OA591: Musk Buys Twitter, Part 2!

Transcript

This transcript was generated automatically and may contain errors — the audio is the record.

0:01:17 Thomas: Hello and welcome to opening arguments. This is episode 591 apparently. I'm Thomas.

0:01:21 Andrew: Don't touch that dial!

0:01:22 Thomas: Yeah, that's Andrew. How you doing, Andrew?

0:01:26 Andrew: I am still riding the high of this this super deep dive on securities law.

0:01:30 Thomas: Yeah, I expected to just hear deep inhale. Okay, so we just go straight back into it and dispense with the pleasantries.

0:01:40 Andrew: Do my best Johnny Machida voice, you know, the Micro Machines Man blur from Transformers.

0:01:45 Thomas: No idea what you're talking about, but sure. Yeah. No, great.

0:01:46 Andrew: You've heard the guy who talks, who holds the world record for being the fastest talker. So yeah, just narrowly edging out No illusions. So there we go.

0:01:52 Thomas: Cool. Yeah alright. Well, this is a a bonus part two. Make sure if you're seeing this on your feed, if you're hearing this now, make sure you've listened to 590. I know sometimes podcast players just Give you that latest one, maybe you miss it. This is a part two, so if you haven't heard 590, which was the part one, again, it's all impromptu, so don't blame you. If you haven't heard 590, go listen to that now and then come back to this one because this is a Part Two, incredible deep dive on Elon Musk buying Twitter, so much more to talk about. So, uh, previously on Opening Arguments, where do we leave off, Andrew?

0:02:09 Andrew: Yeah.

0:02:34 Andrew: Yeah, Well, so we talked about the securities and exchange laws. We talked about why you have to disclose what you have to disclose. And what they disclosed here is a deal for Elon Musk to purchase Twitter at $54.20 a share with an anticipated close on or before October 24th, 2022. And now we've talked about all of the things that could go wrong from the perspective of Elon Musk and Twitter and maybe go right if you have a different view or, hey, you know, go wrong if you think Elon Musk buying Twitter is the greatest thing ever. This is meant to be an explainer of what can and might and will happen over the next six months. So we talked about the approval by the shareholders.

0:02:34 Thomas: Oh,

0:03:24 Andrew: We talked about approval by the government. We talking about both sides kind of getting the deal up to the finish line. And we're going to kind of continue to discuss that. One of the things that love the most ghost that is buried in this deal. And I've seen a couple of other people point this out because it's just so incredibly odd. But I want to give you the right context for this. And this is, we talked about how the deal contains certain representations and warranties between the parties, this right?

Is very, very common on a large transaction, because right, for example, one of the things that you represent and warrant is that the documents you exchange about the company are true and Correct, right? And that period is called the the due diligence phase, right? And that is, so I will say, you know, suppose it's a non-public company, right, you're looking to buy Opening Arguments Media LLC, uh, and you would say, hey, in order to figure that out, I want want to know, you how many uh patrons do you have, how much, you know, how many ads did you sell, this and that.

0:04:35 Thomas: Cool.

0:04:35 Andrew: And, and I, and as the selling, you and I as the sellers, uh, have to disclose that information, um, and we can disclose it in sort of, you know, whatever form that is appropriate, um, we could also lie, we'd like, yeah.

0:04:48 Thomas: Wait.

0:04:49 Andrew: We have a, we have 1 million patrons, patrons, no,

0:04:51 Thomas: Are you saying We're allowed to lie or this is a thing

0:04:53 Andrew: I'm saying sometimes people do lie.

0:04:53 Thomas: Ah, Gotcha.

0:04:56 Andrew: And when they do lie, one of the ways in which you protect against them lying is you specifically put in a section that says covenants. The sellers covenant that the relevant financial documents that they have exchanged with the buyers are true and correct to the best of their ability. And so if I've overstated our patrons by a factor of several thousand, uh, then Elon Musk can back out of having to pay us, uh, you know, billions of dollars for Opening Arguments Media LLC, right? That's all very, very commonplace. And when I look at the covenants, the things that each side promises to do, there's a lot of things that are boilerplate that you just would, you know, normal kind of stuff you expect to see in these big deals, right? Continue to run the business properly. You got to call your stockholders meeting if you're Twitter.

0:05:42 Andrew: You have to file all the regulatory documents that you need to file. And then I get to section 6.8, which is public announcements. The first part of this reads absolutely normal from any business deal that I've ever seen. That is, in terms of the public statements about the deal that both sides are required to come together and confer and cooperate before releasing any information, that's totally normal. And then there's this, and I swear to God, not making this up, notwithstanding the foregoing, the equity investor, that is Elon Musk, shall be permitted to issue tweets about the merger or the transactions contemplated hereby so long As such tweets do not disparage the company or any of its representatives. So yes, there is an "our investor is an asshole on Twitter" clause in This merger agreement. And I will point out, um, arguably Elon Musk has already violated this provision. Um, look, you can understand how this provision got negotiated, right?

Because, uh, obviously, if Elon Musk puts in a tender offer at $54.20 and then spends the next six months saying Twitter's the worst business on earth, it's so terribly run, like there's this and that, it's just, right, like that's driving down the stock price of the company when a heavily involved, when the purchaser has every incentive to drive down the stock price of the company. So, you, that's why that's in there to sort of backstop.

But I find it interesting that the lawyers had to go back and forth and say, all right, well, you can't expect him not to bad mouth you at all.

0:06:38 Thomas: Yeah.

0:07:27 Andrew: We can't, we can, we can keep Elon Musk off, off of the thing that he's buying, here that's why he's buying. And then, you Twitter's lawyers came back and we're like, fine, uh, but, he can't disparage us while he's tweeting about this, come on, uh, and ultimately They, they Agreed to, yeah, that

0:07:42 Thomas: Yeah. You Argue that he's violated that, what's gonna happen, I mean, I'm, I was just like trying to look through his tweets, which is, I'm mad at the show and you for making me look At anything Elon Musk said because he's an idiot, but one, uh, of them is Truth Social is currently beating Twitter and TikTok on the Apple Store, uh, I mean, is that disparagement, he's saying it's, Twitter's, you doing worse than Truth Social, uh, he's saying that Twitter, what isn't a adequate free speech platform, you know, is, is, uh, what is that, what you're talking about, is there something else I'm missing here?

0:07:52 Andrew: That's What, that's illustrates the principle that we talked about in the last episode, okay, which is to say in and of itself, that is not going to cause Twitter's board of directors to back out on the deal.

However, you can bet that Twitter's legal department has saved each and every one of those tweets and will save each and every tweet that Elon Musk issues between now and October 24th, 2022, because in the event that they do decide to back out, they will not just say, oh yeah, well, we got a better deal, so we agree, we're going to pay you the billion dollars, they're going to say, we don't have to pay you that billion dollars because you violated a covenant, a promise that you made to us, you said you weren't going to disparage us, and here's the 105 examples of You disparaging us over the course while this deal was headed to close. And does saying, uh, Gab is beating Twitter on, you know, whatever that, like, that nonsense, does that count as disparagements? Well, that, that is a matter for the courts to decide. And again, you will that be litigated out, uh, to every conceivable pixel that forms every character in that agreement? Of course it will be, because, right, what will be at stake is a billion dollars.

