Matt Levine On What to Watch In Twitter vs. Elon Musk

legal system. Okay, my stance on this is I really like the way Twitter is currently run because it doesn't seem like it's a great business, but it has these positive externalities, like I get a lot of value out of it as a journalist, and it hasn't changed action. They haven't really ruined the product. So I like it the way it is, and I wanted to never evolve or improve or anything. And I'm worried, and I'm worried that if it's ever run like a really good business

that it will be worse for me. And so I don't, you know, I don't care if it's Elon or anyone else. I just don't want anyone running it who actually like has some good ideas about how to fix it. Okay, Well, on that note, and without further ado, we are going to be talking about all of the thorny questions um thrown up by the Elon Musk Twitter saga, which is

now devolved into a court battle. You know, it started stupidly with um D versus thirteen G stuff, and it seems like inevitably is going to end stupidly and in tears, in some sort of drawn out legal drama. So who do we call for legal drama? Who knows about Twitter and Elon? I don't know. Do we know anyone? Yeah? We do. Uh. Matt Levin is with us to talk about everything that's going on. Matt, thank you so much for coming back on all thoughts. Hey guys, it's it's

terrible to be here. That's fair. That's fair. Um. Okay, let's start with the first question. Elon Musk backing out of the Twitter deal. I think Twitter stock is down something like since the deal was announced. Um, it was a forty four billion dollar offer back then it is not now? Is this just a tactic by Elon to try to get a lower price? I have no idea, man, I write about this every day and I have no

visibility into the way his mind works. I mean, like a first level analysis here is that he's like an extremely whimsical guy. He whimsically wanted to buy Twitter, he got bored with it, and now he wants to walk away. That's my best guess about what's going on. And so he is not really looking to re cut a deal at a lower price. He's really looking to get out

of it. Um, that's it. I mean, it is clear that one thing that changed between the time that he enthusiastically wanted to buy Twitter and the time that he wanted to get out of buying Twitter is that the market went down. You know, Twitter is a less valuable company, but also kind of more to the point, Tesla is a much less valuable company, and he was sort of, you know, going to pay for this out of like pocket change from selling a few Tesla shares, And now

that is a somewhat more expensive proposition for him. And so it is like clearly the case that like economically this deal is worse for him, and if he recut the deal at a lower price, it would be more acceptable. But I don't know, I mean, like he's just going around trashing Twitter all the time, and it seems like that would not be a great strategy if you then wanted to close the deal, even at a lower price.

All right, I we pride ourselves at odd Lots for asking the stupid questions that everyone else is afraid to ask. So I'm going to ask the big question that listeners will really appreciate. Uh. Someone finally saying out loud, what is a chancery? Why do they tell at the Delaware chancery courts? What is that word? Even me? God, I feel like I'm going to get this wrong. Um, so okay, So like here's here's like I went to I went to the school a long time ago. I'm gonna try

to remember. I'm gonna do my best to remember. But now, so like in like old school, like English common law, and like you know, there were two things. There was a court of law and a court of equity, and like law was you know, this is not quite right, but sort of like intuitively law was like written sort of like clear law, and then equity was like wow, we do it's fair, and the world sort of evolved

from then that distinction. You know, like there are not different courts like that in most of America, and the distinction between law and equity as a sort of like legal matter is like a little blurrier that it used to be, but people still talk about it. In Delaware, there remains a court of equity, which is called the Court of Chancery, and they do They have sort of a narrow set of jobs, but the main one is

they do corporate law. So like all like murder, so every not every nineties something percent of like big US corporations are incorporated in Delaware and are subject to Delaware law, and most murder agreements are subject to Delaware. And so when there's a big dispute about a merger about corporate governance, generally it's usually in Delaware court, and it's in the Delaware Court of Chancery, which has like a handful of judges who are experts in business law. They also do

some other stuff. I think they like the family Court or something. They have like some weird sort of set of cases. But like the one that you hear about is they do all the merger cases class action lawsuits and the judges no no class action well depends uh not securities class actions. They do like corporate law, Like there's a there's a kind of class actional they do, but like not not securities class actions, but they are you know, there's like a handful of judges and they're

