After trying for months to get out of his $44 billion agreement to buy Twitter, Elon Musk told Twitter on Monday night that, actually, he wanted to do the deal — on exactly the original terms. His other big ask: Let’s put the litigation on hold. The two sides are now hashing out next steps, two weeks before they were set to face off in one of the biggest business confrontations of the century.
DealBook has been hitting the phones. Here is what we know — and want to know.
What we know:
Things moved quickly. Twitter got the letter from Musk’s lawyers on Monday, and filed it yesterday morning with the Delaware Chancery Court presiding over the case. In an emergency confidential hearing, the judge instructed the two sides to figure it out and get back to her.
Twitter is wary of pausing its litigation. It’s considering some options in its negotiations with Musk, including getting a court to oversee the deal’s closing (through a consent judgment), and charging Musk interest on any additional time it takes to close the deal.
What we don’t know:
Why did Musk change his mind? Was it a reluctance to be deposed on Thursday and Friday? Concerns of further embarrassing his Silicon Valley and Wall Street friends, à la last week’s text message dump? Some piece of undisclosed bad news? Twitter, incidentally, felt very confident in its chances in the Delaware trial.
Is he still hoping bank financing gives him an out? In his letter to Twitter, Musk says he will do the deal “pending receipt of the proceeds of the debt financing.” (Per the terms of the deal, if the bank financing falls apart, he needs to pay only a $1 billion breakup fee.) The banks have already committed to their $12.5 billion — as long as a deal happens by April 2023. Is Musk hoping they try to back out?
Could Twitter stop Musk from using the banks as an out? One route would be to ask the judge to have the banks say in writing that they remain committed to funding the bid. The company could also ask Musk for a letter saying that he is unaware of any conditions that could impede the deal closing.
Do the banks wish they had an out? The leveraged loan market, which Musk is partly relying upon, has weakened in recent months. If the Citrix deal is any indication, the banks lending to Musk, led by Morgan Stanley, could be sitting on big lending losses. Note: They cannot change the terms of their lending agreement.
What are Larry Ellison, Ben Horowitz and Musk’s other friends going to do? It’s not clear whether any or all of the investors who agreed to chip in $7.1 billion to fund Musk’s deal have an out. (Musk had warned that some equity investors might not “come through.”) Would the text message headache or due diligence concerns give them cold feet?
What are Musk’s plans for Twitter? With the ad market slumping, employee morale sinking and lax security accusations swirling, the company is in worse shape than it was in April. But Musk appears bullish again. “Buying Twitter is an accelerant to creating X, the everything app,” he said. If he goes through with it, “Musk’s Twitter will be a wild ride,” The Times’s Kevin Roose predicts.
HERE’S WHAT’S HAPPENING
OPEC Plus meets today. The oil-producing group is expected to announce sizable production cuts to try to lift crude prices. But slowing demand in China and Europe and the prospect of a global recession may blunt the effect of such moves.
The U.S. national debt surpasses $31 trillion. The record, reached yesterday, comes as the Fed is raising interest rates to combat inflation. Economists worry that the growing debt load will become too expensive to service over time.
Amazon freezes corporate hiring in its retail business. The announcement covers the retail giant’s physical and online retail business and its logistics operations.
Federal labor officials issue a complaint against Apple. The National Labor Relations Board accused the tech giant of violating labor laws in an effort to stymie union organizers at its World Trade Center store. Meanwhile, Amazon suspended over two dozen workers at a Staten Island warehouse who had refused to work their shifts after a fire at the site.
Micron plans to build a chip factory in New York. The semiconductor maker will invest up to $100 billion on a new campus, which it says will be the biggest chip fabrication facility in the U.S. It’s the latest chip giant to pledge new manufacturing plants in the country.
Lawyers, Musk and money
The extended legal battle between Musk and Twitter has fascinated Wall Street — and many, like Carl Icahn and Hindenburg Research, have made money betting on the outcome. But some of the biggest winners are likely to be the armies of expensive lawyers working on the transaction.
The law firms representing Musk and Twitter on deal work and litigation stand to earn hundreds of millions for their months of labor, according to estimates from competitors and colleagues familiar with the matter. The firms declined to comment.
The deal was always likely to be a lawyer’s dream, fee-wise. While Musk’s bid came together relatively quickly this spring, the talks rapidly became mired in lengthy legal wrangling, leading to many billable hours. “There is a lot of discovery to do,” Peter Glennon, a legal expert, told The American Lawyer in August. “We aren’t just looking at emails. We are looking at Slacks, Teams, texts, all of it.” (John Coffee, a Columbia law professor, previously estimated that legal fees could have run to $1 billion.)
The key players:
Musk is represented by Skadden on the deal side and by Skadden and Quinn Emanuel in litigation. Top partners at the firms bill about $2,000 an hour. Lawyers estimated to DealBook that the firms could be charging about $30,000 to $40,000 an hour, or $5 million to $8 million a month. That means Musk could have paid about $50 million, plus perhaps another $50 million in the run-up to litigation.