And so if you pay your lawyers 50 million dollars to litigate that to death, you're still way, way, away ahead than, you know, than where you would have been by just, you know, paying the billion dollars like a like a dingus, you know. So when I tell you that coat factory

0:09:00 Thomas: Yeah.

0:09:46 Andrew: Law firms are the cause of overcrowding in the courts, this is exhibit a right? Because as we're walking, none, none of these cases have been filed yet. But right, it is trivially easy to imagine how they would be filed. And the way in which they would be filed is business makes a decision and then goes back and looks for ways to have the law potentially hedge against them paying their the maximum that that decision would otherwise require them to pay. And because the cost of litigation is fractional compared to the damages that they've allegedly incurred, every single, like, why wouldn't you, write, before you write a billion dollar check, you know, do you, would you pay a proofreader, you know, $500 an hour to make sure that the check is typed properly? Sure you would, write, like, there's... there's literally nothing you wouldn't expend to try and protect against having to issue that.

0:09:52 Thomas: Well,

0:10:44 Andrew: So so So that could happen. And that provision in there is an incredibly strong provision that, you know, again, people have a couple a couple of folks noticed it, but have noticed it as sort of a, you know, isn't this funny that there's a, you know, Elon Musk has to agree not to disparage the company that he's acquiring. That has real consequence. It makes it materially easier for the board of directors to reverse course here.

0:11:14 Thomas: And now, I think about, out it from Elon's perspective, let's see, I mean, it would, it would further ensure the sale would go through if the stock price dips, weirdly, right? Because then shareholders are going to be like, oh, I can either take $54.20, or whatever the hell it's worth now. Um. On the other hand, I suppose by that same logic, then Elon will be overpaying for Twitter by that amount. But I guess if he's taking it private, I don't know, that's a complicated calculation. I mean, I don't.

0:11:31 Andrew: Yep.

0:11:43 Andrew: And that calculation, when we talk about the bottom line, it's what I want to end with because I've done a lot of work on this and I think it's pretty interesting. But yeah, know like, there is the tendency, there certainly is the tendency for me to do this, you're right? Talking about somebody worth in excess, somewhere between a hundred and $200 billion, buying a thing for 40 odd billion dollars, like it, those numbers don't seem real. The economy doesn't seem true. But what I want you to know is that there is a gravity to the transaction that is a mismatch to the apparent lack of seriousness with which this is being treated by Elon Musk himself. A right? Real easy way to think about that is figure out your net worth,

0:12:10 Thomas: Yeah. Yes. Yeah. That' funny. I was going to make the same thing.

0:12:32 Andrew: Yeah, and, again, now, for 50% of America, that's zero, right.

0:12:37 Thomas: Negative for a lot of people. Yeah, you bought a house in the 70s for $12 and a, a sack of beans and now it's worth $2

0:12:38 Andrew: Yeah. Or negative zero or worse. But suppose if you're one of our older listeners and you own your own house or you have. Now it's worth now it's Worth a million bucks. Yeah, exactly. And you've got retirement in this. And let's say you're worth, you know.

0:12:52 Thomas: Million. Yeah $3 million.

0:12:57 Andrew: Yeah, but I was trying to do multiples of five here. But, but,

0:12:58 Thomas: Why not? Let's say you're worth two million seven hundred and eighty five thousand dollars and four

0:13:02 Andrew: Uh, yeah. If if you have that, if you have two to three million dollars in equity, um, would a five hundred thousand dollar, you to six hundred thousand dollar transaction look like to you? Well, that would be buying a new house.

0:13:20 Thomas: Wouldn't it be more than that?

0:13:20 Andrew: Right uh, I would say one-fifth, so six, 600,000 times five is, is 3 million to

0:13:24 Thomas: All. Oh, it's only one fifth if he's worth a, a hundred billion to isn't it almost half? Oh, to 200. Oh, that's a wide range. I thought he was like worth 100 billion. Okay.

0:13:28 Andrew: 200. Yeah. Yeah, it could be. Yeah yeah. Most of his value is tied up in Tesla stock, which we're going to talk about in the last segment, but yeah. Right. So imagine you're that person, between 20% and 50% of your wealth, um, that's a staggering, like, you know, it's not just big numbers, right? They're big relative numbers. So, uh, people seem to think that, uh, Elon Musk is, you not being capricious here. Um, I don't see any evidence of that. Right, this seems to me to be the kind of thing that, you know, two months from now he might say, "Yeah, I'm willing to risk zero to one billion dollars to get out of this thing that's going to, to handcuff

0:13:34 Thomas: Right. Yeah. Well,

0:14:10 Andrew: Me." I'm

0:14:11 Thomas: I could imagine I mean, as you say, most of his wealth tied up in Tesla stock, let's say he buys this, that's, as, a we've illustrated, a solid chunk of his wealth. You could be anywhere from half to a fifth at minimum, and it doesn't go well, uh, and say the Tesla stock plummets for some reason, I mean, that's only a couple steps away from him being worth know, significantly less than he's worth right now. That, that would be, could be catastrophic for him. Oh, why

0:14:39 Andrew: Actually, going to skip to that right now because I think thematically this makes sense, because it is more than just Elon Musk becoming uncomfortable with this. So let's break down the exact numbers, because I've done this, 44

0:14:50 Thomas: Don't you just tell me the exact numbers, then? Okay, mm-hmm.

0:14:53 Andrew: 44 billion dollars is a lot, even for Elon Musk, and so in the 8K, uh, Twitter's had to describe, here's how we're going to get that $44 billion. Yeah, Twitter's 8K.

0:15:03 Thomas: Twitter's had to describe. Oh, I thought you meant like Elon needs to get that amount of money to buy Twitter, right? But you're saying, oh, gotcha.

0:15:09 Andrew: He does, but Twitter has to tell its shareholders, this is where the money is coming from. You can't just say, eh, we'll let Elon figure out how to pay us $44 million. You have to say exactly where you're going to get it from, So right? The first is he has to come up with $21 billion in cash at close.

0:15:14 Thomas: Okay. Oh, okay. Interesting. Boy, gotta go through a lot of couch cushions.

0:15:30 Andrew: Okay. That's a lot of couch cushions. The way in which Elon Musk, and you just Google Elon Musk sells Tesla stock. Elon Musk is down to owning just 17% of Tesla stock. That is because every time he needs money, he sells Tesla stock. That's his best asset. Now, your financial advisors will tell you selling off your best asset to buy a worse asset is not a great financial move. But number one, he's got to come up with $21 billion in cash. And again, the equivalent of that is think about if you're buying a home, you had to come with a down payment of half the home's purchase price. OK, that's

0:15:31 Thomas: Yeah, but he owns a lot lot of couches, though. Yeah, I could

0:16:13 Andrew: What he's got.

0:16:14 Thomas: Not do that.

0:16:14 Andrew: I could Next, he's got 13 billion dollars in direct debt financing. And again, let's stick with the buying a home example. That's like the mortgage. OK. So this is what banks and its multiple banks are willing to lend Elon Musk secured by Twitter shares themselves, secured by the asset. And Right. So it's exactly like the money you borrow from the bank to, to take the mortgage on your home if you

0:16:14 Thomas: Yeah, that's impossible.

0:16:41 Thomas: After it's private, it will still be secured by this, by Twitter, uh, right.