called chancellors. Actually they're called vice chancellor. Is one of them is the chancellor and they sort of develop the doctrine of of like when mergers have to close and stuff like that. So, how hard is it in this court to argue that there has been a material change or misrepresentation that should let you, in theory, get out of a deal, Like, are there any historical examples of that? Actually? Six eating So for so Musk is are you a couple of things? I mean, first of all, we're talking

about this on Wednesday, July. Twitter has just sued Musk to close the deal. Musk has not filed any sort of reply in courts, So Musk is not really We probably should have mentioned so that in the intro that yes, last night, less than twenty four hours ago before recording this, Twitter did file this lawsuit against Musk forcing attempting to force him to close the deal. Yeah, so we haven't seen anything from from from Musk in courts, so we

don't know exactly what his arguments are. But what we do have is his letter to Twitter terminating the deal, or I guess you should say, purporting to terminate the deal, and that lists his reasons why he thinks he can get out of the deal. One of them, as you say, is that there might have been or there might be

a material adverse effect on Twitter. Famously, there's sort of been one Delaware court decision ever finding a material adverse effect, and there's sort of a rule of thumb that the Delaware chancellors used that like a sustained drop an income of like is a material adverse effect. Basically, the view is that it's a very high standard. And when one aspect of it is like when you say material adverse effect,

there are a lot of things that don't count. So like the pandemic is carved out from m as the stock market going down is carved out. Things having to

do with the deal are carved out. So like the fact that Elon Musk was going to buy Twitter probably drove away some employees and advertisers, but that can't count as an m A. The only thing that can count is basically, like the company itself blows itself up, and that's like an extraordinary high standard, and there's just there's just like not not a whisper of anything like that here.

Now separately, he's arguing that like they have too many bots, and that you know, if they have too many bots, he can get out of the deal if that would cause an m A. Now, if you sort of take the maximal reading of Elon Musk's argument, you say, well, you know, Twitter has been lying for years to advertisers

in the public. It has been selling stock and selling ads by saying that only five percent of its active users or bots, and really it's fifty and Twitter has known that for years and has been lying about it

to perpetrate a massive fraud. I think if like proof of that came out tomorrow, then probably Twitter would lose a lot of business, and so it would like lose a lot of income and probably would getten a lot of trouble, which would also potentially be an m A. But when I say, there's no evidence of that, like, it's just it's like no one ever thought it until Ian must started pretending to think it. You know, there's not no evidence like that. It's just not in the

realm of possibility. So that's probably not gonna work. The other thing that he's doing is he's arguing that Twitter has breached some of its covenants. It is like, promised to do things between the signing of the merger and the closing of the merger, and then it hasn't done them. Um. And the main one is that he's arguing that it hasn't given him all the information he wants about the bots, which is a slightly lower standard to get out of

the deal for not providing the information. But it's still still feels hard to imagine it all work. The box thing is funny, and you wrote this in one of your call Okay, who knows exactly how many bots there are at Twitter? There's probably a lot, and you know, he must himself probably every one of his replies gets a thousand bots, which is why it maybe top of

mind for him. But it's hard to see it like being material in part because, like, okay, advertisers by ads, and then they can see very directly, I think, how many you know, for every thousand dollars of ad spend, how much they get in revenue, and so in theory, like it's hard to see how that would be a major even if by some measure, there are way more bots on Twitter than its previously acknowledged. You still there is that r o I. It's like either you're getting

revenue from the ads or not. And it's hard to see how like even if there was a way off on the bots number, how that would like really be changing the business much at this point. Yeah, basically the earthier I don't I don't know, Like I think like that, you know, to the extent there's some amount of like brand advertising on Twitter where like you're sort of not

getting a direct like clicker eye than then. But but no, I agree with you, like, like the whole thing is absurd, Like there's no like it's just a fantasy that Ellen has concocted to try to get out of the deal.

