Professor Ann Lipton and Compound248 on $TWTR vs. Musk (podcast #120)

Tulane Law Professor Ann Lipton and Fintwit personality Compound248 discuss the latest in Twitter’s lawsuit against Elon Musk. Note that we dive directly into all the nuisances of the trial; for more background on how we got here and what’s at stake you can listen to my podcast from May with Evan Tindell.

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Transcript begins below

Andrew Walker: All right. Hello and welcome to the Yet Another Value Podcast. I'm your host, Andrew Walker. If you like this podcast, it would mean a lot if you could follow, rate, and review it wherever you're watching or listening to it. With me today, I'm happy to have two guests. On one side, I have my friend Compound and on the other side, kind of the star of this podcast today, I have Tulane University professor, Ann Lipton. Ann, Compound, how's it going?

Ann Lipton: Great. Happy to be here.

Compound: I'm well, and I'm excited to be here. Thanks, Andrew.

Andrew: Hey, thank you guys so much for being here. Let me start this podcast the way I do every podcast. First, a disclaimer to remind everyone that nothing on this podcast is investing advice. So, everyone should please remember that consult a financial adviser, do your own diligence. Then the second way I start this podcast is with a pitch for you. I guess in this case, my guest- I'll start with Compound. I've known Compound for a while. I consider him a friend. He's a super sharp investor and I swap notes with him sometimes multiple times a day. Then the second pitch is for Professor Lipton who, my colleagues and I... I told her before the show, I'm a little starstruck because when she started going on CNBC and doing all these hits, we were like, oh, this professor is really good. And then I noticed that she was from Tulane, my alma mater. So, I'm just glad that she's on here. I'm glad that she's representing the university well and really excited for this podcast.

So look, I'll just do a quick overview. We're talking midday on Monday, August 8. This is a wild case over the weekend, it may have gotten even wilder, so things could change between talking and posting. But just to start, we're going to be talking about Twitter versus Elon Musk. And I guess just to start an easy question, I'll turn it over to Professor Lipton. What is your take of just the overall case, everything we've seen so far?

Ann: I think everything we've seen so far, it does not look like Musk has much of a basis for claiming that Twitter breached the merger agreement. It seems that his claims against Twitter are very weak. Twitter's claims that Musk is the one who is breaching the merger agreement seemed pretty strong. So, a lot of the debate, the X factor for a lot of those of us who are watching is less about who's right because it seems that Twitter is right, and more about what the court does about it. Does the court actually order Musk to close or is there some other outcome?

Andrew: Compound, do you want to add anything to that?

Compound: Yeah, I mean, I guess one of the areas I'd love to get your thoughts on, Professor Lipton, is that if Musk is in breach, what are the implications of that? And how in breach does he need to be for it to be relevant to this case?

Ann: I mean, it's not about how much he has breached, it really is just he has an obligation to sort of close this deal. What the parties did, at least, the sort of obvious reading of the contract... and there are people right now studying to see whether there are alternative interpretations. But the obvious reading of the contract is that essentially, there are two pads here. If Musk isn't breached, Twitter can do two things. It can terminate the agreement and ask for a billion dollars from Musk, obviously, it's not doing that, or it can sue Musk for specific performance, which is a contract term to mean go through with your obligations. And that would mean getting the financing, doing all whatever preliminary things are necessary to close the deal, and then finally, actually closing the deal and buying the company once a shareholder vote has voted in favor, which that's scheduled for September 13. I'm pretty sure that shareholders are going to vote in favor.

So those, at least, a surface reading of the contract is essentially the only two outcomes. In the contract, the parties agreed very clearly that nobody can be forced to pay more than a billion dollars under the contract. So, the question that a lot of people have is, I mean, a court always has the discretion to not order a specific performance. It's considered an equitable remedy, which basically means it's when the court's power, considering whether the court thinks it's appropriate, whether the court wants to exercise that kind of compulsion over the parties. So, the question, then is whether the court really will think specific performance is appropriate here, given the importance of Twitter, given all the different equities of the situation. If the court doesn't think it's appropriate, does the court stick to the contract which seems to have the party saying a billion dollars that's it, which would really be a win for Musk. I mean, for me, a billion dollars was better a lot, but for Musk really doesn't. And it's far better than him having to pay 44 billion.

I would say that the disruption caused to the business, the expense, the trouble, everything else, is probably worth much more than a billion. So, if he gets to walk away for just paying a billion dollars, that's a win for Musk. It is a loss for Twitter shareholders. So, the question is whether the court really perceives itself as constrained by those two options, whether there's a third option, and it doesn't look like there was one under the contract, and whether there's a reason the court would think specific performance is inappropriate in this case. She's ordered it before, Delaware courts have ordered it before. The question is whether the court is willing to do that now.

Compound: I guess one other, just on his breach, there's obviously the breach of he's not making best efforts to close the deal he's inappropriately terminating. Twitter alleges that he's been in breach for months. I guess it says the implication of that is that if he has been in material breach since, call it May, he's actually barred from terminating the agreement. I'd love your thoughts on that as well.

Ann: Yeah, that's definitely in the agreement. The agreement says that you can only exercise your termination right for someone else's breach if you yourself have complied with all your obligations. So, one of Twitter's arguments is, look, we didn't breach at all, so you can't terminate. But even if we did, you can't terminate because you breached first. Now, the grounds for breaching first are largely things like, first of all, his tweets, bad tweets, he tweeted [crosstalk] agreement, which he's not supposed to do. He violated the NDA on Twitter in a minor way, which he's not supposed to do. Those are the really obvious breaching.

Andrew: He's just short of challenging Twitter CEO to a duel. [inaudible] [crosstalk] for a duel at this point.

Ann: I would got to say, I wouldn't be surprised if the court said, Twitter, you are in breach of the agreement, but the reason I'm not letting Musk terminate is because of the bad tweets. I just don't see that happening. The more serious claim that Twitter has is that he's not using his best efforts to get financing. The thing is that that's a little opaque. All Twitter's got so far is that essentially communication has sort of stopped. So, I just can't really game out how likely that is, but I think it's possible that this whole thing will be shortcutted by the court saying, well, I think that Musk breached first, therefore, he's not allowed terminated to deal. But I think it's more likely that the focus will be on less claims as to why Twitter breached first.

Andrew: Can I ask a question? There's just so much I want to ask you, but on the bad tweets, I agree. I don't think the courts are going to be like, hey, we're going to enforce a 44 billion dollar merger, even though we found Twitter breached the rest because Elon did some nasty tweets first. I do have trouble with that. But one of the things I constantly heard people when we first started looking at this case was, a lot of legal people would say, hey, you're drilled from day one in law school. Courts really don't like to order specific performance and specific performance has been ordered. This judge has ordered it before, but it is pretty rare. But one thing I mean, I think the judge said, I know she said during the expedited trial hearing, hey, in this case, it does seem like monetary damages would not help Twitter. But another thing that just keeps coming to mind is Elon keeps doing all these bad tweets that are harming the business and they increase the odds specific performance needs to be the remedy. Do you think that he's almost harming himself by making specific performance more likely just by continuing to tweet these things?

Ann: Okay, so it's actually two separate things. I don't think the tweets are about specific performance. I think the tweets matter, but they matter for a different reason.

Andrew: Okay.

