What is Specific Performance and how does it apply to the Twitter saga?
Musk may have stepped in the dogshit - again. I opined that the "world's richest man" could end up in bankruptcy court, if things don't go right for him. He lost interest in Tesla, which hasn't updated its basic models in years. Meanwhile, every other carmaker in the world is introducing newer and better models of electric cars. First to market is often last in the marketplace.
Meanwhile, solar city hemorrhages cash, but his family gets to keep their jobs there, I guess.
Space-X may be the one bright spot in his portfolio, but all it takes is one Challenger-like disaster to send that company into a death spiral. And given how fast-and-loose Musk plays with the rules, one cannot rule out such a disaster. Space exploration is, by nature, highly dangerous.
So then he goes and tries to buy Twitter for $54.20 a share. 420 - get it? As in smoking pot! Hee-hee! This is the world's richest man? And it is not the first time he has done this childish coded shit. He previously said he had a buyer for Tesla at $420 a share but of course, didn't and the SEC wasn't amused.
Is he the world's worst troll or the most clever stock manipulator? Hard to say. But his effort to buy Twitter backfired. Usually, when someone offers to buy a company at a fixed price per share, the share price shoots up to that number and stays there. I bought some stock in Winn-Dixie for $7.50 a share and another grocery chain made a buyout offer at $9 a share and the stock price went up to... $9 a share... the next day. Funny how that works.
But with Musk's offer, no one took it seriously and the share price languished. No doubt Musk was pissed off as he had just bought a chunk of Twitter stock for cheap and was hoping his buyout move would spike the stock price. It did - a little bit - but the market was clearly saying they didn't think he'd go through with it and moreover they were tired of his games.
So now he has to get out of the deal, and he claims Twitter didn't fulfill their half of the bargain as they didn't provide "bot" data. He also threatened to re-institute Trump if he bought the company, which may have been a move to get the Twitter board to walk away.
So Twitter sued, and asked for specific performance on the buyout offer contract. What is specific performance and why it is such a rare thing? As it turns out, it is more of a threat than a reality.
In most contract law cases, the issue is money - who owes who how much as a result of breach of contract. Sometimes, this is stated in the contract itself - a liquidated damages clause. If you fail to perform, well, you pay the stated amount and both parties walk away. In this instance, the stated amount is one billion dollars (say that in the Dr. Evil voice) and of course, this means litigation until the cows come home. Both sides can afford to pay $100 Million in attorney's fees over that amount - and they will, too.
Like I said, in most cases, the issue is just money - cold hard cash. I offer to sell you my antique car and then decide to back out of the deal. You had offered me $50,000 for the car and had a buyer for it who would pay $70,000. You could argue that you are out the $20,000 profit and sue me for it. But it is unlikely the Judge would grant you specific performance on the contract, by actually forcing me to hand over the title to the car in exchange for fifty grand, particularly if I already sold the car to a third party. A car - even an antique one - is a fungible commodity (and so are Non-Fungible Tokens - ugly cartoons of apes are interchangeable, particularly when there are thousands of them) and the real issue is the loss of money, not the actual car.
Now maybe if it was the Mona Lisa, a judge could force the sale. But even then, it might just come down to money. And for some contracts, like personal service contracts, specific performance just might not work. You can't force a football player to play football if he decides to breach the contract - or a painter to paint a painting or a singer to appear in concert. They might show up and do a shitty job and then that forces the judge to become an art or music or football critic. Just pay out cash and be done with it - which is why we have liquidated damages clauses.
So the judge in this Musk/Twitter case is allowing them to go forward with Specific Performance claims, even though the contract they signed has a liquidated damages clause of a billion bucks. Why is this? Well the Judge in question has a habit of doing this, and it is, in part, to light a fire under the litigants and get them to settle. If Musk had just paid the billion dollars (which he does not have in cash, but only in inflated stock values) the whole thing would have gone away. But if he has to pay $54.20 a share for a stock worth $39 on a good day, he might be out billions of dollars. It might not bankrupt him, but it sure would put a dent in his net worth!
Would the judge actually go through with a Specific Performance ruling and force Musk to buy all the outstanding Twitter stock at $54.20 a share? Probably not, and even if she did, well, there are appeals galore that could take years. By then, the stock might be worth $54.20 a share.
Or worth nothing. Social media is awfully crowded these days, what with Instagram, Facebook, Twitter, Tick-Tock, and a host of other wanna-bes and newcomers. Is Twitter - which has never really made much in the way of profits - really worth anything to anyone? Social Media sites are like child's toys - an obsessive fascination one moment, tossed aside and found buried in the sandbox a year later.
What is clear to me is that Musk screwed up. He made this offer to Twitter, hoping to jazz up the stock price and hoping Twitter would back out of the deal. He would unload his Twitter shares and make a nice drive-by profit with no effort other than a couple of tweets. But Twitter called his bluff - put up or shut up. You want to buy us? Buy us - at the ridiculous price you picked out of the air.
If the Judge merely allowed them to litigate over damages, well then, the most Musk would be on the hook for was the $1B liquidated damages. And given how litigation works, both sides would spend millions on attorney's fees and then settle for far less than $1B. This would, in effect, reward Musk for his malfeasance - and the judge is having none of that. By putting Specific Performance on the table, the damages could be much more.
How much more? Well, if we assume that today's share price of about $40 a share is the actual market value of Twitter, then Musk is over-paying by $14.20 a share. Multiply that by the approximately 750 million shares of Twitter stock and you get about $10 Billion dollars. This is not to say Musk will pay that, only that he could have paid $1B and gotten out of the deal, but that bird has flown.
This calls into question Musk's competence. Many fan-boys worship him and think he has some insight into technology and isn't just some guy who was struck by lighting (at birth, for starters). This, in turn, may have a negative effect on Tesla share prices (it already has, by at least 20%) as fan-boys were the one driving up the share prices of "meme stocks" for no apparent reason, in the first place. You live by the meme stock, you die by it.
If people start to think that maybe Musk is deranged or stoned all the time (420? Hello? Does he have to leave a trail of breadcrumbs?) his "empire" may collapse and collapse rather quickly.
And by allowing Twitter to litigate for Specific Performance, that could actually happen.