There's nothing, there's no real argument there. Can you talk to us a bit about the Twitter lawsuit because like a it's funny and it references a bunch of Musk tweets, but be like, my understanding is that there's a specific performance clause which gives Twitter the right to sue Musk to complete the deal as long as he has the

debt financing. So talked to us about like what's possible under that, and could Musk like just try to scare away the banks or something at this point, like would that be a viable out for him if he said, like, oh, actually I don't have the debt financing lined up. The agreement says that if Twitter sues Musk for damages for preaching the agreement, they can only get a billion dollars, which is also the breakup fee that he agreed to pay if he walks away. So that's just not very

much money, you know, in the context of a billion. Yeah, like it's a forty four billion dollar deal, and like I think if he walks away, like, you know, no one really knows, but the stock probably, you know, the company probably is worth you know, twenty billion ish, and so you're talking about like twenty plus billion dollars of damages. So the billion dollars of damages is just it's just not really compensation with Twitter. But as you say, the

agreement says they can get specific performance. They can force Musk to close the deal. And there is some recent history of Delaware courts saying okay, you have to close the deal and forcing unwilling buyers to close mergers because they have no excuse for getting out of them. So

that's very much a live possibility. Now, as you say, there are some conditions that you know, one is that like Twitter can't have violated its agreements, right, so maybe Must can wiggle out of this by saying it didn't give him enough information about the box. But the other one is that even if Twitter has done nothing wrong, Musk only has to close the deal if the debt

financing is in place. So he has a thirteen billion dollar commitment letter from his banks saying that they will fund you know, thirteen billion dollars of Twitter debt to close the deal, and if the banks disappear then then he doesn't have to close. Can he blow that up? I mean I think that like, it's not it's committed financing, Like they have contractual obligations to him to fund. They

don't have contractual obligations to Twitter. But there is precedent in Delaware for buyers, you know, having the same thought process and saying I'm gonna blow up my debts so I don't have to close the deal and blowing up their debt and the court saying the court of chancery, which is you know, a court of equity saying no, no, no, if you're blowing up your dat you know, intentionally, then

we're not going to give you credit for that. We're gonna make you close even though your debt financing isn't in place. So deals with like the same language as as as what Mask has here, the court said, you know you're blowing up your debt doesn't doesn't work well.

The other thing I'd say is like, you know, we're kind of early, honestly, like he has said he's terminating the deal, but like, you know, they haven't even had a share older vote, Like there's there's a lot like the debt financing was kind of early in in like getting done. It wasn't like they were like going out to market the debt. So one thing that Twitter is looking for here when they sue is they want to

judge too, Like they can't have him. They can't order Musk to close the deal because it's just like they haven't had a share old vote yet. You know, it's not it's not ready to close yet. But what they can do is order Musk to try to get the debt financing. And if a judge says you have to cooperate with getting the debt financing, and if you don't, you'll be in contempt. Then it's somewhat harder for Elon, for even Elon Musk to blow up the debt financing.

But also it's really hard for the banks to let him, Like if you're Morgan Stanley and it was like Elon's lead bank and a court says Elon, you have to cooperate with the financing. You don't want to go to court to be like, oh no, independently, we couldn't get

this financing done. Also, I mean to be clear, like their finance thing, it's committed financing, like this is not not like a letter of being like that we'll do our best right like they've they've committed to fund a thirteen billion dollar financing, like there are conditions to it, but they're fairly minor, and like for the bank to

walk away is going to be challenging. So just on this topic of like forcing the deal to go through, So I mean, part of me thinks, obviously you shouldn't be able to frivolously say that you are going to buy a company and then just like walk away from it and not go through with it. For not exactly great reasons. It's not good for markets and it's not good for society, so there should obviously be some punishment for that. But part of me is also like, is

it weird to force people to do deals? Like what is the benefit of that forcing a company into the hands of an unwilling buyer? Like that also seems questionable, certainly when it comes to Twitter, which a lot of people would argue is like a platform for societal discourse, is a nice way of putting it, Like, how should

we think about those two things? Yeah, it's really weird, so so look so like if you look back at the cases where this has happened occasionally, like there's a public company trying to buy another public company and there'll be an argument on specific performance, and the court will say, we'll sort of think about questions like how hard will it be to integrate these companies, which is like a weird thing for the court to think about, right, But

