The world was already batshit crazy when Elon Musk announced his bid to buy Twitter ($TWTR). His bid made heads explode.
Earlier this week, Musk mentioned that there might be some trouble with the deal due to bots on the platform. Robots aren’t really users. They make it more of an echo chamber.
There are two sides to this story.
The first is that Musk should have done more thorough due diligence. Why the hell didn’t he and his team get good solid numbers on the bot question prior to the deal being announced? In hindsight, it seems like an obvious question, but that’s why Musk and his people get paid the big bucks, for foresight.
One of the problems I have with the Theranos case and fraud is that none of the investors did any serious diligence. If they would have they wouldn’t have invested and the company would have died.
But, what if Twitter execs lied?
If someone is hell-bent on deceiving you, there isn’t anything you can do about it.
I had a deal once where the entrepreneurs totally misrepresented their top-line revenue and side deals for their capitalization. I didn’t uncover it in diligence. Once the deal closed, it was too late and we had to work through it. There were few consequences for the entrepreneurs, except a loss of trust which is vital in an investor/entrepreneur relationship.
I knew Mark Rubin a little bit. One time he told me that he never really used lawyers to do deals. He said, “If I don’t trust you, why would I do business with you.?” Warren Buffett famously does deals without a lot of lawyers. I heard a story about former GE CEO Jack Welch doing a deal with a European firm on a cocktail napkin.
No doubt, lawyers made sure deals were clean, level and ready to soar before the above guys are done with them. But, the point is there was trust between the two parties before the attorneys got involved.
Business is about building trusting relationships between parties. Trust makes things go. One of the most compelling things about crypto/blockchain is the fact that there is proof of work and there is trust built into it.
One of the most fantastic things about working on the trading floor in Chicago was your word was your bond. If you were a schmuck, everyone knew and you were run out of the exchange on a rail. The real world isn’t like that and it was a hard lesson for traders to learn when they entered it.
For Twitter execs, if they indeed misrepresented the numbers they get to deal with the SEC. There are repercussions and consequences for them. Ask people like Martha Stewart. Analysts publish research based on those numbers and investors take their cues from them. If the numbers were fudged, someone will wear an orange jumpsuit.
This may or may not be Musk trying to drive a lower price in a stock market that is melting down. We will see. I think he truly wants to buy the business.
Musk’s original offer looks pretty rich now. My guess is he will get Twitter. Given the public actions of Twitter over the past few years, it is easy for people from my perspective to think the Twitter execs are untrustworthy. Lots of heads will roll. The board will totally change. My next guess is Musk 3x’s his investment.
Oh, and in the Joe Biden Economy the S+P 500 will trade 3200. Sell Mortimer Sell.
I was only a trade checker on the floor, but learned very quickly that all you have is your good name so do not dishonor it, no matter what. When others on the floor see you stand up for what is right, you become someone they know they can trust to do the right thing.
I once had an out trade where one broker, known to be untrustworthy, was trying to steal a trade from my trader. My trader becomes irate and starts to mistakenly vent on the wrong person. I grabbed him by the shoulder of his trading jacket to take him out of the pit so he wouldn’t embarrass himself, and say to him “This guy is not the one stealing trade, that guy is!” and point across the aisle at him.
My trader goes up to the crooked broker and rips him a new one in a very animated way, then storms away.
The crooked broker walks up to me, and with others listening, says to me, “What did you tell your trader?”
I say, “That you were stealing the trade”.
He says, “What did you do that for?”
I say, “Because you were stealing the trade”.
He stares me down for a few seconds, then turns around and walks away, as the others around me at the top of the pit chuckle.
I love reading your floor stories, thought I’d share one of mine.
I've said this elsewhere. Either Musk has a team of game theorists thinking 6 moves ahead or he's winging it. Either way, he's pissing off all the right people and should be commended for that. I'm sure his offer has certain contingencies. As I understand it, if Twitter is actually mispresenting their bot rate in SEC filings, it could be construed as fraud, which would put the principles in a pretty bad position. Under this circumstance, Musk probably either has an out clause, or could lower his bid, I suspect. It would be fun if the deal fell through and the shareholders sued the Twitter board for fraud and they got investigated by the SEC.