0:16:44 Andrew: Exactly right by the shares of Twitter. And so it like banks are not in the business of owning homes, banks are also not in the business OF owning social media companies. But nevertheless, right, that is secured by the asset that is being purchased. And I've seen some lefty sources that are like, well, I don't get why he gets to do it. And he gets dissecured by the asset being purchased in the same way that when you buy a home, you get to secure by the asset being purchased. But that still leaves a pretty huge gap. And that gap is covered by a third kind of loan. And, that is $12.5 billion.

0:16:52 Thomas: Yeah, Yeah, payday

0:17:20 Andrew: Yeah, kind of.

0:17:20 Thomas: Loan, it Just takes his Twitter Tesla paycheck to the payday loan place. Hey, can I get 20 billion million dollars. 25% interest a day.

0:17:30 Andrew: So, kindof, right? This is $11.5 or X Holdings 3, that's a callback to the last episode. Remember I told you there was a third X HoldINGS company, which is another empty Musk shell company that is secured by Elon Musk's Tesla stock. Now, you might recall the Tesla stock is already going to be the source for the $21 billion to begin with. He also needs to pledge a sufficient amount of shares to cover the $12.5 billion margin loan financing here. Now, how much does he have to pledge? This is actually a doubly complicated question because there is an amount that is disclosed in the merger document, and that is disposed as a 20% loan to value, okay? OK, so really straightforward. That means at closing, he's got to be able to demonstrate to the bank that he has sixty two and a half billion dollars in Tesla stock.

0:17:42 Thomas: Yeah, his kid. Yeah.

0:18:37 Andrew: Okay, now, right now he owns 172.6 million shares, right? And it was trading at the time of this, uh, at the deal, at a thousand dollars a share, yeah. It

0:18:47 Thomas: Well, and notably, it has plummeted 20% in the last month.

0:18:51 Andrew: It has, and as Tesla stock plummets, two things happen. Right, number one, it jeopardizes one and three, right, it jeopardizers, is, he's got to sell more shares to come up with the $21 billion, and he's gotta put up more shares to get the $12.5 billion in the gap financing. Also, you notice I called this margin loan financing. What that means is, as the stock itself is volatile, if the stock continues to drop after the date, you have to either put up more stock as collateral, collateral, or pay more, pay off the loan with actual hard cash, in order to keep the loan to value under the appropriate number, right?

0:18:56 Thomas: Yeah mm-hmm.

0:19:33 Thomas: The ratio, yeah mm-hm.

0:19:36 Andrew: And sitting on top of all of that, those are the requirements of the bank, right, so the bank can issue a margin call if the price on Tesla stock continues to drop and you've got to pay the bank money. Think about the plot of Trading Places. On top, right? Of all of that are the rules that Elon Musk has to follow as a Tesla shareholder. Now, think about that for a second.

0:19:56 Thomas: Well a quote-unquote has to follow, yeah sure. The man breaks these rules all the time though, right? Am I wrong about that?

0:19:59 Andrew: Again, can tell you what the law is. You are not wrong about that, but you're not, but no, no, Criticism.

0:20:06 Thomas: Okay. But no, I'm not criticizing you. I'm just saying, yeah.

0:20:09 Andrew: Not taken, um, because I don't listen, no, no, that's not, that's what I did, uh, have seen, right? And Elon Musk has said, you know, "I have contempt for the SEC," and I'm not going to pay their fines, the difference between the fines that were incurred in the past and the fines that would be incurred connection with this deal are orders of magnitude.

0:20:17 Thomas: Mm-hmm. Yep. Yep, oh. Okay.

0:20:29 Andrew: Yeah. So way way way more serious, criminal penalties as a backstop for fraudulent disclosures, and we read you the 10b-5 rules, and perhaps more importantly, and again, this is kind of terrifying, but if this goes south because of something that Elon Musk does, then you would have not just the SEC interested, but Twitter, a very, very valuable company with coat factory lawyers Itching to tell Twitter to go sue Elon Musk. Right. So there are number of things that that kind of backstop against, you just kind of cavalierly being like the law doesn't apply to me here. And having an equally large corporation on the other side backed by civil lawsuits is sadly a potential deterrent.

0:20:30 Thomas: Cool. Morgan.

0:21:18 Andrew: So now Right? Let's go back to Tesla's own rules. And this would add another group into the mix, right? Because if Elon Musk violates his fiduciary duties to his shareholders, and again, that's the 83% of people who own the rest of Tesla, you right, would get a very enterprising plaintiff's law firm to gather together shareholders to sue Elon Musk for breach of fiduciARY duty, right.

0:21:42 Thomas: Stringer.

0:21:42 Andrew: Right?

0:21:42 Thomas: Get on it.

0:21:42 Andrew: Yeah.

0:21:43 Thomas: No, yeah.

0:21:44 Andrew: She's a little busy right now, but yeah. But in its last proxy statement, the last time the shareholders took a vote, set forth its policy on what board members can do with Tesla stock. And first, let's explain that the reason for that is, and you've alluded to this previously in this episode, what the largest shareholder does with respect to his holdings of that company materially affects the price of the stock, right? When Elon Musk sells a bunch of Tesla stock, the price drops, when right, Elon Musk is over leveraged with respect to Tesla stock then the risk is that that will default to the bank, right and then the bank Bank will engage in a forced sale of the stock, which again, just right, like banks don't want to own homes and operate social media companies, they don't wanna own huge portfolios of Tesla stock.

They force sell them off, that winds up, everybody knows, like the market just knows that those are sold at a discount and again, drives the price of thestock down, So right? Because you have a fiduciary duty to your shareholders, you have to put into place policies to protect them from you doing something stupid that would tank the value of their stock, right?

0:22:13 Thomas: Yeah.

0:23:02 Andrew: And here's what Tesla put into place. In order to mitigate the risk of forced sales of pledged shares, the board of Tesla has a policy that limits pledging of Tesla stock by our directors and executive officers. Pursuant to this policy, directors and executive officials may pledge their stock, exclusive of options, warrants, restricted stock units, or other rights to purchase stock, that's the important asterisk, right, that's, that's to say you may only pledge your actual shares, right, you can't say, you know, I'm gonna vote myself this incentive and then secure the loan based on those incentives, right, no, they have to be real shares as collateral for loans, provided that the maximum aggregate loan or investment amount collateralized by such shares does not exceed 25 percent of the total value of the pledge stock, so in other words, even though the loan for Twitter has a loan to value of 20%, that is five to one.

0:23:58 Andrew: Tesla requires that you not exceed four to one, which means that for 12 and a half billion, you've got to pledge at least $50 million in stock. Well, that's less than the 62 and a Half, but that provides the margin call call backstop, they even right? Have an example, they say, a director pledges 1,000 shares as collateral for a loan, and the current stock price is $800 per share. The director may borrow up to 25% of $1,000 times $800, or $200,000 against such shares. If the stock price then increases to $1,600 per share, the director may borrow another $200,000.

Right? If the director allowable amount of $400,000 against the $1,600, and the stock price decreases to $1,200, the director must repay $100,000 of the loan to maintain compliance with the 25% limit under the pledging policy. So as the stock piece of Tesla drops, not only does that limit the amount of cash that Elon Musk can raise, not Only does that increase the amount of stock he has to put it up as collateral for the loan. But it potentially triggers the margin call, if it drops further, of the bank saying, hey, you're outside of the maximum allowable ratio, not just

0:24:47 Thomas: Yeah.