Twitter relied on Wilson Sonsini and Simpson Thacher, where top partners also most likely bill about $2,000 an hour, for deal work. And for litigation it’s primarily relying on Wachtell, the blue-chip firm known in legal circles for its bespoke (and opaque) pricing, including hourly billing, flat fees and contingency deals. Depending on its arrangements, Wachtell could bring in $100 million to $200 million, lawyers estimate.
Between those firms alone, the Twitter case has probably already generated about $150 million to $300 million in fees. But then add in all of the other lawyers involved in litigation, depositions, the deal and more. And that figure could grow if this actually goes to trial, or otherwise goes awry.
Ray Dalio bids goodbye
Ray Dalio, the outspoken and oddly earnest hedge fund manager whose profile rose after he predicted the 2008 financial crisis, is relinquishing control of Bridgewater Associates, the firm he founded out of his two-bedroom apartment in 1975. In a long planned transition, the co-C.E.O.s, Nir Bar Dea and Mark Bertolini, will run Bridgewater, now the world’s largest hedge fund, with $150 billion in managed assets.
Dalio ushered in the era of enormous hedge funds. By the time Bridgewater started its signature Pure Alpha fund in 1991, most rivals were relatively small, focused on the stock market and managing the money of the ultrarich. Dalio, whose expertise was in currency trading, sought business from pension funds, which had huge piles of money to invest and were looking for exposure outside the stock market.
At Bridgewater, Dalio enforced “radical transparency,” in which employees were encouraged to be brutally honest with one another. To some, Bridgewater’s success made Dalio a management guru. His best-selling 2017 book, “Principles: Life and Work,” lays out the rules for achieving success and radical transparency.
“Ray is a rare breed,” said Anthony Scaramucci, a fellow hedge fund manager whose annual hedge fund conference has featured Dalio. “You don’t often see a skilled hedge fund manager who can both build an enduring company and have the humility to let it go.”
Dalio is leaving on top, and on bottom. After years of average performance, Pure Alpha is up nearly 35 percent this year, far outperforming the overall market. But Bridgewater’s other fund — which is called All Weather because it’s supposed to produce stable returns no matter the market — is down 27 percent in 2022.
Shareholder activism, with a MAGA spin
“Defund the S.E.C.” is one of the latest slogans taking hold on Truth Social, the social media platform backed by former President Donald Trump. People claiming to be shareholders of Digital World Acquisition Corp. — the SPAC that agreed last October to merge with Truth Social’s parent company, Trump Media & Technology Group — say the regulator’s investigation of the proposed deal is politically motivated.
The hashtag #DWACtheSEC, a reference to Digital World’s stock symbol, was trending on Truth Social yesterday, and shareholders plan to petition the commission to end what they call a “garbage” inquiry. A weekly video show has even put out a call to pray for Digital World. It’s shareholder activism, with a Make America Great Again spin, writes The Times’s Matt Goldstein.
Riled-up small shareholders may work in Trump Media’s favor. Trump Media cannot gain access to the $300 million that Digital World raised through its public offering until the merger goes through, which is unlikely until the S.E.C. inquiry and separate investigations are resolved. To buy time, Digital World needs at least 65 percent of its shareholders, most of whom are small investors, to vote for an extension.
The regulatory hurdles look insurmountable. Trump may be “creating the narrative for why things have fallen apart” by targeting securities regulators, said Adam Pritchard, a professor at University of Michigan Law School, but the S.E.C. has been clear that it wants to rein in SPACs. “The agenda is not to get Trump,” he said, “it’s to get SPACs.”
THE SPEED READ
The vaping company Juul is reportedly preparing to seek financing for a potential bankruptcy filing. (WSJ)
Shares in the SPAC seeking to take Trump’s social media platform public fell after Musk sought to revive his Twitter deal. (CNBC)
Blackstone is reportedly in talks to buy parts of Emerson Electric’s commercial and residential products portfolio for as much as $10 billion. (Bloomberg)
“Florida Leaders Rejected Major Climate Laws. Now They’re Seeking Storm Aid.” (NYT)
Economists are worried the Bank of England’s rescue of British government bonds may have set an ominous precedent. (NYT)
The head of the U.S.’s accounting regulator warned accounting firms of tougher scrutiny of their overseas affiliates. (FT)
Best of the rest
Applications to business schools are down, with the hot job market and rising tuition costs to blame. (WSJ)
A chess investigation reportedly found that Hans Moke Niemann, the American grandmaster accused of cheating, probably did so in over 100 online games. (WSJ)
Rebekah Vardy, the loser of the “Wagatha Christie” libel case that riveted Britain, was ordered to pay nearly $2 million in legal fees to Coleen Rooney. (NYT)
Aaron Judge: 62. (NYT)
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