Ann: But as far as the first part, yes. If you go to law school, they will tell you specific performance is a rare remedy. The preferred remedy is the damages. But this is Delaware. This is a merger agreement in Delaware and that actually isn't what's been going on in Delaware. Delaware has actually laid out a much simpler standard for when specific performance is appropriate, which basically is about the equities of the situation. The courts defer a lot to when the parties have contracted to say specific performance is appropriate and they did in this case. They can track that this specific performance is appropriate and Musk even contracted that he couldn't argue specific performance is not appropriate. He's allowed to argue he's not in breach, but at least under, again, the plain reading of the contract, and I haven't studied it the way I'm sure lawyers on right now to find the hidden clause somewhere in the hundreds of pages, but the straightforward reading of the contract right now is that if she finds him in breach, he is not allowed to make an argument that specific performance is inappropriate.

So, despite the fact... and in fact, I am unaware of any case in Delaware. There haven't been all that many. There are only like 5 or 6. But I am not aware of any case in Delaware where the parties contracted for specific performance and the court said nope, not working it. So, we've got several of these broken merger deals and where they said specific performance, the court said, okay, yeah, specific point. So, I don't think that despite the sort of blackletter doctrine that specific performance is the rare remedy, that's not really how it's been playing out in the merger cases in Delaware. The tweets, however, are a problem for a different reason. That is, he's making a lot of admissions in his tweets that contradict his filings, which is why I'm sure Wachtell is sitting down and documenting them and is having a lot of fun doing it. Scott is doing the same thing and having a lot less fun because he's basically making statements that really contradict a lot of the assertions that his lawyers are making in his filings on his behalf. So, those are going to be labeled as exhibits and that's the problem.

Andrew: Just on that, I was wondering, and we're talking August 8, and over the weekend, Elon went on a real Twitter rampage. He challenged Twitter CEO to a public duel on bots. He said a lot of things. He again called for the SEC to investigate Twitter, things that he should not be doing. His lawyers, obviously, don't want him doing this. But do they have any leverage over him? Because I was kind of thinking, I've been involved in some court cases before. If I did this, I think our lawyers would have just said, oh, this guy who's paying us a couple of thousand dollars, we're just going to fire him as a client. I don't think Scott is gonna do that because Elon's paying some big bills, but do they have any leverage? Can they bring them in at all?

Ann: If he's not going to listen, he's not going to listen. I mean, one of the things that really actually I think is going to trouble... I don't want to overstate, because I don't want to say we're at that point because I don't think we are. But Skadden and Quinn Emanuel, they're representing Musk, they're making filings in court on Musk's behalf with factual assertions that this is what happened. This is our story of what happened that led to this where we are now. If Musk tweets out things that contradict that, let's say, oh no, that's not how it happened, now we have like an ethical problem. That's the concern that has to be in the back of Skadden's mind, that we haven't crossed that line yet but we're walking up to it, leaving aside the fact that he's damaging the legal arguments that Skadden spent many hours putting together or Quinn Emanuel. I don't know who did what.

Andrew: Can you give an example of something Elon's tweeted that goes against something his lawyers have argued? Because of these things, people tweeted them over the weekend, but the filings are so long, it's almost hard to remember what gets argued. Can you just give one example?

Ann: Yeah. So, Musk has a number of different claims, basically a couple of different bases for why he gets to walk away from the merger. One of the bases he's arguing is fraud. Twitter defrauded me. Now, to prove fraud, he's got to essentially prove 3 things. First, Twitter made false statements. In this case, he's claiming false representations about the amount of spam on the platform. Second, he relied on those false representations. Third, Twitter intended to do it. Those are the 3 things he has to show. So, the big claim here that he spent multiple paragraphs in the complaint in his filling about it, this is counterclaims, is that he relied on Twitter's representation that there was no more than 5% spam on the platform, that he believed in his bones. He believed in his heart, his soul rested on there was only 5% spam on the platform and my god, he would never sign this deal if he'd known it was more. So, when he tweets out, does anyone who uses Twitter think there's really 5% spam on the platform, he's basically saying no reasonable person could even have a casual interaction with Twitter and come away thinking that there was only 5% spam on the platform. He's made that point multiple times in multiple places that a casual user of Twitter will reveal that that 5% number can't possibly be true. But he has pages and pages of sworn filings swearing that he believed it.

Andrew: He made it 2 weeks after the merger agreement. I think it was the All-In Podcast. He went on and he said, Twitter says it's only 5% bots. Does anyone have that experience? The ink wasn't even dry on the contract when he was saying that which again, I think just speaks to...

Ann: Exactly. That's what he did over the weekend as well. He tweeted out this poll, and the poll was is there 5% spam, yes or no? If it wasn't yes or no, it was yes or LMA laughing my ass off, no. Which, the implication, obviously, the joke being nobody could possibly think there was more. And he's tweeting this out days after his attorneys spent a lot of time drafting documents agreement Musk truly believed. I was horrified to discover that it was actually in fact more than 5%.

Andrew: I think one thing when I talk to people, a question that frequently comes up, I call this the Musk trap. They'll say, oh, but I don't think 5% of users on Twitter aren't bots. I think it's more than 5% just based on my interaction. Musk does a nice job if you do a casual read of switching you over that but what Twitter is saying is our MDA use, monetizable daily active users, we're saying it's under 5%. And I guess it's like 2 different questions, but will the judge be able to read through that? Because again, a casual observer has issues with that. And is the judge almost going to look at all this and say Elon is making a mockery of the court and come down harder on him for trying to pull these card games where he's switching the definitions of users and bots and everything?

Ann: I think she's trying very hard to treat this like any other case. I have seen their examples where people have treated Delaware... They've been pretty defiant, the Delaware courts, and Delaware courts have been, in some ways, bizarrely tolerant of antics. So, I think she's trying very, very hard to treat this like any other case and not worry about whether he's taking things seriously or not, but just look at the [inaudible]. But I think yeah, I mean, I don't think it's about like the switching of the definitions. I think it's more like his goal is to turn this into a really complex computer dispute over what is spam and how you can't spam and what the definition is. And Twitter's goal is to say, we have a contract here. We made statements that are really very straightforward. They're not 5% spam, they're 5% monetizable daily active users, we were very clear as to how we were defining that and we didn't say that we only have 5% then. We said we had a process for assessing it. We used our judgment. We might be wrong. If Musk thinks that our numbers are wrong, that's fine, but we never represented our numbers or anything in particular. We said that we used a process which produced this number. And Musk has very few arguments to refute that statement, the statement of we used a process by which we reached this number, which by the way, we could be wrong because we used a lot of judgment. That is the statement that they made and Twitter is going to spend a lot of time saying you can't falsify that by talking about your own redo a spam analysis. It just doesn't answer the question.

Compound: And may I add, Ann, I mean, at no point has Twitter made any sort of representation around its actual MDAU numbers specifically, right? All they've done is represent that their SEC filings are correct in all material respects. And that happens to be one number that is embedded in those SEC filings. Actually, I guess it's really just the 2021-10k that is the only meaningful repped SEC filing. So, I guess that comes down to even if he somehow were able to say, well, it's actually 10%, what is the threshold for materiality? Because it's sort of like a number embedded inside a document that itself is repped.

Ann: Okay. Yeah. Twitter is not at this point arguing that the actual numbers of its monetizable daily users are not material. It hasn't reached that point. It's not saying we had all these other numbers in our documents, why are you focusing on monetizing? They're not doing that.