0:25:21 Andrew: By our loan, but also by your company policy. And we are issuing a margin call. We are requiring that you tender to us X billion dollars immediately in order to bring yourself into compliance.

0:25:31 Thomas: Now. What's the granularity on that? I mean, is that every minute because stock prices change every minute, is that, is it some time period interval that they check it, or some threshold, the

0:25:42 Andrew: Yeah, a great question. And that is up to the terms of the loan in terms of When they can issue the call. But typically, what happens is when you dip below a certain level, that triggers the right to issue a margin call. So even if, if that trigger level is X number and then all of a sudden you issue the margin call, even if the stock has crept up above that level, you have the right to make that demand and to foreclose on the securities if, if the margin call is not that, that, um, my quick math, uh, suggests, you know, 50 over 62 and a half suggests that's 0.8, right, suggests that if Tesla stock drops to 800, which it has dropped to, 826 is the lowest I have seen since the announcement of the deal, very real possibility, um, may be, I may be doing the wrong math, I will, I will link a Bloomberg article which estimates that the, the drop-dead price is $740 a share.

0:25:47 Thomas: Bank. Oh. Yeah.

0:26:40 Andrew: That would require, again, further sell-off, that's not an impossible number to imagine in the next six months. And so you would wrap all of this together as kind of a third area where there is a significant chance based on the financing, uh, and based on the health of, of Tesla and and the more, the more Elon Musk acts erratic in public, the lower the value of Tesla's stock goes, right, um, you know, I mean, the way to think about that is the Fabulous Future stock episode of Futurama, right, the, when your CEO is doing crazy things in public, investors are like, "Well, that doesn't look good for this company." So that's a third area to think about in terms of this deal having some difficulties associated with it. There are additional ways in which Twitter could give Elon Musk the right to pull out and get his billion dollars.

And that is if at any time in the next six months there is a material adverse effect, right, and what's that, that's defined as any change, event, effect, or circumstance which individually or in the aggregate has resulted in or would reasonably be expected to result in a material inverse effect on the business, financial condition, or results or operations of the company and its subsidiaries taken as a whole, you know, in other words, if something comes up in the last six months months that makes Twitter look less valuable than it does today.

0:26:48 Thomas: Yeah. Yeah.

0:28:04 Andrew: Now, as you might imagine, a whole lot of stuff is excluded from that, right? So a lot of this is boilerplate, any right, condition, change, effect, or circumstance generally affecting the industries or markets in which the company operates, i.e., you broad-based sweeping legislation targeting social media companies, they would be exempted from that. Any change in the law or gap. General right. Economic, regulatory, political conditions or changes therein. Right. All of that stuff. They are exempted from any acts of God, force majeure, operations of pandemics, epidemics, contagious disease outbreaks, including COVID-19, any political or social conditions, including civil unrest, protests, public demonstrations under COVID- 19. So all of that normal exclusions. And then are exclusions that are written in just as a result of the fact that it is Elon Musk. And you're saying, are you sure about that? And I would point you here to this. Again, this is Section 6.5, Material Adverse Effect.

0:28:18 Thomas: Yeah.

0:29:03 Andrew: Subsection 6 is, does not count as a potential material adverse effect. The negotiation, execution, announcement, performance, consummation, or existence of this agreement or the transactions contemplated by this agreement, including, subsection A, by reason of the identity of Elon Musk, the parent company, or any of their affiliates or respective financing sources. Now, I just want to point out what a genius provision this is in the acquisition. This is saying, hey, this deal becomes public, if everybody says, oh, my gosh, Elon Musk is going to ruin Twitter and that reduces the value of the business, that's not a reason for you to back out from the deal. Elon Musk.

0:29:44 Thomas: That's kind of on you.

0:29:45 Andrew: Yeah, it is. There's more that is contained in those restrictions. But again, I thought that was an interesting provision that's like, no, we're not going to let you agree to buy us, tank the value of our stock, and then claim, yeah.

0:29:59 Thomas: Yeah, just by being you and being like, oh, what happened? Take this back.

0:30:04 Andrew: Yeah. So that represents kind of a fourth bucket, right? Like something happens and Twitter becomes way less valuable in the next six months. That gives Elon Musk not only the right to back out, but the right to demand a billion dollars while backing him. What about on the flip side? I was going to go straight here, but I'm glad we did the discussion of, I think it flowed organically to the discussion, of the value of Tesla stock.

Um, we talked about how, uh, this is a contract, and so what if Twitter gets a better offer, right? Remember that whole fiduciary duty thing. Suppose somebody comes along and is like, I'll pay you 60 a share, right? Well, we would absolutely want, right, the efficient markets hypothesis would say, yeah, we want Twitter to break that deal with Elon Musk, sign the new deal at 60 bucks a share and yeah, fine. Pay the pay the billion dollars. This, right. Deal has skids in place to make that less likely. Because, again, remember, the billion dollar is a dollar twenty five in the share price. Right? So you would think, hey, we got fifty four twenty. Let's shop that around. If we can do fifty five fifty or better, you know, we're going to take that deal instead. It.

I want to tell you this kind of a provision is standard in these kinds of agreements for exactly the reason that I've just described, right? Like you don't want to get a firm deal in hand and then say, great, thank you for making me that firm deal in hand. Now I'm going to shop that around to everybody else and use that as the minimum offer, right, because then business transactions would never get done. Like everybody would would just be the pawn for the next guy. So

0:30:46 Thomas: Pay the billion dollars.

0:31:38 Thomas: It's

0:31:38 Andrew: Section 6.5 has a section called adverse board recommendation change. Remember, these are all conditions that require Twitter to pay the billion dollars. But that is, Twitter looks at it and is like, yep, we got a better deal. We're going to pay you the billion bucks, not sell to you, sell to somebody else. So we already talked about the first set of these provisions. That is, they can't make public statements not to sign the deal. They can't make public statement that would encourage somebody to take some other deal.

0:32:09 Thomas: Bound by that, there's the board, there's a CEO, there's even Jack, who I imagine must still own stock but doesn't run anything thing anymore, uh, was making positive statements about Elon, which I found baffling, but whatever. Um, could that be because of this, or like, who's actually bound by this obligation not to trash talk Elon, do

0:32:29 Andrew: Yep, Great question. It is the board, by and through its agents or representatives, right? So yeah, if you are a high-ranking official at Twitter but not on the Twitter board of directors, you can absolutely publicly lobby against this deal So Uh, general rule that says you can't encourage the stockholders not to vote for this deal, then it says, notwithstanding anything in this agreement to the contrary, at any time prior to their approval, in response to an event, occurrence, change, effect, condition, development, or state, effects, or circumstances that was neither known to nor reasonably foreseeable by the board as of the date of this agreement, if the company has received a competing proposal, and that's capital C-P, competing proposal, that the company board has determined in good faith constitutes a superior proposal. So let me stop for a second and define that. A competing proposal is defined in the agreement itself as a proposal made by a third party on terms that the Company Board determines in good faith, after consultation with its legal counsel

0:32:45 Thomas: It Do it, hmm.

