Elon vs. Twitter

The recording opens with off-air banter: one speaker is teased for having moisturizer on his face, and he answers that his skin is dry after recovering from food poisoning. The others mock him as wearing makeup, and he pushes back that his skincare routine is why he looks young.

A speaker explains his good mood: it is Good Friday and the markets are closed, so, as he jokes, his portfolio cannot go down. The others riff on the resurrection and on the portfolio needing to be raised again. The exchange is pure humor with no analysis attached.

The hosts trade rhyming, insult-laden introductions for one another, with jabs about drugs, wealth, sweaters and watches. Friedberg is billed as a scientist who works in DNA, and he jokes that he has never done drugs. Sacks is introduced as the rain man. The speakers treat all of it as comic material, and nothing in it should be read as a factual claim.

The writer of the intros says he is shopping them around, and someone jokes about his spring sweater collection. The transcript then has a muddled exchange over whether something matters to anyone, and a speaker says a Twitter poll would show many people silently hating it. The hosts then turn to the week's news.

The host steering the show asks where to start, and a speaker jokes that the war in Ukraine has stopped mattering to Americans because there is only one issue. According to the speakers, Elon put in a bid on Thursday to buy Twitter outright and take it private, in a deal one speaker puts at 43 billion dollars. The source text gives the figure in garbled form, so the number is the speaker's as transcribed.

The latest development, as the show is taped on Friday morning, is that the board has adopted a poison pill. One speaker says this amounts to the directors choosing to get personally sued. Another host asks a colleague to explain poison pills and to say where the saga stands, whether in a late or an early inning, and what happens on Monday.

The speaker explaining the mechanism calls a poison pill a defensive move a board uses against a hostile takeover. It lets the board create large amounts of new shares and so dilute a would-be acquirer, making it economically unfeasible to gather enough shares for control. Everyone except the party who crosses an ownership threshold gets the right to buy more stock.

In the Twitter case the threshold is 15%. The speaker says, with some uncertainty, that other holders could then buy shares at a discount of about 50%, which could nearly double the fully diluted share count. That makes it close to impossible for the 15% holder to accumulate what is needed to reach 50%. The speaker adds that poison pills can also be built with debt or equity, and points viewers to the Wikipedia article on Revlon versus MacAndrews and Forbes.

The speaker recounts the Revlon case as a precedent. MacAndrews and Forbes was the holding company of a prolific dealmaker, named in the transcript as Ronald Perlman, whose company Pantry Pride made an unsolicited bid for Revlon at roughly 40 to 45 dollars a share. The board erected poison pills, the price escalated, and a private equity firm joined the contest. The dealmaker sued, the case went to Delaware court, and, the speaker says, the current legal framework emerged from it.

That framework gives directors fiduciary duties to shareholders. Usually these are broad, meaning do the right thing, but in some narrow circumstances they collapse into a single duty to get the best price. The speaker says directors in this position want to avoid that second bucket and keep options open. They may assume they will be fired in any sale, and they do not necessarily want to sell to one buyer.

In the speaker's view, Twitter and its advisers are trying to stay in the first bucket and avoid running an auction. Elon, by contrast, can use public pressure and the chance for holders at around 40-odd dollars to take a payout of roughly 20% at 54 dollars. The board would then have to justify why any alternative is better. The speaker, a public company director, says being sued is a horrendous process that can last years.