New battle lines over pay and layoffs?
Elon Musk’s deal to buy Twitter may have closed, but his battle with the company’s board and executives seems to be barreling forward. After what DealBook hears was a bitter closing on Thursday, Musk is taunting Twitter and the law firm it worked with in its lawsuit against him, Wachtell Lipton, with the prospect of litigation, while trying to avoid paying top executives the golden parachutes they’re owed. It appears that fraught legal battles lie ahead, and it’s unclear whether Musk’s aim is to win or simply punish.
“I would not be surprised at all if there are lawsuits involving everything from compensation to people he feels have withheld information illegally from him,” Walter Isaacson, the Musk biographer who shadowed him throughout much of last week, said on CNBC.
Musk is trying to get out of paying senior executives’ golden parachute deals. Here’s how that could shake out: Musk fired the executives purportedly “with cause” in hopes of avoiding payment. But it’s unclear what the cause might be. (Twitter itself has set a high bar for such firings, like unauthorized use of Twitter’s confidential information or pleading guilty to a felony.)
If the Twitter executives sue for the payments, it would likely go to arbitration. Based on the facts we know, it would seem they have a strong case.
The executives would have to pay their own legal costs. They could be reimbursed for at least some of them, as the employment contract of the former C.E.O. Parag Agrawal shows. But Musk could try to get out of that as well.
Musk could go after the board (and possibly executives) for fraud. It might look like this: Musk would sue the directors arguing they defrauded him into buying Twitter, similar to what Hewlett-Packard did in 2015. But Musk would need to prove Twitter materially and intentionally misled him. Simply not telling him things doesn’t count as fraud.
Arguably, if Musk thought he had a strong case for fraud, he would have proceeded with the Delaware trial. The new question becomes: Now that he’s been forced to buy Twitter, how much will he be willing to spend on litigation to punish those he bought it from?
Twitter’s board and key executives are covered by director and officer insurance, which fronts the cost of lawsuits over their management of the company. If they’re found guilty of fraud, however, they would need to repay those fees.
Employees could sue Musk over layoffs. While the timing and scope of layoffs remains fluid, they are on the way. If Musk does mass layoffs before filing a required notice under the WARN Act, employees could sue, as they did at Tesla. (The law requiring the disclosure has exceptions, like unforeseen business circumstances.) If he intentionally laid them off before Tuesday’s stock-vesting date specifically to avoid paying out a bonus, that could be grounds for a suit as well.
In more Twitter news:
Senator Chris Murphy, Democrat of Connecticut, said Musk’s purchase of Twitter should be scrutinized by the Committee on Foreign Investment in the United States, as its roster of non-U.S. investors includes Prince Alwaleed bin Talal of Saudi Arabia.
Jack Dorsey, a Twitter co-founder and an early supporter of Musk’s push to buy Twitter, remains one of its biggest shareholders after he rolled his roughly $1 billion stake back into the company, a regulatory filing shows.
The banks that lent Musk $12.7 billion to buy Twitter plan to hold onto that debt until at least next year, according to The Financial Times.
Musk assigned Twitter engineers to revive Vine, Twitter’s short-form video platform that was shut in 2016, Axios reports.
HERE’S WHAT’S HAPPENING
Johnson & Johnson strikes a $16.6 billion deal for a maker of heart devices. It will pay $380 a share for Abiomed, equal to its 52-week high, and a 50 percent premium to the company’s closing share price. The takeover is part of J.&J.’s effort to bolster its high-end medical operations as it spins out its consumer health arm.
The Supreme Court appears ready to strike down affirmative action programs. Questions from the court’s conservative justices suggest that they will bar race-conscious admissions policies at Harvard and the University of North Carolina. Nearly 70 major companies had joined a briefing to the court supporting affirmative action programs as good for business.
BP’s blockbuster quarter spurs calls for more windfall profit taxes. The oil giant’s third-quarter earnings more than doubled to $8 billion, continuing a string of soaring profits for the industry. That’s sure to bolster calls to impose new taxes on oil companies for what President Biden said yesterday were “outrageous” profits. (BP paid $2.5 billion in windfall taxes in Britain.)
Elon Musk’s Acquisition of Twitter
A blockbuster deal. In April, Elon Musk made an unsolicited bid worth $44 billion for the social media platform, saying he wanted to turn Twitter into a private company and allow people to speak more freely on the service. Here’s how the monthslong battle that followed played out:
Chinese stocks briefly soar on hopes of an end to zero-Covid policies. Shares in Chinese companies jumped nearly 7 percent today amid speculation on social media that Beijing was taking tentative steps to easie tough pandemic policies. A government spokesman threw cold water on the rumor, saying he was “not aware” of such a move.