Compound: It has said we have never repped spam bots.

Ann: No, it's the spam. They didn't make statements about the number of monetizable daily users and they're not saying that that's on the show. But this is complicated because Musk has different legal claims and how we judge what's material varies depending on the claim. So, it's not all the same answer. The most basic claim is a contract claim. You made a representation about your SEC filings being true and you're right, essentially, one SEC filing the 2021-10k. You made a representation about that being true, and he's claiming and it is not true there but under the contract, the very contract it says, this is true. But it also says even if it's not true, Musk does not get to walk away. He only gets to walk away under the contract if it's both not true, and so dramatically, awfully not true that it would likely have, the legal term is a material adverse effect, which means a long-term significant impact on Twitter's finances going forward.

So, under the contract, Musk cannot win simply by showing that the SEC filing was false, and in this case, false in terms about the number of spam, or not even the number of spam in the process for assessing the amount of spam. You have to show that it was so dramatically false, that it was likely to have this long-term material effect on Twitter's finances going forward. He makes gestures in that direction in his counterclaims, but he's really barely trying. He's really mostly like, if this got out, it would have a material long-term effect, which is, I mean, part of the reason why I think Twitter didn't redact anything because it's saying it's out now. I think we're fine.

S,o, that's the first claim. The second claim he has is for fraud. That claim does not require the material adverse effect. That requires reliance and we already have this reliance problem and intent by Twitter, which I mean, really, his only attempt allegation at this point, as you can see by the way they tried to hide things, that they intended to defraud. Then it's really material is a much more loose standard that would really just have to be about something a person could reasonably rely on. I'm not in a position to say whether 5% versus some other number is material. I think at that point, it's really Twitter's gonna say, look, we only said we had a process. We never said anything more than that. Also, you didn't rely as we can see by your Twitter antics. Then we get to the third claim, which is the Texas claim.

Andrew: It was my next question. I'm so glad inaudible] [crosstalk]

Ann: Yeah, the Texas claim. The taxes claim materiality, I assume, and I'm not a student of Texas law, but in this context, it usually just means something that a reasonable investor might rely on. You kind of have to understand the background of the Texas claim before you even start to unpack that. So, do you want to talk?

Compound: Before we full-on hit Texas, can I ask one more question just to get it out? So, you kind of laid out that Elon wants to make this about spam and bots and data, and Twitter just wants to say, let's read the contract, apply the contract. So to me, that sort of lays out a looming battle around discovery and what will be discoverable. And you see Twitter sending up a massive subpoena is trying to figure out, did Elon try to mock his own financing? Was he using his best efforts? I presume what Elon would like to do is use the trial as a way to somehow disprove the MBAU number. How do you see the judge, how do you see the chancellor sort of drawing the line on what will be discoverable? What are the smoke signals we should be looking for to see how that is ending?

Ann: I mean, I know how I rule if I were the court, but I'm not the court. So, I'll just say this is what we're looking for, and what we expect at some point. I mean, who knows? Twitter might say, you know what, I'll give you everything. But I think that's less likely. I think, at some point, we're going to see a discovery battle where Musk moves for some kind of computerized information, and Twitter refuses, and then Musk files some kind of motion to compel. That seems likely to me at the very least plausible. At that point, the parties will have to explain why they need this data. And Twitter will argue it is both irrelevant because we didn't make a representation about spam on a platform. We made a representation that we had a process and we showed you our process, we gave you that.

Twitter will also make an argument that this is just unduly burdensome, which is a thing in a discovery. There's a certain point where it's a fishing expedition, and you're just harassing the other party, or it's just the trouble that that party would have to go to to get that information is simply not worth it given the likely probative value at court, and the court has a terrific amount of discretion to make those kinds of rulings. So, what I'm going to be watching for is if and when we have a fight over how much computer data Twitter has to turn over how the court rules. Does the court accept an argument that this is really not going to be all that probative and certainly is a lot of trouble for Twitter to produce, which is a really good sign for Twitter, or whether the courts like, yeah, you know what, maybe there's something there, in which case, that's a bad sign for Twitter? It would suggest that the court is at least willing to entertain some kind of spam hunt.

Andrew: If the judge is looking forward to an appeal and she's making sure all our I's are dotted and T's are crossed and everything, might the judge just say, hey, yeah, let's play this out all the way, go ahead, go crazy, get all the discovery you want, do whatever you want? So, it'll look kind of like a bad thing for Twitter. But I've heard people say, hey, we've had conversations around this case, Elon to find specific performance, all this. Maybe the judges want to button up everything, and then make a ruling, which I think will probably be in favor of Twitter, and then kind of limit the appeals.

Ann: I think that's a very real possibility, but I got to tell you, and that's how I thought about it originally. And now, and this is really just me sitting here, eating my popcorn and gaming it out. The reason I think that's actually not how it's gonna play out, well, it's two reasons. First of all, there's a certain point where it really is a cost to Twitter and trouble to Twitter to turn over a lot of information and she just thinks it's unnecessary. There's a point where she's not gonna torture Twitter with that real burden. But it's also the way she's been running the case so far. We've had now a couple of different skirmishes in court, and she could not have been clearer In the nature of her rulings about the scheduling, about who has to file what, that she is just refusing the truth is as the extraordinary case that it is. Because the fact is, as a legal matter, it's not very extraordinary. It is extraordinary because of the facts because it's playing out in this bizarrely public fashion because of the personalities involved, because of the high profile nature of the company. That's what makes it extraordinary. The actual legal issues here are not extraordinary. So far, every indication she's given has been I refuse to let the weird public spectacle hijack how I run my case. And that's the signal she's been sending so far. So if that's right, she's not going to do, everyone's watching, I'm afraid of an appeal therefore, I'll let Musk go nuts with discovery and then have her in the actual rulings. I think she's going to make discovery rules, but she actually needs the appropriate ones from the case.

Andrew: The three things I've read into so far that she might be leaning in favor of Twitter, or at least Elon's got a really long keel is she granted the expedited trial, which I think the facts of the case absolutely called for. Everyone talks about at the end of the expedited trial, she said, it's not at all apparent that damages could constitute a sufficient remedy if Twitter prevails, which means she would lean towards specific performance. Then the third thing was when determining the Musk on sealing issue earlier this week, she said rules are rules and then that led Twitter actually get their counterclaims to Elon's response. Their response that Elon's counterclaims are out before Elon's countrclaims are even... which I know drove you crazy. It drove me crazy. It was wild. [crosstalk]

Ann: I understand why Twitter did it but I can't read a document that way. I refuse to read it.

Andrew: But am I right that those are the 3 things you're referring to where the judge is saying this is a normal legal case and maybe it says she's leaning in the way Twitter wants her to be looking at it?

Ann: Not just that. Also, she put out a scheduling order. She limited the parties to 25 interrogatories. At that point, as I understand it, Musk have already submitted 68.

Andrew: Knowing Musk, I'm surprised it wasn't one more.

Ann: It's not so much that she's leaning in Twitter's favor. She literally has no facts before. She's not blind, she can see everything that we're seeing. But it wouldn't shock me if she's making a studious effort to avoid too much public reporting because she doesn't want to prejudice how she thinks about the case. So, I wouldn't say leaning towards Twitter. It's more like refusing to treat this as different than any other busted deal. And if that's right, it means that she is going to be disinclined to order a metric ton of discovery simply to establish something publicly. She's aware that there's public interest. She's allowing the public access to what's going on because the public has a right to that. But that doesn't mean she's going to allow that to hijack what she runs in court.