if you're an unwilling public company buyer, you know, being forced to buy another company, you might care like will that be a disaster for the business? Right, But most of these cases are private equity firms, and there there's kind of like there's no integration. You know, there was a shareholder of a company, and now there's gonna be another shareholder of the company, and the shareholder will get the money from the company, but like nothing else needs

to change. And so in some ways, it's actually like fairly easy to order a private equity firm to buy a company that doesn't want because it's just like an economic transaction, right, the private equity firm is going to try to maximize value it, you know, wished it would have paid a lower price. It's like still weird. It's weird to make someone buy a company they don't want, but like you're only making them buy it. You're only making them put up the money and then be like

the you know, economic owner. You're not making them run at day to day Here, it's different, right, I mean, like he said that he was going to be the interim CEO of Twitter when he bought Twitter, right, and he's clearly like emotionally invested in Twitter in some weird way, and now he's clearly emotionally invested in trashing Twitter, and so yeah, making him run Twitter would be really bad.

I mean, I don't know, maybe would be great, but it seems like it would be really bad for like Twitter, right, for Twitter as a platform and as a public utility,

and certainly for the employees. And it seems like it would probably be bad for him like personally, right, Like he's a human being who would now be in charge of like running this company that he claims to not want to run it, Right, Your punishment for backing out of the deal is that now you have to run Twitter, yeah, right, which like is a terrible punishment, but um, so yes,

I agree. It's it's weird and it's in some way unprecedented because like the precedents are about like sort of more like rash economic actors, and this is like a deal about like you know, an angry man buying a social media company. If I were in charge, like let's say if I were the Delaware judge, and I said, he has no excuse for getting out of the deal, which is what I think now, Like we'll see what his filing say, but like, as of right now, it looks like it looks to me like he has no

excuse for getting out of the deal. If I were the Delaware chanceller, I would say, look, I would like call a conference and I'd say, look, I'm going to order a specific performance. Musk has no excuse for getting out of the deal, and I'm going to order him to close the deal and he doesn't want that, and Twitter doesn't want that, and frankly, I don't want that

because I'm a Twitter user. So work something out, man, Like, the only good outcome here is a settlement where Musk gives Twitter enough money that they don't feel so bad about letting the deal go away, and where he doesn't have to pay the forty four billion dollars and run Twitter all day. Right, So if he pays them, you know, he writes them a big check and they all agree to forget about it, then that seems like the best

of the bad outcomes here. And the only way he does that is if he knows that the alternative is like a certainty of him being forced to pay forty four billion dollars and by Twitter. Let me ask you a question, not about the text of the law, but the practice of the law. Okay, so I've read a lot of matt Levine columns. It looks like must arguments are very bad. Twitter filed this lawsuit yesterday, uh and everyone basically said, wow, this is they have a dead

decides with this. Do Musk's lawyers enjoy this? Do they live for this? Is this fun for them that they're now tasked with? Like, well, how do we find an argument that will like maybe hold up and find some precedent that everyone had forgotten about that's in like some dusty old book or something like is this energizing for them? Would you? Would you find it enjoyable having been a lawyer yourself? Would you enjoy being um must legal team? Right now? I thought you were going to ask Matt

like what would be his strategy if he rejoined? Maybe tell Lipton to like defend Twitter? But you've got the other way and you've asked him Like how sheems like defending Twitter is easy? Like everyone agrees the laws full on the side, Like it doesn't actually seem that, like the Twitter lawyers have a tough case to make. We'll see what happens. But it doesn't seem like this is

a particularly everyone's saying. It's like there's kind of a kind of a tappen for a putch, So like would it be fun to be on the Musque defense team in this situation? So their best argument is that he has not given them that Twitter has not given him the information he's requested bots. Now, I think we all agree that the idea that there are so many bots that the Twitter that like Twitter is not a functioning business,

is like insane and so that's not gonna work. But he's been asking for information about bots, and he says they haven't given him all that he wants. Now there's some debate about like they've given him a lot, and like he's been asking for unreasonable things, but like, you know, that's that's all subjective and you can sort of make noises about how he's actually been asking for reasonable things.