Toyota’s quarterly profit drops 25 percent amid a series of woes. The world’s biggest carmaker blamed the plunge on the yen’s volatility, rising interest rates in the U.S. and persistent supply-chain disruptions (in part because of pandemic lockdowns in China). Things may look tough for a while: “It’s hard to look six months ahead,” one executive told reporters.
The Biden administration books big antitrust wins
In recent months, the Biden administration’s more aggressive approach to antitrust enforcement has been dealt a series of setbacks. But on Monday, the Justice Department notched two different victories that it can say are vindications of its tougher stance.
A federal judge blocked a book-publishing megamerger, agreeing with the Justice Department that Penguin Random House’s $2 billion takeover of Simon & Schuster might “substantially” harm competition. The case involved an unusual focus by federal prosecutors on the threat to author earnings, instead of harm to consumers: Essentially, it drastically widens the scope of how regulators view consolidation, to include the impact on workers and suppliers.
The three-week trial over the case drew in a who’s who of the publishing industry, including — as a witness for the prosecution — the author Stephen King. (After the verdict, King told The Times he was “delighted with the outcome.”) Penguin Random House and its parent, Bertelsmann, said they planned to appeal.
Could the verdict embolden the Justice Department to aim bigger? “Once you’ve come in and said that this kind of consolidation and these kinds of actions are bad for authors and for readers, then you look over at Amazon and see a corporation that has 80 percent market share, there’s only one conclusion,” Barry Lynn of the Open Markets Institute told The Times.
And the Feds also won a smaller victory, with potentially big consequences. The president of a paving contractor in Billings, Mont., pleaded guilty to attempting to monopolize the market for highway crack-sealing services in Montana and Wyoming. It’s the Justice Department’s first criminal monopolization win in over 40 years.
Blackstone’s D.I.Y. leveraged buyout
Blackstone yesterday struck what is the biggest leveraged buyout deal by a private equity firm so far this year, buying a majority stake in Emerson Electric’s air-conditioning business for $14 billion, including debt. But to get the deal done, it had to do some D.I.Y. financing, illustrating the challenges facing the private equity industry in these tougher times.
Understand Elon Musk’s Twitter Takeover
The buyout firm and its co-investors will invest $4.4 billion in equity, while Emerson will roll over a 45 percent stake and lend Blackstone $2.25 billion. The big question was how to arrange the remaining $5.5 billion in debt at a time when banks have taken big losses from deal financing — or are set to, as with Elon Musk’s takeover of Twitter.
That forced Blackstone to get creative, with the firm raising the debt itself over a matter of weeks rather than hiring banks to arrange everything:
About $2.9 billion in financing came as a term loan from banks who will hold onto the debt (a Term Loan A, for finance geeks) rather than selling it onto investors.
Blackstone sourced the remaining $2.6 billion from an array of private lenders, including an arm of Goldman Sachs and Sixth Street Partners. The Wall Street Journal noted that Blackstone has done this before, notably after the 2008 financial crisis, but never at this scale.
It’s a sign of how tough the L.B.O. business is now. Blackstone boasted that it was uniquely positioned to get the Emerson transaction done: “The size and breadth of our firm gives us the ability to do complicated transactions like this deal in less liquid markets,” Joe Baratta, its global private equity chief, said. But other investment firms may not have the same scale, or might have to pay a lot more to do their deals.
Hunt for green in October
Investors were in a buying mood last month. Hopes for a “Fed pivot” on interest rates, a smattering of decent corporate earnings and lower energy prices helped push global stocks into the green in October.
Quiz time: Each month, market strategists at Deutsche Bank rank the performance of more than 70 financial assets. The top-dog honor for October went to which of the following?
Answer: The MOEX was the top-performing asset class last month, both in local currency and in dollar-denominated terms. It rose 16.5 percent last month — though it’s still down 38.1 percent this year.
THE SPEED READ
Best of the rest
Carlyle is seeking $700 million from insurers who failed to pay out claims following Russia’s seizure of its aircraft. (FT)
Bank of America told its traders that they can work remotely — for only two days each month. (Bloomberg)
Taylor Swift’s latest album, “Midnights,” sold more than 1 million copies in a week — and her songs occupy the top 10 spots on Billboard’s Hot 100 chart, a first. (NYT)
We’d like your feedback! Please email thoughts and suggestions to [email protected].