E76: Elon vs. Twitter

I am. My skin is so dry. I just got over having food poisoning, and I'm like. I dehydrate. Hold on. Let me get this off camera.

Off.

Look at this guy. You got makeup on.

It's not makeup. It's moisturizer, dipshit.

It's just as bad.

The reason you look like the fucking crypt keeper and I look spy and young and Schvelt is because I do a little skincare routine, okay?

Give me a fucking break.

Look at him. You turn off his camera because he's embarrassed about whatever you.

I'm not embarrassed. I just don't need you telling me. Sachs is in a fucking good mood.

What?

Salana up $0.15. Why are you so fucking happy, dummy?

Well, the markets are closed today. It's Good Friday. So my stock portfolio can't be down because the markets are closed.

Thank Jesus. Praise Jesus.

Yeah, it's a Good Friday. If the markets are closed, my portfolio can't go down anymore.

It's truly a Good Friday. Your portfolio will rise again.

It needs to be resurrected. Let your winners ride, rain man.

David Sack.

And instead we open source it to the fans. And they've just gone crazy with it.

Love you, queen of Kinwa.

Nowadays, he works in DNA, but in the 90s, all he cared about was the MDMA, the Duke of DNA, the titan of Tempeh, the shepherd of the soy boys. He turns water into wine and dollars into dimes. He's a foolio for Coolio. The Sultan of science himself, David Friedberg.

Welcome.

I have never done drugs, just for the record, but go on.

No, of course not. Of course. None of your behavioral problems in high school had to do.

Yeah, neither is Jason.

No, absolutely not. Not this morning. He's the VC who loves Brie. He'll sell you the sleeves off your vestee. He's enthralled with green wall. He eats uppers for supper. The rain man himself, David Sachs.

All right. Thank you.

You're welcome, Dan. All right, coming around the bend. That timepiece, what does it do? It reminds him of how much more money he has than you. The sweater is worth six dimes, Laura. Piano is above his line. Your supervillain with that 1985 Sasakaya, he be chilling. There it is. He loves spacs, just like junkies love crack.

He's your dictator.

Chamath polyhapat.

That works.

I'm, like, becoming the eminem of intros. I mean, I'm rhyming shit it's really solid, bro. I got to say. I'm workshopping it. A shout out to Nick, and one person on Twitter of 100 gave anything.

I'm moving into my spring sweater season, my spring sweater collection.

Oh, wait, hold on a second. I just got a call. Oh, yeah, confirm me. Nobody gives a fuck. Fucking Christ. He's the king of the inane.

I don't think it's inane at all.

This matters to exactly one person.

No, the person selling you the. That's not that.

I think if you took a poll on Twitter, there's a lot of people who silently hate it but love it.

I think there's a lot more who hate it. Let's get to all the news. So much news going on.

All the news. Where should we start, Jason?

I'm trying to think about it. Was there any news topic this week? Because obviously the war in Ukraine has obviously got everybody in America. Oh, wait, no, I'm sorry. That's not important anymore. We're on to the next thing.

There's only one issue.

Elon put in a bid to buy Twitter outright on Thursday and take the company private in a deal worth $43 billion. The most breaking news, when we're taping this on Fridays at 11:00 a.m. When we typically tape this, is that.

The board of directors, the professional board.

Of directors, has decided they would like to get personally sued.

This is the most insane thing.

I woke up and read this, and I was like, okay, they're creating a poison pin. I'm sorry, a poison pill that's going to give Twitter's existing shareholders the ability to buy more shares if Elon hits 15% of the company at a discount. Chamath, explain the concept of a poison pill, just generally speaking, and then give us your. Because everybody knows what's going on, but here we are in this whatever. I don't know if this is the 7th or eigth inning of this saga or it's the second, but where do you think we are in this saga? And then what happens on Monday? And describe a poison pill.

A poison pill is basically a defensive maneuver that a board of directors uses to prevent a hostile takeover. And basically the simple way it works is it allows the board to create enormous amounts of new shares and effectively dilute the potential hostile acquirer so that it becomes economically unfeasible for them to get enough shares to get controlled.

