More about Elon and Twitter

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Yes, well, clearly, as expected:

Twitter Inc. shareholders approved the $44 billion takeover that Elon Musk is trying to abandon on the same day that a whistleblower alleged at a hearing on Capitol Hill that the social-media company misled regulators about security failures. …

Twitter shareholders approved the takeover offer, with 98.6% of votes cast at a special meeting in favor of the deal, based on a preliminary tally of votes, the company said after polling closed Tuesday.

We talked about this yesterday; I said it would be pretty silly to vote against the deal. And in fact almost no one did. Only about 60% of Twitter’s shares voted at all, but that was plenty to approve the deal. It is not immediately clear to me whether Elon Musk voted his shares in favor of the merger, as he was obligated to do under the merger agreement (unless he has terminated the agreement (which he says he has (though Twitter says he hasn’t))), but he certainly didn’t vote against the merger, and anyway it doesn’t matter either way.

Still, about 4.1 million shares — about $173 million worth — voted against the deal. Why? I guess you could tell a couple of stories. One is, you’re a Twitter shareholder because you believe in the long-term value of the company. You think that it has a huge opportunity to make a ton of money, and that its current management has the ability to execute against that opportunity. You have built a financial model and it says that Twitter is worth $70 per share, based on the discounted value of its expected (by you) future cash flows. So you don’t want to sell to Elon Musk at $54.20; you want to keep your shares in this valuable company. All very possible. Very much a minority opinion! But 1.4% of shareholders might think this, sure.

The other is, you’re a Twitter shareholder and also have some sort of socially-responsible-investing view. Perhaps you have a mandate to pursue the best interests of all stakeholders in the companies you invest in. Perhaps you are an individual investor and you want to do good with your money. Perhaps you are a diversified index-y investor and you think a lot about the systemic effects of your investment. In any case, you evaluate the situation holistically, and you say “well, sure, Twitter is worth less than $54.20, but I think it will be bad for the world (or for Twitter’s employees, its users, etc.) for Elon Musk to own it, so I am going to vote against the deal.”

I suspect this is even more of a minority opinion. We talk a lot around here — lots of people talk a lot everywhere — about socially responsible investing and ESG and stakeholder capitalism and the purpose of corporations. And certainly back when Elon Musk said he wanted to buy Twitter, he said he wanted to do it for social and philosophical reasons. You could imagine the shareholder vote being about people’s competing visions for Twitter as a product and as a public service. But, nah. Twitter’s board, and its shareholders, have pretty consistently cared only about the money.

Meanwhile here’s what the hedge funds are up to:

Hedge funds including David Einhorn’s Greenlight Capital and Pentwater Capital Management are wagering that Elon Musk won’t get his way this time. 

Musk, the world’s richest person and a renowned sparring partner with regulators over securities laws, is trying to back out of his agreement to buy Twitter Inc. for $44 billion. Several hedge funds have purchased stock, options or bonds — speculating that Musk will lose a trial scheduled to begin Oct. 17 in Delaware Chancery Court. …

The law is clear, Einhorn told investors in a letter last month. And “if it were anyone other than Musk, we would handicap the odds of the buyer wiggling out of the deal to be much less than 5%,” he said. …

“We think that the incentive of the Delaware Chancery Court, the preeminent and most respected business court in the nation, is to actually follow the law and apply it here,” Einhorn wrote.

Well, that’s fine, and I think I have been pretty clear around here that (1) I also think the odds are against Musk and (2) this is definitely definitely not investment advice, and if you are a hedge-fund analyst making the case for buying Twitter and you’re showing your boss my columns, knock it off right now. But mostly I want to point out that, while some hedge funds are making this bet, it is not exactly the market consensus. Twitter’s stock closed yesterday at $41.74. That probably implies better-than-even odds of the deal closing, but not 95%. Some hedge funds are betting that Musk can’t get out of the deal, but the market has some doubts.