In his latest Q2 2022 Letter, David Einhorn explains why his new position in Twitter Inc (TWTR) gives him 50-50 odds on something that should happen 95%+ of the time. Here’s an excerpt from the letter:
In April, Musk agreed to buy TWTR for $54.20 per share. Then, in May, he appeared to change his mind. The case law on this is quite clear. If it were anyone other than Musk, we would handicap the odds of the buyer wiggling out of the deal to be much less than 5%, or the percentage of bots that might be on Twitter.
But, it is Musk and therefore many believe that the laws again won’t apply. One former judge on the Delaware Chancery Court (where the case is being heard) went on CNBC to speculate that the court might let him out of the deal because Musk won’t respect the judgment, which would embarrass the court. Another variation is the court might rule against him, but TWTR might not be able to enforce the judgment.
Apparently, many people either believe these outcomes are acceptable or, in the alternative, are just the way the world works. We hope it isn’t so.
Actually, we can do more than hope. We purchased a position in TWTR at an average of $37.24 per share. At this price there is $17 per share of upside if TWTR prevails in court and we believe about $17 per share of downside, if the deal breaks. So, we are getting 50-50 odds on something that should happen 95%+ of the time.
We think that the incentive of the Delaware Chancery Court, the preeminent and most respected business court in the nation, is to actually follow the law and apply it here. If it lets Musk off the hook, it will invite many future buyer’s remorse suits. Cynical buyers might contract with targets and then use the threat of litigation and the resulting uncertainty to recut the deal.
The Delaware Chancery Court has spent years developing case law relating to merger agreements. The resulting precedent and clear understanding of buyers’ contractual obligations has created a great deal of predictability in this sphere. It will be up to Chancellor McCormick to follow that precedent and protect the sanctity of the court. We like the risk-reward that she will.
You can read the entire letter here:
Greenlight Capital Q2 2022 Letter
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