5 ms·

M&A lawyer here. Based on my read, Musk is trying to establish that the Company has "materially breached" the Merger Agreement by not providing the requested in

M&A lawyer here. Based on my read, Musk is trying to establish that the Company has "materially breached" the Merger Agreement by not providing the requested information. If he can show that, there's no requirement to show a material adverse effect, which is a 2nd and distinct way he could avoid closing. What he's doing is pretty transparent; based on my Monday morning quarterback view of this situation, he simply believes that the price he agreed to for the company is too high given the state of the market. His letter isn't made in good faith and if this gets litigated, I bet the Delaware courts will relish making an example of him.

zaphod12 4y ago
The real question is what will he do if the court orders a fine or specific performance! Can't you just see him ignoring it...and daring them to...what, hold him in contempt? He's completely ignored the SEC already.
- JumpCrisscross 4y ago
  > Can't you just see him ignoring it...and daring them to...what, hold him in contempt? He's completely ignored the SEC already. The SEC is a civil agency. Court orders are super different. The former can't put anyone in jail. The latter can. They can also, worst case, transfer his assets into receivership and have a court-administered trustee perform from there.
- jcranmer 4y ago
  Realistically? An adverse court ruling would be headline news, so Musk can't bury the news. A fine would be easier to enforce (you can basically go to the people who pay him and demand that they pay you instead). However, given the dickishness that he has already displayed, I quite like the (completely unrealistic) idea of the penalty being that Twitter acquires ownership of Tesla instead, whereupon they kick Musk out as CEO.
  - nebula8804 4y ago
    Now you have gotten me thinking that there is an alternative universe where this in fact did happen! :D I truly respect Tesla engineering and wish them no ill will but what a hilarious outcome that would be.
    - ModernMech 4y ago
      I’m sorry but Tesla engineering is responsible for producing a beta-quality product that is being tested on public roads without public consent, a product which has predictably killed people intentional flaws they refuse to fix. You should not respect Tesla engineers or consider their products as good engineering.
      - JoeAltmaier 4y ago
        Tesla are subject to the same governing body as every other carmaker? ICE cars kill people all the time. Not sure that claim is supportable (Tesla distinct from other carmakers in this way).
        ModernMech 4y ago
        I’m specifically referencing their self driving features being beta tested on public roads by their customers. When there’s a defect in other cars that cause deaths the cars are recalled. Tesla hides behind a “beta” smokescreen to excuse their defects, which they never really intend to fix (if they did, they wouldn’t have had two consecutive decapitations due to the negligent design of product)
      - nebula8804 4y ago
        Oh please get your head out of sand. Just look at a teardown of their vehicle and compare it to their competitors. They are in a class of their own and they are constantly iterating and improving without slowing down so when their competitors eventually copy their designs, they are already onto the next thing. Yeah ok you don't typically see the engineering, you just drive the car. But as an engineer myself, it really lights up an area of my mind to see how well they challenge conventional norms about how a specific part or process is typically done in a car and then go and do a much better job of it. Plus the cross pollination between SpaceX and Tesla is introducing so many cool things that we would not typically see in the car industry.
- pavlov 4y ago
  It's interesting how conservative icons in America nowadays are men who flaunt the law in the most visible ways. I guess it comes down to this Frank Wilhoit quote: "Conservatism consists of exactly one proposition, to wit: There must be in-groups whom the law protects but does not bind, alongside out-groups whom the law binds but does not protect."
  - nebula8804 4y ago
    That is an AMAZING quote. Thank you for that. I need to print it out and put it on my wall.
    - ModernMech 4y ago
      If you want the bumpersticker version, it’s “rules for thee, not for me”
  - usrn 4y ago
    Any functional nation will have those two groups. There will at least be the people who are citizens and people who are not.
    - mjmsmith 4y ago
      Here it is in context: https://crookedtimber.org/2018/03/21/liberals-against-progressives/#comment-729288 https://crookedtimber.org/2018/03/21/liberals-against-progre...
gitfan86 4y ago
Misleading a buyer about user count is material, even if musk is acting in bad faith.
- JumpCrisscross 4y ago
  > Misleading a buyer about user count is material, even if musk is acting in bad faith Materiality with respect to MAE/MAC clauses is way more demanding. The first (and to my understanding, only) time Delaware found an MAE was in 2017. That was after a material fall in revenue alongside ignored (and hidden) whistleblower complaints and the company scaling back basically all QA spending right after signing the merger agreement [1]. So 33%+ drop in revenue and 300% drop in operating income + fraud + negligence rivaling sabotage. [1] https://www.gibsondunn.com/wp-content/uploads/2019/06/Becker-Glover-Alterbaum-Evolution-of-the-material-adverse-effect-clause-Financier-Worldwide-06-2019-1.pdf https://www.gibsondunn.com/wp-content/uploads/2019/06/Becker...
- hkhanna 4y ago
  There's a lot here, and Musk is counting on the public not understanding what he's doing. The letter doesn't allege materiality about user counts. It alleges that Twitter's failure to provide certain information is a "material breach" (term of art) of the covenant for Twitter to provide information during the period between signing and closing. There's nothing about user counts at all in the agreement. Musk is hanging his hat on a tortured, 5-step argument: 1. Twitter represented in the Merger Agreement that their public filings with the SEC were materially accurate and not misleading. Standard enough, and no reason Twitter can't make this rep since if they filed false information with the SEC, the SEC would come down on them. 2. Musk alleges Twitter's disclosure about user counts in their public filings may have been wrong, so they might have filed false information with the SEC. (Why he didn't verify these public claims before signing the agreement is the smoking gun that this is all a pretext.) 3. He's purporting to request information from Twitter that would help him verify those allegedly false claims with the SEC. 4. Twitter is allegedly not providing this requested information. 5. That failure to provide information is a material breach. Musk could have negotiated for much better protections than he got, but he ended up signing a very seller-friendly agreement because he was so sanguine to do the deal. In my opinion, he's resorting to these contortions because he doesn't have any outs here.
morpheuskafka 4y ago
> His letter isn't made in good faith and if this gets litigated, I bet the Delaware courts will relish making an example of him. Why is a big shoe law firm offering up their name to sign it then? Don't attorneys have a duty to only raise good faith arguments and not mislead others with claims that have no reasonable basis of holding up. Not like the big name lawyers on the other side will actually be mislead, but still.
- hkhanna 4y ago
  Sadly, there's no general duty of lawyers to only raise good faith arguments. There are specific duties not to mislead courts, but it's a pretty high bar and not relevant here since there's no court involved (yet). There is a possibility that Musk's tactic will work here. I just think it's unlikely because the Delaware courts will see this for what it is: a pretext for buyer's remorse. Because of this (small) possibility of success, there isn't any reason why Mike & Skadden can't ethically represent Musk here.