0:33:37 Andrew: And financial advisors, and considering such factors as the company board considers to be appropriate, are more favorable to the company stock stockholders than the transactions contemplated by this agreement. And if that is for 90 percent or more of the shares, that becomes a superior proposal. Right. So it's a competing proposal if somebody else comes in and wants to buy 15% of your stock, it's a superior proposal if the board says, the offer is for 90% or more and the board says, yeah, this is better than the Twitter deal. So now you're looking at it going, okay, so all right, can't they tell the board not to vote for this proposal, but they can go out and gather information and then make a recommendation if there is a superior proposition. The answer to that is yes, with two more restrictions on it. The first is a non-solicitation provision.

This is section 6.5, you have to stop all existing conversations with anybody you've ever had with respect to buying Twitter. So companies shall not solicit, initiate, knowingly encourage, or knowingly facilitate, whether publicly or otherwise, any substantive discussion or offer or request that constitutes or would reasonably be expected to lead to a competing proposal.

0:34:02 Thomas: Yeah.

0:34:54 Andrew: So you can't talk to anybody you have in the past. You cannot solicit or engage in any kind of discussion that would lead somebody to make a new offer. You may not engage in negotiations or substantive discussions or, and this is the second half of it, furnish any material non-public information to any person relating to a competing proposal or any inquiry or proposal that would reasonably be expected to lead to a competing proposal. That, okay, will make it very hard to get a better deal in the next six months. Right. But let's assume, kind of against all odds, uh, that that somebody comes in and on the basis of public information alone, right, says, okay, I'm going to beat this deal. Right? Uh, I know, I've read it, I understand, you can't give me any additional information. You can't solicit.

0:35:40 Andrew: But, you know, nevertheless, I want to offer sixty dollars a share for for Twitter. But Right. Whatever pie in the sky schemes you've seen floating around on the Internet there.

0:35:49 Thomas: I cannot Imagine Why that would be, but

0:35:51 Andrew: Yeah. There's still one more clause in there, and that that is a right of first refusal. If there is a superior proposal, you have four days. You have to offer Elon Musk the right to beat it. And if he can say, no, I'm just going to walk away and take the billion. Right. We call that the wimp clause.

0:35:51 Thomas: Sure, hmm.

0:36:08 Thomas: It'd Be a Good idea Yeah.

0:36:10 Andrew: Yeah. Or he can say, no, I want you to sit down and we have four days to hammer out a deal in which both sides have to exercise good faith in letting me match those terms. So at the end of all of the day, right, so so I've gone through this section because I've seen, like, well, let's, you know, let's crowdsource and Fund, and if everybody on Twitter pays X

0:36:30 Thomas: All Right Opening Arguments, let's crowdsource 60 billion dollars, I think There's better Things we can do

0:36:33 Andrew: Yeah. Yeah. You know, We've Raised Some good money in the past, but 60 Billion would be a challenge Here's The thing. If Opening Arguments crowdsourced and raised 60 billion dollars and we took that way. We need 60. I was saying $60 a share. That would be, you know, what, 50 billion. That's OK.

0:36:38 Thomas: Yeah. Might Be Out of reach, oh

0:36:54 Andrew: Now. Right. Yeah.

0:36:51 Thomas: Yeah. Yeah. Easy, oh What, sorry I shouldn't

0:36:55 Andrew: 60. We can't. 50 billion, That would not be it. That would be staying on our heads. We could raise the 50 billion, we could offer them 60, 60 dollars a share, and they would have the obligation to take that to Elon Musk and say, hey, Opening Arguments is going to give us 60 bucks a share. And then Elon Musk could just say, OK, I'll give you 60 bucks a share, right? So in other words, that would not be guaranteed to stop the transfer, even in, in, in any of it. Now, you, that alongside the financing obligations, right, it's

0:36:55 Thomas: Have messed Up That, yeah Yeah.

0:37:27 Andrew: Going To be A

0:37:27 Thomas: So he Has To go Back out to the electrical college and and Redo All Those

0:37:29 Andrew: Right If if Elon Musk is Going to have trouble raising the 44 billion, you know, he's going to have even more trouble raising the 50 billion, but he has the right to do that. So the, the, the only things that I've seen that, you know, have and struck me as farcical when I, when I saw them, you know, crowdsourcing from Twitter or what have you, but that is not the way to block this deal because of the provisions that are on Twitter's side.

So put all of that together, that's sort of how I evaluate it, that the deal is not done, is some risk priced into the markets that it does not get completed. I don't want to tell you that this is, you know, it's 50-50, or that it's likely to fall apart, the markets certainly don't reflect that Right, the markets reflect a reasonable level of confidence, but something shy of certainty. And we've kind of detailed the way in which, in particular, I would say if the deal falls through, it will be because Elon Musk pulls out, uh, and not because Twitter pulls out I think Twitter has agreed, they've said, look, we have a fiduciary duty to our shareholders, and, and by the way, I want to, I want to break that down a little, because I've, I've mentioned this several times, and it's a very high-minded sounding thing. Um, but let me point out the cynical flip side of fiduciory duty to our shareholders. To sit on the board of directors of a company typically requires you, you, to be a large shareholder in the company. So when you say

0:38:10 Thomas: Yeah.

0:38:48 Andrew: Our fiduciary duty is to maximize the return on the shares of... Yeah.

0:38:47 Thomas: I'm But a servant for all of you, shareholders, shareholders, I

0:38:55 Andrew: And also I own 10% of the stock. Yeah. Right.

0:38:56 Thomas: Don't Know, yeah 90 Of The company, yeah, yeah.

0:38:59 Andrew: So that fiduciARY duty is get the most money that they possibly can. Let's overly romanticize late stage capitalism here. But I think they've looked at the deal and said, yeah, they've come up with with what goes all the way back to what you said at the beginning of episode 590, which is feels like an overpay, feels like a lot of money. And so let's take it. And I recommend we take the offer.

0:39:03 Thomas: Yeah.

0:39:19 Thomas: And Was there's something that mandated that they had to accept an offer just by virtue of it being an offer? It's just that they all probably want money on the on the board, or

0:39:30 Andrew: Yeah. Again, business judgment rule, right? This is tremendous, a way to up the entire discussion. We started with, this is not a hostile takeover, right? This is A merger, a merger requires approval by the board of directors and approval by the shareholders. And so the board of directors is free to say, when Elon Musk says, I'll give you 54 20 per share, to say, you know what, we think in the next three years we're going to get 60 bucks a share, we're going to, we're gonna, this Is nope.

0:39:30 Thomas: Okay.

0:39:39 Thomas: Does Anything Force the vote of the shareholders though? Because like, okay, so when the board, so it's a ratchet. When the board says yes, subject to a vote on the shareholders, but when the board says no, do we never get that far?

0:40:00 Andrew: The The way in which you get there is, if the, are two, two different ways, the right, first is if the mismatch is sufficiently large, right? Let's say the, the board says, "Deal on money," and, you know, "No, not at $54.20," and he goes, "Okay, how about 60?" And they go, "No, not at 60." And he says, "All right, how about 80?" And they say, "No, not at 80." At that point, at some point that makes the hostile takeover the better option, right? You say, really, like, the The stock's trading at $35 right now. I'm pretty sure if I go to the shareholders and offer them $60 a share, I'm going to get 60% immediately. Then I can fire all of you idiots, replace them with people that I appoint to the board, and we'll make this, this

0:40:44 Thomas: Yeah. Yeah. Oh, then could he do a low ball price after that?