Andrew: I wanted to dive into some of Elon's other counterclaims but was there anything else on everything we've talked about you wanted to ask?

Compound: Well, I was just going to say I think it will be relevant to the counterclaims but before we move on to Texas, maybe just a chance to touch on if it goes to trial on October 17 and ends on the 21st, what a reasonable timeline would be for us to expect a ruling. And then a quick glance into the appeals process. I think people tweet at me all the time that, oh, Elon is gonna tie this up in court and appeals and countersuits for years and years.

Andrew: There was a New York Post.

Compound: So, I know you have some thoughts on that and maybe you can help sort of set the record straight for us.

Ann: Yeah, no, I do have thoughts on it. After trial, we're not going to get a verdict. There is a post-trial briefing process and a post-trial argument process, and she specifically referenced that when she set the schedule. She is quite aware. She hasn't actually scheduled anything on that. But she is quite aware that there will be a briefing and there will be arguments. I don't want to guess how long it will take, but it won't be long. It wouldn't be longer than a month and then she'll issue a ruling after that. I've already put a number on it. It won't be more than a month. I would be very surprised if it were more than a month. I really don't know. But she is aware that there's this April looming deadline for when the lender's commitment expires. Now, that actually doesn't necessarily mean she can't still order Musk to basically say, hey, you made a promise your financing ran out. Sucks to be you.

But obviously, to make things easier, Delaware's going to want to get this done before the financing expires. Delaware, their brand is getting these things settled quickly and not being things like financing expires because the court couldn't make a decision. I mean, that is contrary to everything that the reason that Delaware exists. They're just not going to let that happen. So, she's very aware that there's a time construct. There will be post-trial briefing quickly after trial, there will be oral argument and there will be a decision... I mean, they can move very quickly when they want to, but I would be surprised if it were more than a month after the end of the trial. Now, a normal appeals process can take several months to resolve. But there are expedited proceedings in the Supreme Court Justice., there are in the trial court, and the Delaware Supreme Court could easily set a briefing schedule of a month or so. I mean, I can imagine this playing out too early next year. Delaware Courts have every interest and capability of getting this settled well before that April 2023 financing exploration.

Compound: And then if he loses that, he's going to appeal to the US Supreme Court, right, Ann?

Ann: Appeal to the US Supreme Court, but that does abstain the judgment while it goes on. I guess that's something like a 3-month or multiple-month process. Look, I guess if the Supreme Court decides to step in, stay the judgment, that could happen. I mean, literally, it could happen. But I mean, the idea that the Supreme Court wants to get involved in Delaware Corporate Law, in this case, I mean, I just can't see any reason why.

Compound: Yeah. My impression is the Delaware Supreme Court is the final arbiter on chancery decisions, pretty much full stop.

Andrew: And we're assuming an appeal. If this is a right down the middle facts of the letter, hey, this was a merger contract simple buyer's remorse, Elon [inaudible] thing, the Delaware Supreme Court might even refuse the appeals process, right? They might say there's... [crosstalk]

Ann: No, it's an appeal of right. But what they could do if they want to make it clear that they think very little of Musk's claims is an issue, essentially when a lot of the time the Delaware Supreme Court issues essentially a one-paragraph order. We affirm the Chancery for the recent status below. They could do that. But, I mean, if he wants to appeal, he gets the shot, he gets the briefing.

Compound: And then it's a bit irrelevant from an investment perspective if that appeal does go on sort of the odds of a supersedeas bond being required in the sense that, in order to appeal, Elon would have to post up to $44 billion to appeal. I don't know what your thoughts are on that.

Ann: Well, I mean, yeah, so she's not going to make him... Okay. Let's assume, again, that Twitter won, and that she ordered physical performance. Obviously, this is a different conversation if something else happens. She's not going to order that he close while the appeal is pending. I mean, obviously, she even made that clear in the transcript where she sent the schedule. She said she was thinking the terms of timeframe. So, the standard would be to require some kind of post bond as assurance that you really will perform if you lose the appeal. Honestly, though, 44 billion is so unprecedented that I honestly have no idea. I mean, that courts have required 44 million, but that's a different number. So, I honestly don't know whether she would actually demand the full amount or security for the former.

Compound: It's just one comma, professor.

Andrew: Popular parlor game among investors has been okay, what if the financing falls through at some point, right? Or the trial happens in October, the appeals process runs through, let's say, early January. What if an MAE happens in November? For some reason, right? Q3 earnings are an absolute disaster, Twitter gets hacked and the website is down for 2 months, and all the users flee or something. Popular parlor game is then what happens if the MAE happens after the trial after the break? I just wanted to say, what would happen if the lenders tried to walk away after the trial or if Twitter had an MAE after everything had happened?

Ann: So first of all, Musk brings it about, and if the trial is the reason for the MAE, it doesn't count as an MAE. I think though just like something else happened, that really had nothing to do with Musk or anything else, I actually think that his obligation to close is conditioned on the absence of an MAE. So, if something happened that really was unrelated to him, that could get him out of it. One of the reasons he has one of his motivations to delay. Maybe there is an MAE but what if there is later that really has nothing to do with him? That said, I honestly, I would have to look at the contract again and I just don't know whether there's any kind of argument that him delaying counted as bringing about such that it doesn't count or something.

Andrew: The Twitter merger vote is in mid-September. He'd have to close within a couple of weeks after that. If the MAE happened on October 31, wouldn't Twitter have the argument, well, you did an improper vote- [crosstalk]

Ann: I have 100% no doubt they would make that argument but I just don't know whether that would really qualify it. But I think the stronger argument for them, and likely the successful one is this simply didn't count as MAE. I mean, the idea of something really coming up out of the blue that really had nothing to do with any of this and is not already carved out of the merger agreement, like it doesn't count if it's an industry downturn, it doesn't count if it was like a computer or a hack. There are so many things that don't count as MAE. I mean, the idea that something is going to happen in the next couple of months, and oh, no, like Musk was saved by essentially divine intervention. I mean, it could happen, sure, but I think it's really unknown.

Andrew: Some people would say Elon has been saved by divine intervention.

Ann: If people want to bet on divine intervention, they should go ahead and do that.

Andrew: Compound, anything else you want to ask here? I did want to go to some of Elon's other things in the counterclaims.

Compound: I think that's a great path.

Andrew: Great. So, Ann, two of the things that jumped out to me... Look, I've read contracts, I've read lawsuits, but obviously, I'm not a lawyer. Two of the things that really jumped out to me were Elon's claims of he's mentioned he would have been a Texas citizen and the Texas State Law that you started to discuss and I think we said we were going to come back to, and then the India government struck me as a little weird. So, I guess, can we start with Texas, and then maybe go on to the Indian government piece of it?

Ann: Sure. Okay. The question that's come up is whether the Texas plan is somehow a bid to have a certain Texas court. No. This is in a Delaware Court, it's going to stay in Delaware... I mean, we can think of all kinds of crazy scenarios, but the fact is, the parties have a really firm contract that any disputes arising out of the contract get heard in a Delaware Court where it's intended to enforce that pretty clearly. Delaware is not letting go of this case. So, the law that you apply is a separate question than the court where it started. So recently, just before McCormick, she decided on a case where she had to interpret Italian Law, and she got Italian Law, and she interpreted Italian Law. Courts do that all the time because lots of cases involve laws of a large number of jurisdictions. One court hears it and they look it up.

