Lawyer's take on the Twitter v Elon Musk case, and strategies to take position

TeslaSmurf : Yes, I took position, though I know it will be a bumpy road: I shorted 250 stocks for now, STRAIGHT.
Elon will buy Twitter at 42$, but in order to do that he needs the shareholders to shit their pants at under 29$. In the opposite case (he walks away with a huge fine between 6 and 11 billion) he will sell his stake in Twitter and the price will crash to less than 25$. No hurry, anyway…
Theoretically, the judge may sentence Elon to buy, but he doesn’t have any means to force him to do it… Menacing some jail? He just can avoid to enter Delaware and he’ll be fine . For that reason, in case Elon can’t prove the BOTs being more than double of what Twitter DECLARED in the SEC filing, he may lose and get a huge fine corresponding to his DIRECT STAKE in the project (less than 10 billions), while the bank CAN’T be forced to finance the acquisition BY NO MEANS. So, at the end, Twitter will lose anyway, even if they get 10 billion because, at that point Elon will sell his shares and the price will crash.
Just to speculate, Twitter may well use the 10 billion to buy back the stocks, but that would happen only months later than Elon’s selling…
This is a pure GAMBLE, just for fun, as normally I ONLY trade and hold TSLA.
In my modest opinion, the right move is to short it now, then buy it when Elon comes up with an offer or a settlement to buy it or, in the worst case scenario, after the legal battle CRASH (it WILL crash). In other words, short price: anywhere over 40$, buy price: anywhere under 25$. My next increase in the short will be over 42 $ to get a better cost average in the position.
May I be totally wrong with the scenario’s picture ? I accept that case too, so I give it a 15% possibility: enough to try the short.

doctorpot1 OP TeslaSmurf : As per WSB style, position or ban hahahaha . But yea I think it is only fair if you show your short transaction if you had short.

I won't discuss about what will happen as that is just speculation and I'm not legal train so I can only take advise from lawyers. But I think we can discuss on the setup you made.

Hmm if you think Elon will buy at $42 why did you short it now at close to $40? That is an immediate $2 loss per share or $500 excluding the interest fee of 3%. No one will sell Twitter at $29 if the offer is $42. The price will go close to $42 instead. Because why sell at $29 when you wait for a while Elon will pay you $42?

Do be careful when shorting this stock, cause if the judge rule in favor of Twitter, the price will immediately go close to $54.2. You will be losing around $14.2 per share or $3,550.

Yea if the judge allows Elon to walks away using the termination clause then he have to pay Twitter the 1b fee, or if the judge allow him to walk away but he have to pay for the damages that means 6b to 11b goes into Twitter account. Share price would adjust to account for that free money too. So if you think the price will drop to $25 which means a market cap of 19b. Remember to add the free money in. I.e if the damages is 1b then the market cap will be 19+1 or a price of $26.66. If the damages is 11b then market cap will be 19+11b which mean a share price of $40.

Why the damages need to be added to market cap? Cause that is how much the company value will grow by. If let's say my company is worth $1 with an asset of $1 and a share price of $1. If I get $1b in cash, it doesn't make sense for my share price to be below $1b, if not you just buy my share for $1, then you earned $1b in free money.

TeslaSmurf : You are right as long as you look at the bigger picture on the long term, bit to get there (to get the 42$ accepted by the board and by the shareholders), the stock price has to go UNDER 30$. That can happen as:
• It is proven that the BOT size is over 10% (double of what DECLARED)
• Elon walks away and sells his stake (even if he is heavily fined for around 10 billions).
That’s my simple BET.

TeslaSmurf : I may cover it with a reasonable loss if I see the scenario changing, but for now that’s what I see and that’s where I put a little money.
I don’t say things I don’t do.
That’s an extract of my short term account at Schwab (as I can’t trade one moomoo).

doctorpot1 OP TeslaSmurf : Nice Thanks for the transaction. I'm still confused about share price going to 30.

If in the case, the final agreement is that Elon have to buy over at $42 a share, I doubt the share price will drop to $30 because that is 100% risk free profit and arbitrage will happen.

let's say judge force Elon to buy at 42 a share. if Twitter drop to 30 a share, I will buy 100% of the company shares and immediately approve the merger and immediately earn 12 a share, 100% risk free. Therefore, what is more likely is that the price would hover closer to 42. maybe 40ish to account for shareholder rejecting the deal.

Twitter will just hold the AGM to ask shareholder to approve or reject the offer.

doctorpot1 OP TeslaSmurf : Respect There are too many people in moomoo that is all talk only so I 100% respect users who put money where their mouth is, and that's why I always post my actual position and trades too.

You sir deserve a salute

TeslaSmurf doctorpot1 OP : The reason why the share will drop there (<30$) is that whenever Elon should present a second offer, it won’t be accepted if the price at that moment is already 39 or 41 just to say: shareholders must see a convenience, or the fear of losing their capital.

doctorpot1 OP TeslaSmurf : The pricing model for a share price after an acquisition offer is made is just, share price = offer price - risk premium. Risk premium is to account for risk that the deal doesn't go through.

Which we can see that when Musk first talk about buyout of Twitter for 54.20 the share price immediately goes up close to it at 51. Leaving 3.20 or 6% risk premium. However as Elon starts bashing Twitter and the possibility that this is another 420 buyout joke starts to sink in, the risk premium increased greatly and share price fell hard. Why? because investors believe this deal will not go through and it is yet another joke and market manipulation done by Elon.

but if the court ordered Musk to buy Twitter as he does not have legal ground to exit the deal based on his "tons of bots" defence. Then the risk is now way lower. If the price is 42 like you said, I doubt the risk premium will be more than 12 as that is a 40% risk premium, for a deal that the judge had ruled in favor of Twitter.

But that said, the risk premium could go damn high if Elon tweeted "F the judge I'm not going to comply", since he is basically the X factor here. Well known to be the rich billionaire that thinks that rules and law doesn't apply to him.

TeslaSmurf : Elon offered the 54,2 $ when the price was way lower exactly for the same reason: to remember to the shareholders what the price would be without him. And I don’t consider it a real and illegal manipulation as, right now, without Elon’s offer, the price would already be around 30$ (trending down) due to the general situation and to the not-brilliant Twitter’s finances. Let go the Bot PROBLEM (they will have to justify it to SEC, investors and advertisers). Elon offered 54,2 because he WANTS Twitter, no matter the cost and, by that time, at 42$ he might have faced some competition… not now, not with this market and also at 42$ no one else would buy it, as a sensate value could be 20-25 billions.

doctorpot1 OP TeslaSmurf : he offer 54.2 not because he want people to remember what the price will be without him. That is basic of M&A, you gave to offer a premium so that most shareholder will accept the offer. if he offered 30, meh everyone will ignore him and the shares will just trade as per normal.

Well we'll see how this goes, because this is going to set the precedence for all future cases. The precedence that any buyer who made an offer can just change their buy price at a lower price anytime they want when the market tanks, just by running out of the deal and the judge will allow them to buy at a lower price. Doubt that will happen, the judge will only say whether the exit is valid or not. they won't judge on whether Elon can reduce the buy price or not.

Because if that happen, then any company can pull this trick. Virgin offer to buyout spaceX at 50 per share then later say I'm running out and offer 30. then I'm running out and offer 10. It is a dangerous precedence to be set for the entire country as then every company can abuse the system this way.

the 42 case could still happen, but that will be a settlement out of court. which mean the judge won't be ruling at all as the case is settled out of court.

but we'll see... the game will begin in Oct and we have placed our bets already hahahaha and we both could still win our bet together. if price drop to anywhere from 23 to 39. You win, I also win.