0:40:55 Andrew: Be an entire separate episode on two-step mergers. Yeah, but seriously, Google two- step mergers and feel free, that's separate OA homework, work. But yeah, you could do a hostile takeover, replace the board, and then tee up a second stage merger where you then freeze out, acquire all of the, or other means to acquire all of the rest of the shares. It's more complicated. I am grossly oversimplifying. Please, M&A lawyers, don't at me for oversimuplifying here. Feel free to write in if I've missed something, but I don't think I have. So the first kind of way of backstopping that, right? If the board is just being obstinate, you could go the hostile takeover route. You could also go the shareholder action route. There is a point at which, again, we've talked about the business judgment rule, in which,

0:40:58 Thomas: Part three.

0:41:46 Thomas: They could

0:41:46 Andrew: Yeah, they could sue the board for being unreasonable in getting 100, hundred, you know, 200 cents on the dollar for their shares, twice what any reasonable person would offer. Again, subject to all of the difficulties that we've described in that. But remember that Elon Musk, to put himself in that position, became a substantial shareholder in Twitter. So he could initiate that lawsuit just on the basis of his own shares.

0:41:46 Thomas: Like sue the board for not taking this perfect offer.

0:42:15 Thomas: The Next thing I was going to ask is, did he just goof, or what what happened? Because, like, it's from everything you've said, it doesn't sound like there's any reason why he needed to try to buy that 10, initially. Was that just like he was starting a hostile takeover and then he kind of got caught and then went this alternate route? He

0:42:34 Andrew: It's Super hard to know, but if you ask me to speculate, I would say it is some combination of initiating the hostile takeover and then changing your mind, or right, if you, are, uh,

0:42:49 Thomas: May have Just wanted to get on the board, I guess.

0:42:49 Andrew: Uh, it to, to say the best way to have all of your options open is to be able to, to turn around when you've made the tender offer and say, well, look like I could just engage in a hostile takeover here and to already have, you 10% of the shares of stock puts you in a superior bargaining position when you're at the table. So,

0:43:15 Thomas: Plus, the dastardly angle that, again, I alluded to in the first episode. I'm pretty sure that he's possibly in trouble for this, but I don't know what kind of trouble he's in. He bought those shares at artificially low prices because people didn't know he was doing this whole thing. So he was able to accumulate 10% at pretty significantly lower prices than it's currently trading at.

0:43:36 Andrew: Absolutely. That is a thing where and again, can point to failure to pay penalties in the past. I will point to real folks who have gone to real prison and done real time for violations of 10B5. If that is the case, that there was material non-public information that was available at the time when Elon purchased those shares that was not disclosed. Look, that's the classic textbook case of how people go to prison, right?

0:43:50 Thomas: Oh, please go to real prison.

0:44:09 Andrew: Billionaires for prison, 2022. I'm 100% behind that, um, and look, that that one's real easy to figure out, right? Because if you buy up the shares at 30 and then you've made this offer and now you back out, uh, now that the shares are at 50, right?

0:44:09 Thomas: Billionaires for prison 2022.

0:44:24 Thomas: Yeah, yeah.

0:44:25 Andrew: That's way in excess of that billion dollar penalty, you pay and you've done that just by pump and dump, right? And that is one of the oldest schemes, you know, known to the stock market.

0:44:26 Thomas: You pay your billion, but then you made a, hmm, interesting. Yeah. What's percentage the chance you think this is pump and dump?

0:44:41 Andrew: I I couldn't begin to speculate, but it's not zero.

0:44:43 Thomas: Okay. But more than zero?

0:44:45 Andrew: It's not zero. So, yeah, and and if that's the case, right, again, I can't promise you, just like I couldn't promise your Trump is go to prison, I still hope so, like I can't promise you Elon's going to prison. I can tell you that lots of people have gone to prison over way less than that.

0:44:45 Thomas: Yeah. Yeah.

0:45:01 Thomas: Well, you can just say he doesn't remember that. I don't recall. Don't remember any of this. And then you're like, well, you're free to go because you're not a black man being railroaded by the justice system. Well, what a deep dive, uh, weirdly we could have gone more. Um, I know, and I still have a couple more questions. I think it's interesting that it weirdly, it kind of caps the stock price for six months. Isn't that weird? That's, I'm trying to, I'm thinking through kind of broadly what that means, but, like, making an offer on an extended deal like this, nobody could, but would possibly pay more than, you know, X amount of dollars or whatever you said, you know, 50, something short of 5420, for like six months. So they're essentially capping their growth.

I guess as a shareholder, I might be kind of upset by this, especially if the deal doesn't go through, because then you're paying a billion. You could be, depending on who stops the deal, paying a million dollars as a shareholders, you, $1.50 or whatever the price was per share. And then also the stock price has been like artificially capped for six months. That's really interesting.

0:45:10 Andrew: Very true. Oh, Yeah, I still have more, but let's yeah, And remember, if the deal goes through, your stock is liquidated, right, share.

0:46:10 Thomas: Thing, that's that's fascinating to me how how is it just that mechanically? I guess I already know the answer to this, but it's just so interesting that someone could hold a thing, a piece of paper or whatever, a digital thingy that says I own this whatever percentage of this company, and be against this merger, this takeover, this, this whatever, but then they're just forcibly cashed out if, I guess, 50.1% of the other shareholders vote to do this weird merger thing. It's just weird. Fascinating to me.

0:46:37 Andrew: And and there's an asterisk on that, that could be an entire episode on its own, but but but but yeah, uh, but yes, right, when the shareholders approve, uh, of the conversion event, uh, that includes, uh, the minority and dissenting shareholders who were against it, um, it will be a 50.1 percent thing here.

0:46:42 Thomas: Part seven, is it a 50.10% thing? Is there a threshold for voting? Like if I have one share, could I go spend 49 bucks right now to have a vote in this?

0:47:01 Andrew: Absolutely. Can, yep.

0:47:09 Thomas: So even owning one share means you vote. Is your vote, I I guess, is it times the number of shares you have?

0:47:12 Andrew: One share, one vote. Yeah, that's, yeah.

0:47:18 Thomas: Okay, that's really interesting. All right, well, endless questions, and we still have a couple things we wanted to do in this episode that I'm somehow turning around in like a day. Why don't you give us those quick news updates that I know you were dying to give us?

0:47:31 Andrew: The first is, we, we went through, uh, Tuesday's episode. I was going to say last episode, that's what it says in my notes, but uh, not, no longer true, uh, on the, um, contempt proceedings against Donald Trump. In between that episode being recorded, coming out, and now, uh, we have a ruling from judge uh, Engeron, that, uh, has held Trump in contempt. Yeah, and

0:47:36 Thomas: Yeah, not true.

0:47:48 Thomas: Yeah. Who has? Say it with me now. Nothing but contempt for this Trump.

