Elon’s Secret Wall Street Pact

Elon Musk
Morgan Stanley is trying to protect documents related to Musk's stalled $44B Twitter deal. Photo: Mark Brake/Getty Images
Eriq Gardner
October 4, 2022

I may have to reconsider my opinion that the Delaware Court of Chancery—a high-cost legal arena that generates more billable hours and closed settlements than splashy headlines—is the place where journalism goes to die. Twitter v. Elon Musk is racing toward an Oct. 17 trial, and in the process both parties are dumping a treasure trove of documents into the public record. That includes a couple months of text messages showing how Musk once squinted at Sam Bankman-Fried as a potential partner and thirsted after Oprah Winfrey for a board seat. Where do I send The Honorable Kathaleen McCormick’s Pulitzer nomination?

But I’m not entirely satisfied. Right now, I’ve got my eyes on whether McCormick orders Morgan Stanley to turn over its documents related to the stalled $44 billion deal. The Wall Street bank, after all, was critical to helping Musk obtain financing to take Twitter private. No joke, 36 attorneys showed up last week to argue over whether Morgan Stanley should be compelled to share those documents. Plus, this particular discovery fight is both wonky and wacky—a combination I’ve grown to love. 

Morgan Stanley, attempting to fend off disclosure, is claiming that its communications and internal analyses are privileged under what’s known as the “common interest doctrine,” which is meant to provide confidentiality when two parties have aligned wishes and need to exchange information and discuss strategy when they anticipate the possibility of litigation. As for the “common interest” part, well, Morgan Stanley’s attorneys at Davis Polk have been telling McCormick that both the bank and Musk had the “shared aim of seeing the merger to its completion.”

Except, of course, Musk doesn’t want to see the merger to its completion, which is why he’s been dragged to Delaware in the first place. And, as we recently learned, it’s clear that he began to have second thoughts about the marriage quite early into his engagement to Twitter. That’s demonstrated by one of the biggest pieces of evidence to emerge so far—a May 8 text message that Musk sent banker Michael Grimes urging him to “slow down” the deal in case a Vladimir Putin speech the next day caused the West to invade Russia. (“It won’t make sense to buy Twitter if we’re heading into World War 3.”) A few days later, Musk started complaining about Twitter’s bot problem. He then tweeted that the deal was on hold.

Twitter’s attorneys at Kobre & Kim, who would like to see what the bank is holding back, have pointed to Grimes’s own deposition, in which he distanced himself just a bit from Musk’s priorities. “We retained counsel on [May] 16th, understanding that this could likely lead to litigation if the parties can’t agree on either data sharing or after data sharing what the data says,” Grimes testified. “And in our professional judgment, it would not be appropriate for us to be in the middle of that, so we extracted ourselves, and I think [Musk] agreed.” That certainly makes Morgan Stanley sound like Switzerland rather than a brother-in-arms. So, a common interest? Perhaps not.

But here’s the ultimate irony: Morgan Stanley probably does share a mutual interest with Musk—just not the one that it’s describing to McCormick. The bank has about $13 billion in financing commitments for Musk from lenders, and a big chunk of that is its own money. (Originally, the lenders were scheduled to put up nearly twice as much, but the deal was restructured with Musk contributing more equity.) The problem here is that interest rates are more than six times higher now than when Elon signed the Twitter merger agreement in April.

Accordingly, should the deal close, and Morgan Stanley has to offload debt to investors, it will likely need to do so at a significant discount to entice any interest. Suddenly, the merger has become a more expensive proposition for the bank—one where losses are likely to surpass the fees it would earn for underwriting this transaction. Meaning that, just like Musk, Morgan Stanley probably now wants this merger to fail. Only Davis Polk lawyers can’t say that part out loud. 

A tip for those following Twitter v. Musk: You can find the full docket here and access free filings. The Chancery Daily has been covering hearings live. And if that’s still not enough, there’s now a Twitter bot—of course—that tweets whenever anything new appears on the docket. There’s no end to the irony wrought by this case.