So, what his bid here is not to move the case into Texas, it's to have Chancellor McCormick apply Texas Law. And the reason he wants to do that is because he thinks Texas Law would be more favorable to him. And this is where things get weird. Okay, so first, as I said before, his 2 main claims are that contractually, he's allowed to walk away because Twitter made a misrepresentation and fraud. Both of those require that Twitter have made a misrepresentation. But they require more than that. Under the contract, they require that there has also been a material adverse effect as a result of the misstatement. Fraud doesn't require a material adverse effect but does require that he ever lied and that Twitter has intended to defraud him. The reason he thinks the Texas law is more favorable to him is because it doesn't require any of those extra things. It only requires falsity. So, the reason he thinks he can somehow, I think sort of the Hail Mary, with Texas Law, is because if Texas Law applies, it would say he gets to rescind the contract surely for material falsity. And this comes back to the question before about what material would be in this context. I haven't looked up Texas Law. However, I would say that most states borrow from the federal standard. And a federal standard is substantially important to a reasonable investor. It's generally likely to be important to a reasonable investor, which is a relatively light standard which is important. [inaudible] [crosstalk]

Compound: So, I say that back to you. Texas just says it has to be wrong or false whereas fraud says it has to be wrong, there has to be intent, and there has to be reliance.

Ann: Correct. That's exactly it. So, that's why he wants Texas Law to apply. Now, let me explain what this Texas Law is. It's called the Blue Sky Law. Almost every state has one. It is basically state securities regulation. Most of the time we talked about securities regulation, we're talking about federal law, almost every stat has their own system of securities regulation just for that state, basically to regulate the sale of stocks and bonds within the state- these days cryptocurrency it's called. They are there to protect retail investors from being defrauded. I mean, that's what they're there for. They're there for your crooked broker who makes the sweet old lady by some bizarre speculative investment. That's what these laws are there for. They are not for major deals of a public company merger. So, the first thing Musk would have to show is that somehow when the Texas statute refers to offers and sales of stock, this merger contract counts as the kind of transaction it was intended to apply to.

Now by its terms very possibly, I'll let Wachtell do the research and make that argument. So, that's one of the issues. But certainly, Wachtell will argue something along the lines of this statute is not here for that. It's not there to deal with major merger agreements between public companies. It's there for the sweet old lady who got swindled out of her life-saving. But the biggest issue, like the most obvious issue is, does Texas Law even apply here? Why is Texas even having it? Because Blue Sky Laws apply territorially. They apply to conduct within the state. Again, I haven't gone down the deep end of Texas Law, but one thing I'm pretty sure of is near residence in Texas is not good enough. Texas Law is not a bubble that follows Musk around wherever he goes, protecting him no matter where he does anything. There has to be a connection between the transaction and Texas. There is literally nothing in the complaint. And I mean no. Did the word search that would suggest anything about this transaction have anything to do with Texas?

Now, Twitter knows where this transaction took place. Musk knows where this transaction took place. And then when I say took place, I mean, where was the contract signed? Where were the negotiations held? Where were discussions held? Where did Twitter make any representations that Musk now says are false? And by the way, the mere fact that Twitter has an SEC filing that's out there, that isn't good enough. There would have to do something with it. So, I don't know where this deal was negotiated. I know it was negotiated, but neither party has said where. They know, certainly. So Twitter knows how to gauge this. But the thing is that if Musk had the goods, this really took place in Texas, you would expect that to be in the complaint. He would have said, and I negotiated this from my Texas home and afterward, we had a barbecue and rolled a mechanical pole, like whatever. [inaudible]

Andrew: We went to Salt Lake, we had some great brisket.

Ann: Exactly. I was wearing a bolo tie. That would be all over the complaint, and there is not one word. So, I find the idea that Texas Law here to be a reach. The other issue is that, as we've just said, Delaware has really well-developed standards for when people can walk away from mergers. And the idea that Delaware is going to say, well, but actually there's this one weird trick. Here's how to get out of a public 44 billion dollar transaction. It strikes me as implausible.

Compound: Right. The sense is that every buyer going forward will stand in Texas when they sign their contract.

Ann: The fact is, almost every state has a law kind of like this. I assume he chose Texas and not say California, which would at least be more plausible. It's because his attorneys did the research and found something unfavorable in California Law.

Compound: The AG there has been friendly to him.

Andrew: That was my first thing. The AG has been friendly to them. If you can somehow get it to Texas, you can make it really politicized, and maybe the AG just leans on some quartered [inaudible] [crosstalk]

Compound: So, you're saying the case will never be in Delaware?

Ann: I mean, look, after a certain point we're gaming out scenarios and they so have never happened, I can't bring them out, but courts tend to respect forum selection clauses. This contract has a really strict, this is heard in the Delaware forum selection clause. And I'm not even sure how it gets your diction over Twitter in Texas. So, I just don't see how this gets into a Texas court but like, we're reaching a point of it is of every possible means at his disposal to get out of it. I don't know. I can't put it.

Compound: So, speaking of Hail Marys, I mean, I guess he's sent one to India.

Andrew: That was where I was going to go next. Let's go to that because it jumped out to me in the contract that... I'll just let Professor Lipton talk about it.

Ann: This is another place where his own tweeting he gets him into trouble because I said his tweets undermine the allegations in the complaint. The most obvious way is by making it clear that he never relied on these spammers. The other thing is that over the weekend, one of his tweets was this is really just about how they sample 100 a day. The only issue, in this case, is how they'd sample 100 a day. If only they would explain that, this is over. [inaudible] [crosstalk]

Compound: Yeah, he said I will close the deal. [crosstalk]

Ann: Yes. I'm imagining [inaudible] because they have this huge strategy to bring in every fact they possibly can to turn this into a big computer expert thing unless it just said the only thing that matters is this 100-per-day count. So, of course, Wachtell, when he defends Twitter, is going to say, and they've been saying all along that all of these complaints are a pretext. And now they're going to use that as Exhibit A that this new thing about the India lawsuit is pretextual. He just said on Twitter, he doesn't care about the India lawsuit. Okay, but let's ignore his tweets. One of the promises that Twitter made in the contract is a very standard promise. The target agrees to operate in the ordinary course of business between signing and closing. For obvious reasons, if you're going to buy a company and you sign a contract to buy a company, they won't actually close for a few months. You don't want the company making major changes before you have a chance to get in there. You don't want them selling off all their assets and paying out massive bonuses. So, all companies promised to operate in the ordinary course between signing and closing.

So Musk, he threw in this India lawsuit that Twitter filed about censorship in India, I don't even know the details, to say that this is yet another example of Twitter not operating in the ordinary course of business between signing and closing that gives him a basis to walk away. So, how powerful is that? Not very. First of all, it's all in the wording of the covenant. What exactly did Twitter promise? And what Twitter promised was to use commercially reasonable efforts, efforts to operate in the ordinary course that are commercially reasonable. So, among other things, Twitter's going to say, given our interest, this was a completely commercially reasonable thing to do.