zaphod12 4y ago

The real question is what will he do if the court orders a fine or specific performance! Can't you just see him ignoring it...and daring them to...what, hold him in contempt? He's completely ignored the SEC already.

JumpCrisscross 4y ago
> Can't you just see him ignoring it...and daring them to...what, hold him in contempt? He's completely ignored the SEC already. The SEC is a civil agency. Court orders are super different. The former can't put anyone in jail. The latter can. They can also, worst case, transfer his assets into receivership and have a court-administered trustee perform from there.
jcranmer 4y ago
Realistically? An adverse court ruling would be headline news, so Musk can't bury the news. A fine would be easier to enforce (you can basically go to the people who pay him and demand that they pay you instead). However, given the dickishness that he has already displayed, I quite like the (completely unrealistic) idea of the penalty being that Twitter acquires ownership of Tesla instead, whereupon they kick Musk out as CEO.
- nebula8804 4y ago
  Now you have gotten me thinking that there is an alternative universe where this in fact did happen! :D I truly respect Tesla engineering and wish them no ill will but what a hilarious outcome that would be.
  - ModernMech 4y ago
    I’m sorry but Tesla engineering is responsible for producing a beta-quality product that is being tested on public roads without public consent, a product which has predictably killed people intentional flaws they refuse to fix. You should not respect Tesla engineers or consider their products as good engineering.
    - JoeAltmaier 4y ago
      Tesla are subject to the same governing body as every other carmaker? ICE cars kill people all the time. Not sure that claim is supportable (Tesla distinct from other carmakers in this way).
      - ModernMech 4y ago
        I’m specifically referencing their self driving features being beta tested on public roads by their customers. When there’s a defect in other cars that cause deaths the cars are recalled. Tesla hides behind a “beta” smokescreen to excuse their defects, which they never really intend to fix (if they did, they wouldn’t have had two consecutive decapitations due to the negligent design of product)
    - nebula8804 4y ago
      Oh please get your head out of sand. Just look at a teardown of their vehicle and compare it to their competitors. They are in a class of their own and they are constantly iterating and improving without slowing down so when their competitors eventually copy their designs, they are already onto the next thing. Yeah ok you don't typically see the engineering, you just drive the car. But as an engineer myself, it really lights up an area of my mind to see how well they challenge conventional norms about how a specific part or process is typically done in a car and then go and do a much better job of it. Plus the cross pollination between SpaceX and Tesla is introducing so many cool things that we would not typically see in the car industry.
pavlov 4y ago
It's interesting how conservative icons in America nowadays are men who flaunt the law in the most visible ways. I guess it comes down to this Frank Wilhoit quote: "Conservatism consists of exactly one proposition, to wit: There must be in-groups whom the law protects but does not bind, alongside out-groups whom the law binds but does not protect."
- nebula8804 4y ago
  That is an AMAZING quote. Thank you for that. I need to print it out and put it on my wall.
  - ModernMech 4y ago
    If you want the bumpersticker version, it’s “rules for thee, not for me”
- usrn 4y ago
  Any functional nation will have those two groups. There will at least be the people who are citizens and people who are not.
  - mjmsmith 4y ago
    Here it is in context: https://crookedtimber.org/2018/03/21/liberals-against-progressives/#comment-729288 https://crookedtimber.org/2018/03/21/liberals-against-progre...