The way that they do that is.

That they basically give everybody except a person that crosses a certain ownership threshold. So let's use Twitter as an example. So the Twitter's poison pill basically says that if you get to 15%, you're essentially locked out from a right that then everybody else has. That effectively allows them to buy another share of stock at, I think it's a 50% discount. And so what it does is it creates an incentive to essentially almost double the fully diluted shares outstanding of the business. And what that does is it makes it almost impossible for the person with 15% to then go and acquire what's necessary to get to 50%. There are different kinds of poison pills. There's things that you can do with debt, there's things that you can do with equity, but that's the thing that Twitter did. I think if anybody's interested in it, Nick, maybe you can just bring it up, but you can google on Wikipedia, there's a phenomenal article called Revlon versus McAndrew and Forbes. And McAndrew and Forbes was the holding company of this very prolific deal maker in the named Ronald Perlman.

And what happened was he was the.

CEO of a company called Pantry Pride. And Pantry pride made an unsolicited hostile takeover bid for Revlon, which made makeup. And basically there was like $40 to $45 a share. The board instituted all these poison pills. The price kept escalating. Then a private equity firm stepped in, also tried to compete for the asset. All along the way, there was enough shenanigans that essentially what Ronald Perlman did was Sue Revlon, which went to Delaware court, and from it basically came the current framework of law that we use in this situation. And basically what it means is that board directors have these fiduciary obligations to their shareholders. And in some cases, these are very broad fiduciary obligations, meaning do the right thing. But in some really narrow circumstances, all of that collapses, and their sole focus is to get the best price. And what a director and a board of directors typically wants to do in a situation like this is not end up in that second bucket. They want to keep all their options available. They don't necessarily want to sell to one person. They're probably going to assume they're going to get fired from the board. They want to stay on for different reasons, et cetera, et cetera. And so right now, what Twitter and their advisors are trying to do is basically stay in that first bucket, have all of the options available to them, and not be forced to run an auction. And I think what Elon will try to do is essentially use the public pressure that's going to build and the existing shareholders who own stock at 40 some OD dollars, a chance to basically get a 20% payday by selling it to Elon for $54, or 53, whatever the price was. And the Twitter board now will have to justify how whatever they come up with is better than this, because then if they don't, and they're still exercising this broad fiduciary obligations, one thing I'll tell you as a public company director, it is a horrendous process when you get sued, and these guys will be in court for years. And the incremental pressure that this Twitter board has is that they can be held personally liable here. So I think it's getting very complicated very quickly.

On that note of personal liability, you have directors insurance.

So how can that Pierce doesn't cover it?

Have there been examples of this happening?

Yeah.

DNO insurance is kind of like DNO insurance is there. Director and officer insurance is a layer of protection that we all have as public company directors. We actually also have it as private, private company, sure. But the amount of coverage changes. But what I'll tell you is DNO coverage tends to be relatively nominal because the risk profile doesn't really include these kinds of tail events. And now what you're talking about is ten to $15 billion of equity value that's going to either get created for existing shareholders or get taken away. And typically, what courts will do is that they will look at the amount of money and they will start to think about compensatory and punitive damages as a function of how much money was made or lost. And so you're talking about a realm of risk. Now, for these directors, that's well beyond what DNO insurance will cover if a.

Lawsuit did happen, Shamath, you have to find damages. So if the board found a better offer, great. But if this thing goes down on Monday, Elon sells his shares and it goes down to 30. Now, you have the opposite effect.

Go ahead, Freebird. So I'll say two things. One is, in all these cases, by the way, the board is indemnified by the company. So the individual board members, I don't know if there's ever been a point in history when an individual board member has had to pay out of pocket for liability associated with their actions as a board member and as a fiduciary, except when they've done something to benefit themselves outside of the company. Now, in this case, the job of the board is to use their best judgment to do what they believe to be in the best interest of creating the most value possible for the shareholders.