US equities took investors for another wild ride Friday, when Wall Street punctuated a head-spinning week with a rollicking, tech-led rally.
Elon Musk made himself the center of attention, as he’s wont to do.
Crypto headlines and inflation hand-wringing gave way to breathless speculation about the future of Musk’s cartoonish Twitter deal, which he “temporarily” placed on hold, ostensibly to determine whether the platform’s spam bot epidemic is worse than the company’s simulations suggest.
Read more: Elon Musk Squeezes A Little Bird
In addition to a fake account problem, Twitter also has a troll problem. Musk is a living, breathing testament to the size of it.
He’s also a living, breathing testament to my long-running “Gods” thesis which, in a nutshell, says there’s a point beyond which the exponential wealth creation machine we’re still calling “capitalism” (instead of — I don’t know — Capitalism with a capital “C” and a lot of unflattering modifiers), spawns unaccountable supermen beholden to no one and not subject to man-made laws. It’s possible Musk is angling to overcome the normally binding constraints of natural laws too. Last month, he floated the idea of downloading his brain into a robot, for example.
Musk has proven time and again that there is a wealth threshold beyond which laws don’t apply. This is hugely frustrating, but also very intriguing because it’s an entirely different sort of disregard than that demonstrated by the “merely” wealthy. Musk isn’t necessarily averse to the idea that laws should apply to him, nor is he inhospitable to the rule of law as a concept. Musk isn’t hostile to laws, he’s aloof to them. Arrogantly aloof, maybe. But also genuinely ambivalent.
We have a written legal code so that there are established parameters. Ignorance isn’t always exculpatory, but prosecuting people for infractions when the rules are poorly defined is considered cruel and capricious. In China, the Party employs obfuscation and ambiguity in decrees so that Beijing can prosecute people for offenses they didn’t know were crimes. In Western democracies, we frown on that kind of strategy.
What are we to say, then, of Musk? You’ll scoff. And you should. Because a crime is a crime and a contract is a contract, and this isn’t China, which means… well, here’s Matt Levine, a lawyer, to tell you what it means (abridged from Friday’s “Money Stuff” letter):
“Temporarily on hold” is not a thing. Elon Musk has signed a binding contract requiring him to buy Twitter. He can’t just put that “on hold.” The merger agreement contains a provision that allows Musk to walk away if Twitter’s securities filings are wrong — and this 5% number is in its securities filings — but only if the inaccuracy would have a “Material Adverse Effect” on the company. (See Sections 4.6(a) and 7.2(b).) That is an incredibly high standard: Delaware courts have almost never found an MAE. You are not supposed to say things that aren’t true and that will affect the stock of a public company that you are trying to buy. That is what is usually called “securities fraud,” or what I sometimes like to call “lite securities fraud.”
Levine went on to explain that no, in fact, Musk can’t simply pay a $1 billion breakup fee and walk away from the deal, or at least not if Twitter chooses to pursue its contractural right to force him to close assuming the debt financing remains available, which it will because look who’s involved in the financing.
Then, Levine asked the only question that matters: “On the other hand, what if he does it anyway?”
He was referring specifically to Musk walking away from the deal, but the same question could apply to any number of things Musk did over the past several years and, more importantly, to things he hasn’t done yet or maybe hasn’t even thought of doing yet, but may think to do eventually.
Levine’s answer, in the context of the Twitter deal, was basically that there’s nothing anyone can do, or nothing that anyone can do that wouldn’t be more trouble than it’s worth. For example, he noted that if Twitter were to sue Musk, that would mean “asking a judge to make him pay billions of dollars to buy a company he doesn’t want [and] requir[ing] his banks to fund $13 billion of debt for a risky leveraged buyout whose whimsical buyer is no longer interested.”
All the while, the company would have to operate under a cloud of uncertainty at a time when the business is, by some accounts anyway, struggling.
Matt’s conclusion was sobering, even as reading “Money Stuff” is a bit like getting drunk. To wit:
Musk has made it very clear that the rule of law simply does not apply to him, and this has worked well for him. If he wants to ignore the merger agreement that he signed, he will. If you take him to court, he will put up a brutal fight and make things as unpleasant as possible for you. This puts his counterparties, like Twitter, in a tough position. They have a contract. But so what?
I hesitate to speculate on what comes next. I suggested first thing Friday morning that Musk is probably setting the stage to commandeer the company at a better price, but it’s possible even he doesn’t know what he wants. By the time you read this, they’ll be some new twist.
Whatever happens next, it’s important not to lose sight of the bigger picture. The Twitter fiasco is a microcosm of a broader phenomenon whereby our reality is increasingly synonymous with the whims of one person.
That brings us full circle. This week should’ve been remembered for an existential crisis in the cryptosphere, a CPI report that showed the world’s largest economy continues to labor beneath the highest inflation in a generation and the perpetuation of a conflict with the potential to start a nuclear war. Instead, all anyone wanted to talk about on Friday was Musk’s latest soap opera.