gitfan86 4y ago

Misleading a buyer about user count is material, even if musk is acting in bad faith.

JumpCrisscross 4y ago
> Misleading a buyer about user count is material, even if musk is acting in bad faith Materiality with respect to MAE/MAC clauses is way more demanding. The first (and to my understanding, only) time Delaware found an MAE was in 2017. That was after a material fall in revenue alongside ignored (and hidden) whistleblower complaints and the company scaling back basically all QA spending right after signing the merger agreement [1]. So 33%+ drop in revenue and 300% drop in operating income + fraud + negligence rivaling sabotage. [1] https://www.gibsondunn.com/wp-content/uploads/2019/06/Becker-Glover-Alterbaum-Evolution-of-the-material-adverse-effect-clause-Financier-Worldwide-06-2019-1.pdf https://www.gibsondunn.com/wp-content/uploads/2019/06/Becker...
hkhanna 4y ago
There's a lot here, and Musk is counting on the public not understanding what he's doing. The letter doesn't allege materiality about user counts. It alleges that Twitter's failure to provide certain information is a "material breach" (term of art) of the covenant for Twitter to provide information during the period between signing and closing. There's nothing about user counts at all in the agreement. Musk is hanging his hat on a tortured, 5-step argument: 1. Twitter represented in the Merger Agreement that their public filings with the SEC were materially accurate and not misleading. Standard enough, and no reason Twitter can't make this rep since if they filed false information with the SEC, the SEC would come down on them. 2. Musk alleges Twitter's disclosure about user counts in their public filings may have been wrong, so they might have filed false information with the SEC. (Why he didn't verify these public claims before signing the agreement is the smoking gun that this is all a pretext.) 3. He's purporting to request information from Twitter that would help him verify those allegedly false claims with the SEC. 4. Twitter is allegedly not providing this requested information. 5. That failure to provide information is a material breach. Musk could have negotiated for much better protections than he got, but he ended up signing a very seller-friendly agreement because he was so sanguine to do the deal. In my opinion, he's resorting to these contortions because he doesn't have any outs here.

morpheuskafka 4y ago

> His letter isn't made in good faith and if this gets litigated, I bet the Delaware courts will relish making an example of him. Why is a big shoe law firm offering up their name to sign it then? Don't attorneys have a duty to only raise good faith arguments and not mislead others with claims that have no reasonable basis of holding up. Not like the big name lawyers on the other side will actually be mislead, but still.

hkhanna 4y ago
Sadly, there's no general duty of lawyers to only raise good faith arguments. There are specific duties not to mislead courts, but it's a pretty high bar and not relevant here since there's no court involved (yet). There is a possibility that Musk's tactic will work here. I just think it's unlikely because the Delaware courts will see this for what it is: a pretext for buyer's remorse. Because of this (small) possibility of success, there isn't any reason why Mike & Skadden can't ethically represent Musk here.