One of the other arguments that they make is that they filed since like this before. Twitter has always been, as a company, has been pretty protective of the free speech of its users in some ways, of the privacy of its users in some ways. So, one of the arguments that Twitter is already setting forth is that this is just how we do our business. This is our ordinary course. We do this all the time. This may have been a news lawsuit, but it's what we do. This is just how we've been running our business. I don't have a whole lot of facts about this particular dispute. I will just say that what we have between the very friendly wording of the covenant in the merger agreement and the nature of Twitter's business, I don't see this and not to mention Musk's own admission that he does care about the India lawsuit. I don't necessarily think that that is particularly dangerous ground for Twitter.

Andrew: This will hit another bird with this stone. So, the India lawsuit, they filed it in July, but the dispute had been brewing for over a year. So, I guess the two questions would be just on the India-specific dispute, the fact that it has been brewing for over a year, does that help Twitter's case, and B, it comes back to Elon waiving all due diligence. And one thing you'll frequently hear people on... Twitter's even starting to say this is Elon's way to due diligence. He could have investigated the India merger. So, I didn't just want to blend it into the broader, does Elon waiving due diligence have any impact on this merger?

Ann: Yeah, it does, but I don't necessarily think it has anything to do with the India lawsuit. I think it really has to do with the information issue. So, one of the things that Musk is arguing is that he's entire- and I think we've said this before- he's entitled to information that is for a reasonable business purpose related to closing. That information right is a right to bargain for. The kind of information he's been demanding on Twitter now, essentially, prove your spam, substantiate your numbers, that looks like due diligence, not facilitating closure. It looks like due diligence. So, the argument that Twitter is making and that I think, it's in the stronger position here, is that it does not have to turn over all of that spam information. It is not violating the merger agreement to not turn over that span information, because it is outside the scope of the information rights that he contracted for. And you can see the court says Twitter, he's really trying to shoehorn in the due diligence that he refused to do before. So, that's one way. The other way that due diligence really matters is, remember, the fraud claim requires Musk to show that he relied on the false statements. So, Twitter's argument is Exhibit A for how we know Musk didn't rely on is because he doesn't know due diligence. He's insisting this representation was everything to me. It was the heart and soul of why I agreed to this deal. Twitter is like if that's true, why did you take this incredibly vague statement we made about us having a process and do no due diligence at all? It's just not plausible that he relied on it. So, I think actually, it partially goes to whether he's abusing the information rights he does have. And it goes to whether or not he is credible when he says that he relied on these representations.

Andrew: Just on that, I was laughing during the expedited hearing dispute when Elon says like, it's going to take months and months of discovery to get to the bottom of this. And I was like, it took you less than a month to get to a 44 billion dollar merger contract and I get everything's different, but I was just laughing at the disparity and timelines there. Compound, were you going to say something?

Compound: I think the chancellor laughed at that as well when she told them. I think I'm able to handle it on a faster timeline than they applied or were asking for. But I was going to say on the ordinary course rep or promise, I guess the other angle that Musk is pursuing is around personnel issues, you can terminate, you put on a small hiring freeze, etcetera. That doesn't seem to be much there there, other than I guess, Twitter has submitted to Musk for approval several seemingly small business decisions. Can they repay their revolving credit line and things like that? So, I guess if I'm Musk, I can say, well, you have been asking me for approval for certain business decisions and yet you've made these other business decisions without asking me for approval. And those seemed pretty important to me. You've been inconsistent, you've shown that you understand this term, and yet you violate it. So, maybe you could dig in there a little further.

Ann: He's going to argue that and I just don't think it's very persuasive because Twitter's argument will of course be, as a courtesy, we wanted to run all this stuff by you, but that doesn't change what our contractual obligations are. And Delaware tends to be very, this is what the contract says. So, I mean, I don't either. So again, I mean, it's pretty obvious that I'm pretty sympathetic towards Twitter's general position. But I mean, for example, again, the ordinary course covenant promises it's going to use commercially reasonable efforts. So first of all, it's going to say a hiring freeze- He claims it wasn't a hiring freeze, but whatever. The personnel stuff they're going to say, this was commercially reasonable given the environment. Second, there is Delaware precedent on this precise point that says, when we say commercially reasonable, what you mean by that is look to peer companies. Well, look at every company, every one of the tech companies now including Tesla, which is the first one that Twitter is going to try it out, has instituted some kind of hiring freeze. [inaudible]

Andrew: Elon's got- he institute a hiring freeze.

Ann: Exactly. So, they're going to say, commercially reasonable under Delaware Law means look to the peers, and look to our peers, fine. The other thing is that it doesn't just say commercially reasonable efforts to operate in the ordinary course. It says that if they get to ask Musk for permission to make changes, Musk shall not unreasonably withhold it. So, the next thing they're going to say is he just goes with us. He didn't say no. There were just weeks of like [inaudible]. So, they're going to say he was unreasonable in withholding it, but I mean, I don't even think we get that. And then they have a whole contract drafting history where apparently, according to them, they allege he wanted to put in the contract that he got certain control over hiring, firing, and Twitter got him to take it out. But I actually don't think we got that far. I think we stop at commercially reasonable efforts and this is commercially reasonable.

Andrew: Can I just say, even though you don't think we get that far, I was just curious, because I think Musk originally said, hey, I get approval rights on any hiring and firing over the VP level, and Twitter removed that in the eventually approved version. Do courts look at that contract drafting language [inaudible] [crosstalk]

Ann: Well, they start by the plain language of the contract and they turn to that history if they find the plain language ambiguous, which is why I think we start with the plain language. That's why I'm not even sure we'll get to that [inaudible].

Andrew: Compound, unless you have anything here, I wanted to take a big jump to another question.

Compound: I guess, just the very last thing on the counterclaim. So, he terminated and when he terminated, he gave 3 reasons. And when he filed his counterclaim 5 weeks or a month later, a few things got added in- India, Texas, etcetera. My understanding from you is that that's totally fine other than it may have an impact on his credibility in sort of a pretextual view that the judge might have. Is that... [crosstalk]

Ann: I think that's right, yeah. [inaudible] I think his termination letter explicitly said we reserve all rights, but I mean, just as a technical matter, but yeah, I don't think the court is going to say, too late, you're stuck with what you put in the July letter. If he has grounds to terminate, he could terminate. The problem is that when he says he has some new claims now about lying about the actual humans or the monetizable users and I relied on all those representations, there's a credibility problem here when it took months before he was complaining about completely different things and now he's got a whole new basis for complaining. It doesn't look like this is a real reason, but I don't think he's legally barred from trying.

Compound: I have to joke that... I mean, it is the funniest thing to me in the counterclaim was that he managed to say that MBAU is both the most important thing and actually, it's really not that important to Twitter's business, which I cannot figure out what was going on.

Ann: Yeah, I mean, this is why, I'm reading it and there's a certain throw everything at the wall, which I kind of get, but there are parts where he would have been better to leave out certain allegations because they seem to undercut other allegations. Like the thing about how he thinks that this metric is a ridiculous metric. It doesn't mean anything except he was also willing to spend $44 billion in reliance on it with no description in Twitter's filings about what it actually was on its face.

Andrew: He makes a big thing about 70% of MBAUs generate almost no revenue, but then he also has an MBAUs are the only thing I care about. It's like, it can't be both. If you think they're a [inaudible]...

