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Special Report: Elon Surrenders?
The Prof G Pod with Scott Galloway
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Okay, welcome to a special episode of the Prop G, we are talking about the big news this
week, and that's Elon Musk telling Twitter he wants to buy the company after all.
We saw this as the end of the saga and a win for the rule of law, but after speaking with
our editor and chief Jason Stabbers, who is a former corporate litigator, there's some
So we're doing a special episode about some of the wrinkles regarding the situation.
We're getting this out as quickly as possible, but it's clearly an evolving story as
Jason will explain, Jason, what do you think is going on behind the scenes here?
Why has Elon had a change of heart?
Well, Scott, as you know, the consensus among legal observers for some time now has been
that Elon has very little chance at trial, certainly that's been my view and yours as well,
and trial scheduled for October 17th.
So that's a pretty important deadline, but I think what was happening more immediately
So both Elon and Twitter CEOs deposition were supposed to happen last Monday, media reported
that lawyers were flying across the country and depositions were canceled at the last
minute, there's been a lot of gamesmanship around these depositions, but Elon was scheduled
to start his deposition tomorrow.
So being deposed is an incredibly unpleasant experience, and it's also a highly risky one
for somebody who is across as many complex and potentially controversial matters as Elon is.
So I can tell you, I can't tell you exactly what's going on behind the scenes on Elon's
team, but I can tell you generally that he's probably been in deposition prep this week
and maybe late last week, and deposition prep is quite uncomfortable.
What they're going to do is they're going to bring in a lawyer who Elon hasn't met,
but who has experience as a prosecutor and who he takes a very tough approach, and they
will sit down across the table from Elon, and they will go through all of the bad documents,
all of the things that make him look bad, all of the ways he could lose his case, and
that lawyer will give him the roughest possible questioning.
Elon does not have a great track record in depositions, he was deposed in the lawsuit
over solar city, and in some others, he tends to get testy, he tends to get snarky,
judges don't like that, and an experience investigator can use that to their advantage,
and essentially bait somebody into making admissions or statements that will hurt them
So depositions are rough, and there's always the risk that there's more behind the scenes
in discovery that Elon doesn't want made public.
We saw already a bunch of sort of cringey embarrassing stuff in the released text messages.
There might be quite a bit more in material that Twitter has now obtained, and would use
in that deposition, and then potentially, if Elon has to sit for testimony at trial.
So I think the threat of being deposed and having to expose himself to that kind of questioning
under oath is probably a significant factor in this change.
And the last thing I'd say is that there's been a lot of discovery disputes that parties
are fighting over who gets which documents, and those all come to a head right about now.
So there could be motions ready to be filed seeking sanctions.
There could be further breakthroughs in terms of public disclosures of documents that Elon
might find embarrassing.
Yeah, so Jason was part of, we do an editorial call.
And Jason outlined this view that he, and this, the thing that probably pushed him over
the edge here to try and at least publicly say that he wanted to move to the deal and delay
or suspend the trial was the threat of deposition.
And that just, it just rang so true because one, he's got his hands in a variety of very
controversial pots and two, he has a habit of lying.
And it seems to me that just these questions under oath would get increasingly uncomfortable
for a guy who's used to the luxury of being able to say anything in people applaud it and
take it, take his word as truth.
So what do you make of Elon's letter or the letter his counsel sent on his behalf?
Does this end the dispute?
Yeah, so let's take a look at the letter.
The letter is from Elon's lawyer.
It's not from Elon.
It's not signed by Elon.
It's not under oath or penalty or poetry.
And all it says is that Elon is agreed to close the transaction as contemplated in the merger
agreement, on the conditions of the merger agreement, pending receipt of the proceeds
of the debt financing, meaning the $13 billion that Wall Street banks have planned to raise
in debt, provided that the Delaware chance record enter an immediate stay of the action,
adjourned the trial and all other proceedings.
So essentially, Elon's lawyer is asking Twitter to unilaterally disarm, right?
They have Elon about to sit in a deposition chair.
They have trial scheduled to be on October 17, the trial that they are almost certainly going
And Elon says, hey, how about this?
How about you unload your gun, you put it down, maybe lock it in a safe, and then we'll
just go back to what the way it was.
And I would be very surprised if Twitter and Twitter's lawyers accept this on its face.
Value, because Elon's track record in relationship to Twitter is not good in terms of
So the timeline here, in March 26, Elon had already become the largest individual shareholder
of Twitter, but he hadn't filed anything with the SEC.
So he'd been secretly buying Twitter stocks for months, and he said publicly on Twitter that
he was seriously considering building a Twitter competitor.
So that was probably his first significant misrepresentation, because he wasn't thinking
of buying a Twitter competitor.
He was planning on buying Twitter.
Then behind the scenes, he agreed to join the board.
Tolks said publicly he was going to join the board, and six days later, again changed
his mind and said he wasn't going to join the board.
A few days after that, on April 14th, he offered to buy the company, then on in May, he
said the deal was on hold, and then in June, he said he was walking away from the deal.
So Twitter's not going to trust Elon.
