASE AGAINST ELON:
For starters, Twitter’s executives aren’t required to have any sort of loyalty
to Elon whatsoever. They worked for the public shareholders and their only job was to maximize
profit for shareholders. From this perspective, they did exactly that even in situations when
they didn’t want to. They didn’t want to agree to Elons takeover offer in the first place but they
did because that was in the shareholders’ best interest. Similarly, when Elon wanted to back out
of the deal, Twitter’s executives probably didn’t want to fight him but they did because that was in
the shareholders’ best interest. And at the end of the day, Twitter’s executives not only made sure
that the acquisition was completed but that it was completed for the stupidly high price the Elon
originally offered. So, from that perspective, Twitter’s executives never came short on
their duties to the shareholders. The only party that they arguably came up short with is
Elon, someone they have no contractual obligation to act in the best interest of. And as for the
law firm, though their fees are indeed ridiculous, you already know how they’re gonna argue their
case. They’re not gonna try to defend the idea that they were actually working for over 400
hours every week. They’re gonna argue that it’s not about how much time they spent but rather
how much value they bring. Around the time that Wachtell got involved, Twitter was hovering around
a market cap of $30 billion or $14 billion less than what Elon had agreed to pay. This means that
by getting involved, Wachtell was able to add $14 billion worth of value to shareholders for which a
$90 million fee is miniscule. It’s only 0.6%. Now, Elon could of course argue that they didn’t
have to do much to actually close the deal. Elon had agreed to a specific performance clause
meaning that if Twitter met certain thresholds, Elon had to go through with the acquisition. In
other words, he couldn’t just back out and pay a penalty. So, really Wachtell didn’t even have to
convince Elon to go through with the deal. All they had to do was disprove Elon’s little fake
bot argument and prove that Twitter did indeed meet the thresholds outlined in the original
offer. Obviously light work for $90 million but that’s not Wachtell’s fault. That’s Elon’s fault
for one, signing a deal that was hard to back out of and then two, threatening to back out anyway
without a strong case. Wachtell has nothing to do with any of that. As far as they’re concerned,
their job is to help shareholders realize $14 billion in lost value and that’s exactly what they
did. Again, their job is not to act in Elon’s best interest. Moreover, it’s not like Elon is suing
another billionaire or another company who may have made some missteps along the way. They’re
literally suing a straight up law firm. Common sense would tell you that sure a law firm might
do things that are shady or even unjust but you can be sure as hell that it’s legal. Here’s the
thing, this isn’t Wachtell’s first rodeo. They specialize in mergers and acquisitions and
naturally one party or the other gets mad at them on a regular basis like Carl Icahn did back
in 2012. If you’re not familiar with Carl Icahn, he’s one of the most infamous corporate raiders of
all time. And during one of his corporate raids, he realized that one of the companies that he
was raiding was using none other than Wachtell. And guess what, they were charging a success fee.
If Icahn’s raid succeeded, the company was on the hook for $36 million. If it failed, they only had
to pay $18 million. Icahn was obviously outraged after seeing this and decided to take Wachtell
to court but guess what happened. The case would just end up dragging on for 6 years after which
Icahn would end up losing. So, if history is any indication of how suing over success fees ends
up, well it’s not looking too great for Elon. THE FATE OF TWITTER:
As you can see, Elon has a decent case from a what’s fair type of perspective. There’s
no question that Wachtell charged Twitter as much as they possibly could and Twitter was more than
happy to be these fees just to spite Elon. So, it seems fair that Elon should get a refund
on much of these legal fees. But see, what’s fair and what’s legal aren’t always the
same thing. Sure, when you look at it from the perspective of, Wachtell got paid $90 million
just to disprove Elon’s little bot claims and finish up the acquisition, it’s a stupid amount.
But, when you look at it from the perspective of, Wachtell ensured shareholders got the $14
billion worth of cash that they were promised, $90 million isn’t all that crazy. Similarly, you
can blame the Twitter executives all you want for acting in spite as they probably did. But, they
only acted in spite against Elon not against the shareholders which is who they’re supposed to be
loyal to. Also, think about this: Elon would’ve never been in this position in the first place if
he didn’t try to back out of the deal. If he truly was worried about the Twitter bot population,
he should’ve cleared up those concerns before signing a $44 billion deal to buy the entire
company. Considering all of this and the fact that Wachtell has already successfully defended
themselves in a similar situation against another rich billionaire, it stands to reason that Elon
probably wont be getting a refund and even if he does, it won’t be anytime soon and it won’t really
make a difference to Twitter’s survivability. So, maybe it would be a better idea to
focus on turning around Twitter instead of wasting time on a lawsuit but that’s
just what I think. Speaking of Carl Icahn, he’s actually facing some massive ponzi scheme
allegations. Check out this video to learn more.