Ann: No. And I think the argument is, and actually, this is why Twitter did a pretty baller move here. What he's claiming, is that I, of course, assumed when you said you had all these monetizable daily users, I assumed that that meant they were all seeing ads. And I was shocked when I got your internal documents to see that, in fact, 70% of them, or whatever the number is, didn't see the ads. Now, the first problem, of course, with that argument is that Twitter never said that... The word is monetizable, not monetized. I mean, they never said that they've all seen the ads. What they said was... yeah. So, it's already a leap to claim that he was misled because there's this fact that they didn't disclose. They disclose they had users that monetize [inaudible]. They define that really specifically, like real people who log in from it, they're very clear on how they defined it. They never defined it to me and saw ads. So already Musk to claim fraud, or even a false statement from this is a reach because he's saying, oh, I assumed that they would all be seeing ads and it's shocking to discover 70% are not or whatever the figure is. But the next piece of it is, he argues in the complaint if this is taking this number from the internal data he got and he says on the complaint if word got out that in fact, this number of users are in fact not generating any revenue because they're not seeing ads, it would be devastating. It would shock the market. Assuming that Twitter would exercise its rights to redact that because it was internal information, and Twitter basically said go for it, let's see. If our business is destroyed, everyone can see it now. I don't see the meltdown. Everything looks fine here.

Andrew: I'd like to point Elon to be the economics of the Candy Crush Saga because I remember people really talking about the digital whales there when it was resolved. I wanted to switch to a completely different topic. Elon's counterclaims are very specific or very intentionally dodge one thing. Elon, when he was acquiring a stake talking to the board, talking to Twitter said, if you guys don't take my offer, I will go to the shareholders, I will sell my stake or the one that I think Twitter will really make some hate with this, I will start a competitor to Twitter. And I just want to talk about Elon obviously is trying to dodge that in his counterclaims, and Twitter's really started to hammer that home. How does Elon threatening to start a competitor play into the overall just scope of the trial?

Ann: It plays in because remember, one of Musk's claims is that he was denied information he was entitled to get under the merger contract. The merger contract says Twitter can deny him information that would pose competitive harm. So, among the many arguments Twitter is making is you stood right there and said you were going to do competitor. Of course, we didn't want to hand you the information that you could use to start a competing business. And that means we had to... So, Twitter has multiple reasons for why they had the right to deny him certain information. And among the reasons they have is fear of competitive harm, which Musk sort of handed down when he said I'll start a competitor.

Andrew: I think it also plays into the specific performance because now if the judge rules, hey, Twitter's right, Elon shouldn't have breached this merger, you can't just say a billion damages because not only did Elon cause more than a billion dollars of harm. Now he's got all of your internal data which you can go then use to start a competitor if he wants.

Ann: Well, yes and no. I mean, the contract says he's not supposed to use the internal data for a competitor. Though, of course, Twitter will argue but you know, we see how much he respects MBAs. But again, it really gets back to this issue of whether she feels bound by the billion-dollar damages cap. It's not whether a billion dollars is enough. There is no universe in which a billion dollars is enough, like stipulate it's not enough. The question is whether she can, I mean, she can. She can write it on a piece of paper where she can be legally correct, and not overturned in ordering something more or whether she feels, look, it's got to be specific performance or a billion dollars, and I don't get a lot, and it's not impossible. She could say, for whatever reason, she feels a specific performance is inappropriate. She could easily say, look, Twitter, you agreed to adopt this tab. I really don't know why you agreed to that. You didn't have to. Then you did, you're stuck with it. You knew it was within my discretion to reward specific performance. I've decided specific rewards as inappropriate for such and such reasons. They could include general equities of the situation, whatever it is, and Twitter, if you don't like it, I don't know why you're bringing it to the damages cap. I mean, I don't know why Twitter agreed to a damages cap for knowing breaches, but it appeared to, leaving aside whatever holes somebody might find in that contract.

Compound: The only reason I can come up with that they did that is that it creates such a binary outcome, and the damages were almost so certain to be greater than a billion that it wouldn't allow kind of a middle case scenario where they get 6 or 10 or 15 billion, because it's just not going to be enough, right? If they were given $10 billion, which sounds like a huge cash payment, it is a huge cash payment, that amounts to probably a 20-plus dollar price cut to the deal.

Ann: I honestly don't know why. I mean, I saw at least one professor who I respect who studies these things. He thinks this is... because you know what merger contract is, you borrow language from other contracts. And this was negotiated like two days. It is not impossible. And I think somebody, a friend of mine, Professor Rob Anderson, in his view, and I don't want to like misstate his views, but he was speculating that this was just language that they clocked in from a private equity kind of deal and they just copied it. And that's not impossible when you're doing these kinds of things. Normally, you would spend a lot of time negotiating word by word. Clearly, they did for some things. It's very Twitter-friendly this deal. But that part may very well have just been taken from another deal. Like the one case where that everyone's talking about where Chancellor McCormick ordered specific performance had a very similar kind of damages cap in that conflict as well.

Andrew: I think that's exactly right. If you go back to the financial crisis, a lot of private equity firms got to walk away on financing clauses and stuff. And I think a lot of contracts have shifted since then to encourage specific performance. I just don't think when people were drafting contracts, they thought they deal with an actor as maybe not as irrational but as wild as Elon Musk, right? If KKR breaks your deal, they're not going to go slam your company on Twitter and try to disparage you through all this. So, I'm sure going forward, we're going to see a lot of disparagement clauses and contracts where hey, if you go openly disparage us and intentionally break the merger, like damages cap gets 15x or something. I'm sure they're going to be...

Ann: Yeah, I mean, in other cases, there have definitely been situations where there's a damages cap for regular breaches, and then no cap for knowing and intentional. That's been done before, and I'm pretty sure is now going to be done again.

Compound: I want to just put a bullet on that. So, in your view, she really does or does not have the latitude to pick the third way so to speak?

Ann: I don't see it. But on this, I got to say a lot of really smart people disagree with me, or at least they're not as certain. And so, I don't see it. But then I also, in recognition of my own fallibility, it's one area where given the fact that a lot... This has really been the topic of discussion among us, law professors. I mean, there's no corporate professor who isn't paying attention to this, but there are some of us who are paying more attention than others. Among those of us who are discussing it, this is where I'd see the most disagreement. So, there are some who think that there are possibilities to do more than a billion, make up new doctrines or equity, or read the contract this way, and you hold it up to the light and get some lemon juice, like all kinds of it. But, one way you could interpret it is saying the parties were so sure there would be a specific performance, that if she's going to simply decline the order for her own reasons, then she should also decline to honor the damages cap. That is an argument you could make. Another argument you could make though is Twitter knew that she might not order specific performance, and you agreed to the cap, it sucks for you. So, I don't know.

Andrew: In your discussions with other corporate professors and lawyers who are looking at this, is there anything we haven't touched upon that you guys are really actively discussing, or anything that we kind of gloss over you think we should be thinking about it a little harder?

Ann: I can't think. So, I mean, really, the vast majority of sort of the sentiment among us is that with all appropriate caveats about facts that may come out that we are unaware of, this definitely looks like Musk is in breach and Twitter is correct, but the X factor is with the remedies.

Andrew: I don't want to... if you're not comfortable with this, but right now, I think the market-implied probability of Twitter winning is about 70% based on what I'm looking at. Would you say that's too high or too low?

Ann: I don't think... you guys are the finance guys. I don't think [inaudible]

Andrew: I had to take a shot. Based on everything we've said and everything I've read, I feel comfortable saying not financial advice. I am not a lawyer, but I think Twitter's got a much better than 70% chance of winning based on everything we've said. It's a real Hail Mary to see Elon's case here. Compound, do you want to say anything there?