And the nice thing is that, you know, the thing about the bots that is crazy, that is like crazy making and hypocritical, is that when Musk signed the deal, he was like, I'm going to defeat the bots, right, Like he's made it clear from day one that he's aware that Twitter has bots and he's really mad about them. And so that undermines his case that like, oh, I've discovered there too many bots. I have to walk her

from the deal. But it actually helps his case that he wants information about the bots, because he's like, look, I'm going to be running Twitter. I need to know about how to fight the spam bots, and Twitter is not giving me any of that information, which makes me think that they're hiding something from me, and that makes

me want to walk away from the deal. I don't think that's a good argument, but I think it's like an argument that you could sort of, you know, gulp and make as a I don't know, do your question, Like,

I don't know, I've never been a litigator. I think it is hard to I think that this feels like a like a case where you're like, this is really I have to say this, but it was like the richest guy in the world literally yeah, and like you know, they are in the poor associate it, so you're going to get waken up, woken up at like two am in the morning because Musk tweeted something that might be real that would be true if they had a good case to write. I mean, like they have a tough case,

but like, yeah, they're there. They have professional pride and crafting arguments that are you know, colorable and not like openly dishonest, like you know, like they can't say things that are false. They have to be honest. But I think that like, is there is there something you can argue here, Yeah, I think like you can argue that they have asked for information and they haven't gotten it, and they deserve to have that information. I don't think

that's a crazy argument to make. And I think, you know, we'll see what happens with the dead financing. That that's like that's like a possible avenue for getting out of specific performance. I also think that, like, you know, like the other thing that the other argument I would make probably a fire musclers, is like, look, specific performances, as they say, an equitable remedy, right, Like, you can't just

automatically get specific performance. Even if you think Musk is like in the wrong here and Twitter is in the right about everything, you still shouldn't order specific performance because just like Tracy said, like like no one wants him to own Twitter, right, like like that's that's the sort of like weird fact here that his novel, which is that it would be really mean to Musk, to Twitter's users, to Twitter's employees to make him actually own the company.

And so like that could be an argument you could make to try to get out of that consequence. Okay, just on the topic of Musk and his tweets like this is one of the things that made the Twitter lawsuit quite entertaining. They embedded a bunch of Musk's own tweets, including like ones with a poop emoji in them and things like that, how much does what Musk himself has

said about the deal and his motivations? And you know, he had like one meme where he sort of seemed to imply that this whole thing was just a way to get Twitter to have to disclose more information about the thoughts in court, Like how much does that play

into this? I think the main way, like a judge is ultimately going to have to sit down and say is it fair to order a specific performance like what's like the legal the lawyers would say the balance of the equities, like, even if Musk is preaching the agreement, is it really a good ide to force him to close? And I think that Twitter strategy here is to say, look, the angrier the judges at elon Musk, the more likely

the judges to order him to close the deal. And his really just like public thumbing his nose at the sanctity of merger agreements is going to annoy a Delaware judge, right because like the Delaware judge is in the business of making Delaware a predictable place to do business and

a place where merger agreements are predictably enforced. And when a guy was like I don't care about merger agreements, like that's going to annoy it Delaware judge, and like showing the tweets is gonna kind of drive that home. I hadn't thought about that angle, which is that if you know, if if that there is a sort of Delaware consequence if they go too far outside of norms, which sort of undermines the entire point of having all

this like corporal law done in their courts. But I just have like, actually have two very short questions related to the Delaware courts. I think I saw maybe it said it was in the Twitter lawsuit that they think it can be a four day trial, Like can do

Delaware courts? Can they really move that fast? Yeah? In general, Delaware courts are in the business of doing trials on merger cases, like in order to close murders quickly, Like this isn't probably a case for damages, right, this isn't like, you know, we drag this out for five years and do a lot of discovery, right, everyone knows all the facts. First of all, right, like the facts are fairly straightforward.