0:47:57 Andrew: Uh, those are sanctions of ten thousand dollars per day until Trump complies with the court's prior discovery orders. We told you, look, this is a good way to get a reading on what the court thinks about these competing allegations. Well, here's what the Court thinks of the competing allegations. It says, this begins on page two, instead of producing the documents called for in the subpoena on March 31st, Mr. Trump produced 16 pages of boilerplate objections and a four-page affirmation by counsel that states summarily that Mr. Trump was unable to locate any responsive documents in his custody. The affirmation fails to identify what search methods were employed, when they were employed, where they were deployed, by whom they were employed, and when such searches took place. OAG, the Office of the Attorney General, has moved to hold Mr.

0:48:43 Andrew: Trump in contempt and asked this court to impose a sanction of $10,000 per day until Mr. Trump complies in full with the subpoena. And that was awarded accordingly. Mr. Trump has willfully disobeyed a lawful order of this court. In short, the affidavit provided the court with no basis to find that the search had been a thorough one or that had been conducted in good faith effort to provide those necessary records to plaintiffs. Not only did Mr. Trump fail to submit an affidavit himself, which this court believes would have been the best practice, as he is the most obvious person to affirm where any responsive documents in his possession, custody, and control would be located, but the attorney affirmation submitted on behalf of Mr. Trump contained only conclusory statements rather than the details of a diligent search. Now, when this order came out, Trump's order, the soon to be disbarred and intellectually deficient Alina Haba said, well, it looks like all we have to do is file an affidavit, reading right, that paragraph that I just described. So that would be true if Trump weren't lying, she, right, accidentally said the quiet part out loud, right.

0:49:44 Andrew: Right. It will not surprise you to learn that despite her accidentally admitting to that in public, they're not going to file the affidavit, because Donald Trump would like not to further perjure himself in this court. They are instead going to appeal the order because, of course, they are. So keep on the lookout for that. But that was a rare instance of candor by the, by Trump's lawyers, and saying, yeah, no, if if we had honestly done the search, the court said all we would need is an affidavit from Mr. Trump, um, and there was that initial, like, I'm sure we could get that. Yeah, and then she went to talk to the client and

0:49:44 Thomas: Yeah, I'll be right back, let me uh, let me just let's just go talk to the big guy, yeah, I'd be, she

0:50:19 Andrew: Donald Trump was like, Alina, I thought I told you, we're lying, I'm not submitting any affidavits. Thus

0:50:25 Thomas: She comes back hat and hand so, um, don't have it, what was the other, uh, the other option, let's do that, yeah,

0:50:31 Andrew: Donald J. Trump is held in contempt of this court, must pay a fine of ten thousand dollars per day from the date of this decision in order until he purges such contempt as to the satisfaction of this court. And, as we know from our discussions on Alex Jones, that he can petition to get some or all of it back, the court can decide not to. So I am super interested in continuing to watch this, this was it,

0:50:53 Thomas: I hope that court doesn't give it back and buys a golden toilet with it. Well,

0:50:57 Andrew: Did me too. Uh, so that's update number one. Update number two, this we went, came through the Marjorie Taylor Greene hearing. Briefs are being submitted as we record this. So it'll be next week before we can say, I can say,

0:51:10 Thomas: Can't wait to get your hands on them, Andrew, right,

0:51:10 Andrew: Oh, yeah, I can say publicly, exactly what we predicted would happen has already happened. And that is that the, we know that the petitioners, the voters seeking to disqualify Marjorie Taylor Greene, have submitted at least the MTG tweet, to, I say tweet, MTG text message to Mark Meadows, of, "Can't the president declare marshal law?" M-A-R-S-H-A, L-L. Reminds me Of a great Transformers quote where Megatron is like, "I declare martial law and I am the marshal," except that, you know, she did it unintentionally. So, so we know that's happening, we'll be through all the briefs next week. We got a good question on Patreon and I wanted to to tackle it and explain it here because it wasn't one of the things we went into into any any depth in our recording. And that was with regarding her mindset, haven't finished listening yet.

So maybe you come back to this. Wouldn't the most optimistic interpretation be this? It doesn't matter what her mindset was because it doesn't mater if she intended to aid, assist, lead, or et cetera, an insurrection. What matters is that she did in fact do those things and she she could have done so either accidentally or intentionally.

0:51:37 Thomas: Yeah, man, That's weird, I thought I asked that, or maybe I just, it was on my list and I didn't get to it, but I thought it was part of my like, why is she, what do we even need her here for? You know, I think it was part of those questions, kind of.

0:52:38 Andrew: Yep. And the answer is that the section of Section 3 of the 14th Amendment has not been well litigated, right? So we don't fully know what participating in an insurrection means. And the more that you demonstrate intent, the more that seems to be participation in the insurrection. So consider the following examples, right? I, uh, you know, run a restaurant on the Mason-Dixon line, uh, and I bring in and give aid and comfort to Confederate soldiers in their Confederate uniforms, and we put them up for the night in the bedroom upstairs and we feed them. And that's clearly aid and comfort to the enemy, which is the precise text of the language in the 14th Amendment. And I suppose that the Confederate soldiers, you know, steal Union uniforms right now.

0:53:28 Andrew: They come in. They've got a little bit of a twang in their accent, but, you know, they're dressed in Union blues. Blues, uh, they say they're a part of the Union army, and I do the same thing. I could very plausibly say, like, well, no, my my intent was obviously not Uh, to give aid or comfort to enemies of the state, be they foreign or domestic. I thought I was helping our soldiers, our boys in blue. Um, that may be overly simplistic, but if you're asking me as the plaintiff's attorney, I would not want to, at the end of the day, say, you that Marjorie Taylor Greene was a dupe or an idiot or inadvertently gave aid and comfort to the enemy. I would want to say, no, no, no, no, no, this is she knew what she was doing, because it's not clear what conduct rises to that level. Now, look, we certainly have, I mean, we've talked about in the 1920s, you know, being a socialist, publicly advocating socialism was sufficient to be considered aiding insurrection, giving aid or comfort to the enemies of United States.

0:53:43 Thomas: Yeah. All

0:54:33 Andrew: So I get the basis for the argument, um, but if I were the lawyer, that's that's why I would want to be drilling down on she knew what she was doing.

0:54:42 Thomas: Right. Well, at long last, I think we've got to call it to a close here and move on.

0:54:46 Andrew: Yep. Yeah.

0:54:48 Clip: Oh, no associate of this firm has ever failed the bar exam. No kidding.

0:54:54 Thomas: And now it's time for T3BE. Not doing well so far. I want to say I'm like one for four on the latest set of questions.

0:55:02 Andrew: It's Either one for three or one for four, let's Let's say one For free, not great, but, uh, I have a fantastic

0:55:04 Thomas: Yeah, not great. I'm getting close to a margin call on this if I just keep answering these wrong.

0:55:11 Andrew: I Have fantastic real property question that I'm sure will get you Back in the Saddle again. All right, Thomas, a mother who was the owner in fee simple of Blackacre validly Executed and conveyed the land to her daughter via a quit claim deed. Her daughter paid no consideration and failed to record the deed. Six months later, the mother asked the daughter to rip up the deed and stated that she instead wanted to keep the land. The daughter voluntarily destroyed the deed. One week later, the father and the daughter were killed in an accident, because this is the bar exam. They both died intestate. The heirs of the mother and the heirs of the daughter both claim title to Blackacre. Who has title to Blackacre? A, the mother's heirs, because the daughter never recorded her interest in the land. B, the mother's heirs, because the daughter ripped up the deed. C, the mother's heires, because the daughter did not give valid consideration in exchange for the land.