He's not trustworthy, and so they have the most leverage they've had over Elon throughout
his entire process right now, and I don't think they're going to just set that leverage
I love that. He's basically this letter isn't as much an agreement to close. It's a request
for Twitter to unilaterally disarm. That was very interesting.
How do you think Twitter responds here?
So Twitter needs much better assurances than Elon's word, which hasn't been proven to be
worth all that much.
And I think the two places that they're going to need Elon to go are going to be first of
all, he's got to give up his defenses to the contract, right?
So he has made these claims that Twitter has been dishonest and misrepresented the
bot situation on the site.
Now, as a legal matter, though, probably doesn't get him out of the contract anyway,
but he's at least ginned up this whole court case around it.
So they're going to need him to say, you're right.
I can see under oath that the bot thing does not get me out of this contract.
And then I think, and anything else that he's thrown at them since this lawsuit began
around the whistleblower that we saw a few weeks ago, whatever his theories are as to why
he's not bound by this contract, they're going to need him to acknowledge those theories
The other thing they're going to need is for him to put himself in some sort of legal jeopardy
around actually closing this deal.
They've already taken him to court once.
They're spending tens of millions of dollars on legal fees.
They're not going to want to do that again.
So there are a couple ways to do that.
He could put up a bond.
I think that's unlikely.
I think more likely is they'll expect him to actually settle this case with an agreed
upon schedule that the court can enforce.
So apparently putting himself at the mercy of the chance record or even agreeing to a
If he agrees to essentially concede the case and Twitter obtains judgment, Twitter can
secure that judgment against him in any number of ways.
They don't even have to necessarily go back to Delaware.
They can secure it against him in his home of Austin, Texas or San Francisco, California, wherever
he claims to live.
If there are courts on Mars, they can enforce the judgment there.
So they're going to need some significant assurances that he's going to do what he said
he was going to do.
So if they reach an agreement, does this deal close?
Is it a done deal?
Well, I'll tell you.
I think it really does look like this deal is probably going to close.
But there are some pretty significant obstacles left because there is the question of the
So the way this deal is supposed to work is he raised $13 billion in debt from a bunch
of Wall Street banks.
But that debt was secured back in the spring when interest rates were much lower.
And the market for corporate bonds was much healthier.
So on the market's pod, we reported on this citric steel where banks are losing hundreds
of millions of dollars because they wrote the terms of debt at the beginning of the year
and now they're actually trying to sell that debt in the marketplace.
Exactly same situation here.
But worse because not only has the macro situation changed against debt, the micro situation
Elon has spent the last six months telling everybody that Twitter is a scam and has been
lying to the SEC.
So who's going to want to loan money to somebody with the security being Twitter?
So these banks are on the hook.
They have to give Elon the $13 billion in less they can get out of the contract.
So it's not out of the question that Morgan Stanley and some of these other banks might
turn around and sue Elon and say that he's violated the contract.
I think that's unlikely, but it's not outside Rome, possibly.
And the other charge of the deal is the $33 billion in equity that Elon is personally on
the hook for.
Now he doesn't have $33 billion in cash, right?
He sold some Tesla to free up some cash, but he has nowhere near that much in liquid.
And I don't think he wants to sell another $20 billion in Tesla stock, which is why, as we
saw in the text messages, he's borrowing it from his buddies.
But those are all, at this point, probably not contractually obligated.
So he has to go and try to get $10, $20, $30 billion from billionaires and investment
And again, he spent the last six months telling everybody that Twitter is a terrible company
that's got serious problems.
So we'll see if he can just text Larry Ellison again and say, hey, I need that $2 billion
He might have to take up his friend Jason Calcanis's offer to, as Elon put it, market
an SPV to randoms in order to raise enough money.
And the answer to both those problems, the answer to the debt problem and the answer to
the equity problem, is that Elon has to shift from the trying to get out of the deal
Elon to salesperson Elon.
And Elon is pretty good at selling, and that's what we're going to see.
We're going to see Elon talking about the potential for Twitter, the opportunity for Twitter,
how he, in fact, can fix Twitter, and if he can convince people that it's worth investing
in, then he might still be able to salvage something out of this deal.
Just to summarize here, and the reason we're here is I thought the real nuance in the
insight was that this letter that claims to say he wants to move forward is nothing but
a claim, the lacks for acidity from a person that makes claims and then or makes promises
or says things that he doesn't always live up to, that there's a lot of sunlight between
what he says he's going to do and what he actually does and an exchange for that claim
of interest to move towards a close.
He wants Twitter to disarm unilaterally to suspend the case and in your view, it's unlikely
Twitter will do that until there is additional handcuffs on him, if you will, or additional
legal enforceable agreements from the must side that they are going to close.
Is that about accurate?
Yeah, it's exactly right.
Jason, thank you so much for this.
This was really, this was super interesting.
This has been a special report on the must drama, additional nuance, bringing inside like
the disk to the code to the disk go, what is real?
We'll see you later in a week.
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@yames check this podcast out its a great one·6 likes·
The part where he mentions that he wants to be adopted by a more functional family even at 45 yrs really hits home. Really delineates how no matter how old and independent you are, you still need love and support.2 months ago·8 likes·
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