And secondly, like, you know, the thing they're looking for is like you got to close the deal, right, So like they're not gonna wait five years to is the deal right? Like like Della records move fast in like merger disputes and like and again like you know, Delaware is in the business of doing this right, Like it's very important to Delaware that mergers be predictable and they

close on time. And so when someone's trying not to close a merger and someone else is trying to get it closed, they're like, Okay, we'll do a quick trial and and we'll give you an answer. You know. It's it's it's like that that's the business that right, that's the that's the that's the whole point of Delaware. So last question is uh, and I think you wrote about this like is there a world in which there could be criminal Like let's say it's like, yeah, you've got

to close this deal. There's no you know, no question and must like still doesn't want to in the world of like infinite possibilities, is there a world in which that could lead to his arrest and imprisonment. I've joked about tensory jail. There's there's there's one time ever when a Delaware chancellor like ordered someone arrested, but it was not over a merger. I mean, I don't know, fanciful like this it weird. You know, the world is weird

because it's Elon Musk. Because he likes so blatantly thumbs his nose at authority. People did sort of immediately jump to the question of, like what happens if it judge says okay, you have to close this deal and must says no. What does the court do? Do they order him arrested? You know, I don't know the answer. I mean I think, like, I think the court holds him in contempt. I think if he stays in Texas, I

think I don't I'm here, I'm speculating. I don't think that, like the first order of business is for like a Delaware chancellor to try to get him extradited to Delaware to go to a Delaware jail. I think there are other things you can do. Weird things happen. I think there are other things you could do. Is a Delaware tesselor like for instance, can you try to see some assets? Well, I don't know, but like you know, one question is like,

does he have any assets in Delaware? I doubt he has like a big mansion in Delaware, but you know what he has in Delaware? Maybe hundreds of billions of dollars of Tesla Stock, which is a Delaware corporation. So can they seize that? I don't know, man, But like I think that if they order him to close and he just ignores the court, I don't really know what levers they have to make him do it, but I

think they probably have some. I think that putting him in a jail in Delaware it's probably pretty low down on the list, But I don't know. Alright, Matt, Well, we could go on about this for hours, obviously, and we probably will, unfortunately, have a chance to talk about it again at a later date. But thank you so much for coming on odd thoughts and explaining just how surreal everything is at the moment. It's pretty weird. And looking forward to reading all of your many do you

do you dream about it? Has he been in your dreams yet? Because you're like the third character of this story, it's like dreams, it's more than like I am like missing sleep to like set up my computer and type. I don't think I've actually agreamed about it the world. The world appreciate your your service man, and we appreciate you coming on the show. That's right. So clearly a lot of weirdness there and a lot of open ended

questions about what might happen. But I feel like, I don't know, like a I just feel like there's a lot of stupidity. But be like part of me, part of me, really likes Musk making the point about Twitter bots, but the other part of me thinks maybe he shouldn't make that point by completely trashing the US legal system.

You know, I hadn't thought about that point, But I do think that was really a good point that Matt made, which is that, like the whole reason so much corporate law is done in Delaware, it's like it's quick, it's predictable, the rules are like fairly unambiguous, and you know, everyone sort of likes that, which does make it seem like it even raises the bar further, the fact that like Musk seems to be thumbing his nose so much at the contract law, like if that's allowed and endorsed by

a Delaware court. Then what the point of a Delaware court Again? I don't know, Like maybe his lawyers are gonna like pull something that really is like changes our story, and lawyers are really good at doing that. But yeah, like this sort of the whole system is implicitly on

trial almost. Yeah, And also like I just the idea that the ultimate punishment for Elon Musk might be having to become CEO of Twitter, And like I just have this image of like a judge somewhere like standing behind Elon Musk while he sits at a desk doing like Twitter things and finding the bots and just forcing him to do it. There's this whole thing is very strange. Uh, lots of future Matt Levine columns to read at a very minimum. Shall we leave it there. Let's leave it there.

This has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway and I'm Joe wisn't Thal. You can follow me on Twitter at the Stalwart. Follow our guest Matt Levine on Twitter. He's Matt Underscore Levine, and of course, subscribe to his newsletter Money stuff that you can not. He is a link to it at his handle. Follow our producer Kerman Rodriguez at Kerman Arman and check out all of our podcasts Bloomberg under the handle at podcasts.

Thanks for listening.