Compound: No. I mean, I respect the fact it's very hard to set probabilities on this, and the other area where I'm not sure it's fair to ask Professor Lipton to chime in on this but really is tying back to the lending agreements and what sort of risks could be embedded in there, etcetera. So, I think if anyone who's looking at the situation from an investment perspective needs to dive into that as a secondary risk, that kind of comes into play at the end.

Andrew: I agree. It's a tail risk, but it will be a risk [inaudible] [crosstalk].

Compound: A tail risk for sure.

Andrew: I think there was a footlocker case in the financial crisis where there was a specific performance order, and then the bank sued and said you guys are insolvent, we're not going to lend it. I think the banks actually run, I can't remember for sure, though.

Ann: There was something like that. Here's the thing. If the banks have very few ounces, I understand. I am not a debt contracts expert so I'm kind of trying to cabin my words specific to what I know and nothing else. As I understand it, the banks have very few grounds to walk away. They can walk away from basically, for the same reason that Musk could, a material adverse effect. If the banks walk away when they're not entitled to, Twitter can sue Musk to force him to sue them for specific [inaudible] because Musk would have a claim against the bank. So obviously, he doesn't want to make that claim. But part of the specific performance on Musk's part is forcing him to live up to using his efforts to get the financing. And that means suing the banks if they're in the wrong.

Andrew: I've just thought if we go to trial, and a judge orders a specific performance for Elon, and then a week later, Elon turns and says, oh, the financing is gone. I need to get out of this. I just thought I think the courts are going to look very skeptically on hey, this guy who's been out there tweeting like crazy order-specific performance, and now the findings are gone. And I don't think the banks would break their damn franchise. I think it would be very negative for their franchise unless there was a real, real reason.

Ann: I mean, this is a topic of discussion and it sort of happened before where a buyer tried to seek its own financing and some success with it. But I mean, I think it would be very bad for banks to constantly want to finance if they've made it clear that as soon as a buyer gets cold feet, they're willing to break that contract because the target needs to have some kind of certainty that the financing is really there. Beyond that, what Delaware has done, what this judge has done is one time when a buyer tried to seek their own financing, the court said, if you're the reason your financing fell through, we're still going to make you close.

Andrew: Yep. That was the case decision which this judge ordered. And on your previous thing like if I was a seller, and let's say Morgan Stanley broke this, and they did it because Elon really leaned on them, as a seller going forward, I'd just say oh, well in my contract, your financing can't be for Morgan Stanley, because they'll let you walk...

Ann: At the very least, I want a specific right to sue Morgan Stanley. I mean, like 20 zillion other rights that Morgan Stanley doesn't [inaudible]. So, I think they're thinking about that. And one of the things, though, that you see in Musk's papers right now is the lack of reference to problems with financing. In his original set of letters to Twitter, he originally suggested that somehow Twitter's conduct was causing the financing problem. He seemed to be setting up an argument that his financing had fallen through, and therefore he couldn't go through with it. That's not in his papers now. So, if that's his strategy, it's not evident at this time.

Compound: In your experience, and I know we're wrapping up, how would you kind of assess the odds this settles pre-trial, so to speak or pre-verdict?

Ann: Yeah. It's everyone's question and the answer is I can't because I don't know. I mean, you look at the stirrup. One of the things about this complaint that's just hilarious... I mean, the counterclaims that Musk point which is hilarious, but you really have to be in this field to get, is one of the things that Skadden... again, I don't know how much Skadden drafted versus Quinn Emanuel, but let's just say Skadden. One of the things they're famous for is defending companies against frivolous securities fraud complaints, or even meritorious ones, that like you sue a public company, you say who's committed fraud under the federal securities laws usually not this, and Skadden defends to say, this complaint has nothing. You can't allege block fraud just because you're being compensated based on a metric. You can't allege fraud just because you think that some outcomes were bad. Skadden specializes in this and I know because my job before I became a professor was suing public companies for fraud and I cannot tell you the number of times I was up against Skadden.

So, Skadden is now writing the opposite. This complaint is basically Musk saying Twitter, a public company, committed fraud in its SEC filings. And they're making all the arguments that it specializes in knocking down. I mean, it's actually as though they took the worst possible securities fraud complaints they'd ever been up against and cut and paste those arguments. I mean, they must have been so embarrassed writing and you just feel the shame of those attorneys dropping this. So okay, so getting back to how does this settle? Given that, I cannot figure out what the motivations are here is the problem because normally at these things, the buyer makes a lot of noise, but what they really want is to just knock a couple of dollars off the price by making a lot of noise and keeping up a fuss, and it's worth it just to have this thing done to knock a couple of dollars off.

That's a normal situation. I can't tell if that's this situation, because first of all, so much of that complaint has these sort of facial flaws, really. Twitter has very little incentive to settle for a small amount because there is a risk. I mean, if it was small, I'm not sure. They have an incentive to settle for a small amount, but they don't have an incentive to settle for a big one because their legal position is too strong right now anyway. So, I can't figure out whether this is really Musk just trying to knock two bucks off the deal price or something, or whether he really just wants out. And it's possible he just wants out. He's regretting the whole thing, he wants out, and he may very well be thinking something along the lines of, I realize my odds are small. But it's worth it for me to pay a couple of million dollars in legal fees if that saves me $44 billion in specific performance. It's worth it to just sort of shoot the moon and try to get out of the deal. And if that's what he's going for, then this doesn't settle, and I honestly don't know.

Andrew: It's just been crazy. I'm with you and I vacillate so frequently like, oh, Elon knows he overpaid by $20 per share, $30 a share. Everything he's doing is like a rational actor who doesn't really care about reputation, but just is seeking a price cut. This is a super-rational actor who doesn't care about reputation. And then I read some of it and I'm like, this is no rational actor. I don't know.

Ann: I mean, the complaint is there's so much in the counterclaims that are just strange. There are his tweets, which I mean, he's going to shit post his way into paying $44 billion because he can't stop tweeting. That's not crazy like a fox. That's just undermining his own legal claims.

Compound: Yeah. This weekend's tweets basically said, hey, just tell me how you do it and I'll close this deal. Those are the ones that maybe brought back my belief that okay, maybe he really does just want a price cut. Those are settlement signals not be like I'm trying... [crosstalk]

Ann: Maybe that's it. I mean, honestly, I just, I can't... [inaudible] [crosstalk]

Andrew: But they were settlement signals that undercut his own leverage for the price cut.

Ann: Exactly. That's the thing. They undercut his own leverage. They undermine his own claims. I mean, he can't claim he cares about India when he's saying just tell me how you sample 100 people.

Andrew: Guys, we're running very long, but I've really enjoyed this. Compound, thank you so much for doing this. I know we talk all the time. Professor Lipton, this has been great. Maybe we get a settlement but if not, I'd love to have you again around the trial or something we can catch up. But this has been great. Your coverage has been second to none. I guess not coverage but your commentary on this.

Ann: My tweets. [laughs]

Andrew: Thank you so much for coming on... [inaudible] [crosstalk]

Compound: My new favorite law professor by far.

Ann: Thank you.

Andrew: Thanks again, guys.

Compound: And a must-follow on Twitter.

Ann: Thank you.

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