0:55:15 Thomas: Ah, cool. Oh, Black Acre.

0:56:09 Andrew: Or D, the daughter's heirs, because the daughter never effectively passed title of the land back to the mother.

0:56:15 Thomas: Well, cool Andrew, this is proof that sanctity of the game.

0:56:20 Thomas: I'm going to get margin called on this exam. Okay, tricky as always, it's real property, so, you know, it's going to be tough. Just quit claim deed, quit claim deeds, I feel like the deed is important. And in the past, the recording, the deed has been like weirdly less important unless there's like a a timing issue. This is so hard, it's so hard to keep all this straight. But right now, my instinct is toward the mother. Not only that, the mother's heirs is three of the four answers, so that's some probability there. Let's see, who has title? The quitclaim deed, it was never recorded, no consideration, which I don't think matters, but we'll see, never recorded, and she ripped up the deed. So in a lot of ways nothing happened, like if you give someone a quick claim deed, they never record it, if tree they falls in force, they don't make the sound, and then they tear it up.

0:57:09 Thomas: It's almost like nothing happened, so that biases me a bit toward the mother, but I don't know, maybe not, uh, dollar destroyed the deed, and then they both die instantaneously at the same time, apparently, we'll say, and, so whose heirs essentially get the thingy. A, the mother's heirs because the the daughter never recorded her interest in the land. I'm not sure if I like that answer, because B, the mother's there is because the daughter ripped up the deed. Interesting to think about, the differences there. Because let's say she'd got that quit claim deed and then she recorded the interest. And then let's say the mother asked the daughter to rip up the deal, deed, that mean the mother didn't have it because she had recorded it maybe, versus she doesn't record it, she doesn't rip up the deed.

0:57:57 Thomas: I think I like B for reasons that I I'm sure are not totally clear, but going through the logic of these answers, I think I like B over A because, like, just substituting in kind of the necessary things there. So had the daughter not ripped up the deed, I feel like she has a stronger case that it's the daughters than had the daughter recorded her interest, if that makes sense. C, the mother's heirs because the daughter did not give valid consideration. I think C doesn't matter, I don't think you need consider, this is not a contract, I don't think this is just like, here's my land, which I think you can just do. So I think she's not even attractive distractor, it's a five, you know? Uh, D, the daughter's heirs, because the daughter never effectively passed title of the land back to the mother.

0:58:45 Thomas: Now that's interesting. You never know with real property, could be shenanigans, but if you're able to pass the property with a quit claim deed that isn't recorded, yet you're not able to undo that by just destroying the quit claim claim deed that was never recorded, that'd be weird. It'd be like a weird one way thing. It feels like D would be like if she did record it, then tore up the deed, and then, like, nobody, they didn't record that. Like maybe D would make more sense. So I, I think D is somewhat plausible, I'm between A, B, and D. And so I've even been on a bad, second chance streak lately, so it kind of matters which ones I eliminate between A, B, and D. That with D it's weird, the only thing I can think of is like, okay, a quit claim deed passes land to somebody, but to pass it back maybe the daughter instead of just ripping up a deed would need to have made another deed back to the mother. That's, I, possible, I don't know, I just don't, real property, so dumb, and I don't, I never can understand it.

0:59:44 Thomas: So maybe what I said is garbage, but that's at least a possible explanation for that, that merely just ripping up. Cause like, I don'T if you, if you leave your deed out in the rain and you can't tell what it says anymore, do you just lose the property? Maybe. I don't, I DON'T know. Um, maybe. Real property is pretty weird. There is such a thing as playing for pink slips and That seems to be adequate. I Think that's an an old-timey movie reference that I can't remember. Racing for Pink Slips. What's that? That's some old movie. Anyway, I think I'm between B and D. And because it's worded as a quit-claim deed, I'm going to treat... I think in my mind, that means it's like a magic... That's like Monopoly deeds. You need to have the deed. The deed matters. Especially, you've never recorded it. All we have is the deed. I think the mother's heirs because the daughter ripped up the deed. I'm going with B. I'm between B and D. I'm going with B. Can't wait to have to pay a margin on this or whatever margin call.

1:00:05 Andrew: If You want to pay a margin call, you know how to do that? Just play along with Thomas, share out this episode on social media. Include the hashtag T3BE, include your guests your reasons therefore. We will pick a winner and shower that winner with never-ending fame and fortune. Fame and fortune not guaranteed. Yeah.

1:00:53 Clip: And thank you, Let's go!

1:00:54 Thomas: And Now it's time to thank our new patrons at patreon.com/law. Hopefully you're enjoying that Law'd Awful Movies Q&A coming up. We've got ad-free episodes, each and every episode, early episodes, all the great stuff, and I'll start us off. So thank you, too. Yes, that Chris, Tiriel, a struggling medical student obsessed with the law, oh, Josh the Geologist, we got a lot of different uh occupations here, Laura Shaw, and Eric M. Thank you, fine folks. Uh, go ahead and thank the second group there, Andrew.

1:01:26 Andrew: And Thank you to, I became a Patron to give a shout-out to Kelli. Hi, Kelli. Well, yeah, hi Kelli, absolutely. Use Patreon as a way of communicating to your loved ones who also listen to this show. So Jason McIntyre, Alex Boyer, I, Andrew Torrez, affirm that Thomas Smith is a legal genius and I will defer to his legal expertise. Yes, you can also use it to make me say stuff like that to Wallace E. Ponk and Scotty Saucefingers. Now I want chicken wings, right? I think sauce fingers, I think, you know, good, overly saucy, super hot chicken wings. I'm down. Thank you all so much for supporting the show. No, I'm going to leave and go get some chicken wings now.

1:01:30 Thomas: And That's our show, that's our bonus show, our bonus two-parter. Gosh, wow, we got, if you're hearing this, I somehow got all this done and didn't die, so that's nice.

1:02:11 Andrew: Oh, wow. We recorded a trim 135 minutes on this subject.

1:02:18 Thomas: Yeah. Turning around in uh in mere hours, but that's okay. Uh, it, love the listeners, I think this was so valuable, I got, I learned a ton from this deep dive, I'm glad we did it. Thanks, Andrew, for all the research, and thanks for listening, we'll see you now for real next episode with Andrew Seidel.

1:02:38 Andrew: Until then.

1:02:40 Clip: I move for a bad court thingy. You mean a mistrial? Yeah, that's why you're the judge and I'm the law talking guy.

1:03:13 Clip: www.openargs.com. Be sure to join the Facebook group at facebook.com/groups/Yodel Mountain and follow us on Twitter at OpenArgs. This podcast is a production of Opening Arguments Media LLC, all rights reserved. It is produced with the assistance of transcriptionist Heather Leverage, production assistant Ashley Smith, and additional contributions from Morgan Stringer and Debra Smith. Special thanks to Teresa Gomez, who runs our live shows and heads up the OA Wiki, follow at OA Wiki on Twitter. Additional thanks to the moderators of the Opening Arguments Facebook community, Emily Waters, Alicia Cook, Eric Brewer, Natalie Newell, Brian Ziegenhagen, and Teresa. And finally, thanks to Thomas Smith, who edits the show and created the fabulous theme music, which was used with permission.