Open letter to the $TWTR board: take Elon to court

On Friday, Elon Musk *attempted* to terminate his deal to buy Twitter.

I’ve discussed the Twitter TWTR 0.00%↑ saga / arbitrage extensively (I’d refer you to my post on the TIF / LVMH parallels here and my podcast with Evan Tindell here), but to summarize my thoughts are simple: Twitter has an iron clad legal case, and Elon will get destroyed in court and be forced to close this merger.

We’ve put our money where our mouth (or, in this case, Substack) is, as Twitter is one of our largest holdings.

Given the size of our holdings and our confidence in the court case, we sent the Twitter board a letter encouraging them to go to court. Note that we sent the letter before Twitter’s complaint against Elon was filed; the complaint is well worth reading, and I think it would be very difficult to read that and not think Twitter is going to win (though I am obviously biased!).

Our letter to the Twitter board is below:

Rangeley Capital Partners, LP, together with its affiliates (“Rangeley”) is a beneficial owner of Twitter. In addition to owning a substantial stake in Twitter, our firm’s principals are passionate Twitter users.

We care deeply about Twitter and our ownership stake in Twitter represents one of our firm’s largest and highest conviction holdings, representing roughly 10% of our firm’s assets. The crux of our thesis is simple: Mr. Musk and Twitter signed a contract, and we think the law is overwhelmingly on Twitter’s side in the Delaware court in enforcing the contract.

Mr. Musk’s antics around the deal have been ridiculous and we sympathize with the board’s awkward position - almost from the moment the ink on the deal was dry, Mr. Musk has been in continuous breach of the contract by disparaging Twitter or attempting to place the deal on “hold.” Our largest concern throughout this drama has been that the board would back down from the pending legal fight with Musk. Given that worry, we were thrilled to see the continued communication from Twitter’s board that it is committed to closing the transaction on terms and are prepared to enforce the contract.

The primary purpose of this letter is to encourage the board to continue to pursue every legal avenue available to force Mr. Musk to close the deal. If that means a protracted legal battle, you have our support to pursue one, and, based on our talks, we are confident the vast majority of other shareholders would support a legal fight as well.

As we get closer to the court date, there will likely be some type of mediation with Mr. Musk to see if this case can be resolved without going to court. While we’d be open to avoiding the uncertainty of the courtroom, we strongly believe Twitter would prevail in court in seeking to enforce the merger agreement on the current terms. 

However, if the board were to explore settlement options with Mr. Musk, we would strongly favor a token price cut over damages.  If the board chooses to settle for damages, we think an appropriate check size would need to be significantly greater than $20 billion to account for the magnitude of what is contractually owed and the damage Mr. Musk has inflicted on the company in this process. A payment for damages would be a tax drag on Twitter and would also partially need to account for Musk’s own 10% holding (as his ownership would let him benefit from 10% of any damage payment). If the board chooses to negotiate a token price cut, we don’t see how anything in excess of a 2-3% reduction would be reasonable based on precedent and the facts and circumstances of this case as we understand them. 

One last point: we’ve seen a lot of bad takes on the acquisition saga in the public discourse. For example, we saw a former board member suggest Twitter should just “let the whole ugly episode blow over.” Others have argued that, “Elon owning Twitter is bad for the public sphere, and employees don’t want to work for him. The board should take whatever fee they can get and remain independent.”

We strongly disagree.

The board represents owners, and the best thing for shareholders is to aggressively pursue legal action against Mr. Musk to compel him to close. Anything less would be a tacit admission that Musk’s claims about the company’s false reporting are true. We’d also note that this is in the board’s best interest: the current drama with Mr. Musk will be cited as a precedent and taught for decades to come. This case will be the first thing mentioned when recapping the career of each director and will be the first thing shareholders use when considering Twitter’s board members as potential future executives / board members at other companies.

It is clear the facts are overwhelmingly on Twitter’s side to enforce the agreement. We are heartened by the board’s serious and professional initial response to Mr. Musk’s childish antics and meritless attempt to terminate the deal.  Any potential price cuts or settlements should be negotiated from a position of extreme strength on Twitter’s side - the best outcome for shareholders would be that Mr. Musk is the owner of the company when this process ultimately concludes. 

If you have questions or would like to discuss our perspective in more detail we would be happy to do so at your convenience.