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Let The Games Begin!

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I’m not jealous of the corporate lawyers that have to deal with this saga over the weekend. After months of speculations, Elon Musk has officially withdrawn his bid to purchase Twitter TWTR .

In a filing with the Securities and Exchange Commission on Friday, July 8, 2022, Musk pulled out of the deal, citing several alleged material breaches of multiple provisions of the merger agreement by Twitter. Not surprisingly, Musk has also called into question Twitter’s claims regarding fake or spam accounts.

However, this saga is far from over. Now begins a new legal battle on the following issues:

  • whether or not the deal is truly dead (Musk signed a contract)?
  • whether Twitter is owed a significant penalty by Musk for pulling out of the deal ($1 Billion)? and
  • whether Twitter can force Musk to complete the deal anyways (specific performance)?

So, what’s next? Parties go to court. In case you are wondering – it will probably be Delaware. Any business-person, transactional lawyer or law student knows very well that Delaware is THE authority on corporate law and governance in the U.S.A. I trust that the judges will do an amazing job.

Twitter has already previously said they are willing to take him to court to finalize the deal. Twitter spokesperson Brian Poliakoff was cited in a June article and reaffirmed that they “intend to close the transaction and enforce the merger agreement at the agreed price and terms.”

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There are Several Points of Contention

First, fights over access to data and adequate disclosure. Almost as soon as the deal was announced in April, Musk has been alleging Twitter has inaccurately reported the number of fake or spam accounts.

According to a letter from his lawyers attached to the filing, “Mr. Musk and his financial advisors at Morgan Stanley MS have been requesting critical information from Twitter as far back as May 9, 2022—and repeatedly since then—on the relationship between Twitter’s disclosed mDAU figures and the prevalence of false or spam accounts on the platform.” In a May 25 letter, Musk made clear his goal was to conduct “an independent assessment of the prevalence of fake or spam accounts on Twitter’s platform.”

Twitter was probably initially reluctant to give up information which they view as proprietary, but eventually decided to provide Musk with significant amounts of raw data, which they believed was sufficient to assuage his concerns. But, in the view of Musk and his advisors, this was probably insufficient.

According to Musk’s letter, Twitter has failed to provide data and information on several items, with most related to “mDAUs” or monetizable daily account users.

Another interesting point is that not only did Musk waive his rights for further inspection of Twitter’s books when entering into the initial agreement, but he cites the need to provide information to his creditors to secure the debt financing to close the deal. This comes despite the fact that for months Musk has publicly stated he had already secured the financing necessary.

Musk is further alleging that he relied upon Twitter’s representations in their public filings to his detriment and after his “partially and preliminary” analysis, “all indications suggest that several of Twitter’s public disclosures regarding its mDAUs are either false or materially misleading.”

According to Musk’s lawyers, “preliminary analysis by Mr. Musk’s advisors of the information provided by Twitter to date causes Mr. Musk to strongly believe that the proportion of false and spam accounts included in the reported mDAU count is wildly higher than 5%.”

Of course, Musk and his lawyers glanced over the fact that if Twitter was in fact making false or materially misleading statements in their public filings, they’d also be in violation of SEC rules and the Securities and Exchange Act. Then again, Musk has some experience with being in hot water with the SEC.

Finally, Musk is complaining that Twitter didn’t comply with the Merger Agreement and deviated from its obligations to conduct business in the ordinary cause, due to the fact that some key employees were fired, there is a hiring freeze and others left the company. Some of us still remember why some key employees resigned. In any event, I’m not sure that a sophisticated court will buy this.

What Happens Now?

In the eyes of Elon, the deal is now dead. For the rest of the world, including Twitter, the fight may just be beginning. There is still the question of the $1 billion breakup fee built into the agreement that is imposed upon Musk for backing out.

Twitter Board Chairman Bret Taylor has already said that the board still is committed to closing the transaction on the agreed upon price and is planning on pursuing legal action to enforce the deal. In a tweet just hours after Musk filed his separation, he said, “We are confident we will prevail in the Delaware Court of Chancery.”

Twitter has every incentive to try to enforce the deal. Shares of the company closed at $36.81 a share on July 8. The merger agreement calls for Musk to purchase those same shares at $54.20, which now represents a more than 47% premium on market price. Even if they are unsuccessful in having the deal closed, the $1 billion breakup fee may be incentive enough to sue. They also have significant reputational risk on the line here. If they don’t at least attempt to force Musk to close, they’ll have his allegations of false statements hanging around their necks unless they contest his statements. This fight is just beginning and only time will tell on how steep a penalty each side will pay to close this deal.

Some commentators believe that this is a tactic to try to reduce the purchase price. Maybe, I’m not sure though. If you want to red more on this line of thinking, check out my previous analysis on buyer’s remorse.

One last question though – are the regulators going to step in again? it seems that Musk was in hot waters with the SEC not too long ago. Remember what happened when he tweeted about taking Tesla TSLA private? Musk was able to cut a deal, step down as chairman and had to get pre-approval by counsel before tweeting. Is the SEC going to step in again? Again, only time will tell.

Thank you to my research fellow, John Livingstone. If you have any comments, suggestions or feedback, please send them to John Livingstone john.livingstone@case.edu or to me anat.beck@case.edu.

Finance

Medifast Still A Growth Stock But Now Value Priced

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Medifast is a growth company that is sporting some attractive value-stock metrics after its shares have fallen to a level that is “simply ridiculous” when measured against its prospects, according to Taesik Yoon, who edits the Forbes Special Situation Survey and Forbes Investor newsletters. The diet business’s equity has suffered with growth shares in general as elevated inflation and aggressive Federal Reserve monetary policy to combat it have caused investors to rethink stocks that benefit from an expanding economy.

A slide of roughly 40% in the past year undervalues a growth story that is taking a hit now but remains intact over the longer term, says Yoon, making the stock a bargain. Yet despite also having a fantastic balance sheet with more than twice as much cash on hand than total debt and paying a very generous dividend that is now yielding almost 5%, Yoon says, Medifast’s stock currently trades at less than 12 times its earnings expectations for the year versus a five-year average of 19.4. That might make sense if you expected the current earnings swoon to persist, but Yoon thinks the secular trend toward healthier living and the company’s coach-based business model will have its earnings back on the rise soon, outpacing the market.

Medifast combines an extensive menu of proprietary nutritional products to help with diet goals and a network of almost 64,000 independent coaches. Most of these are former customers who achieved their weight-reduction goals and are compensated from the sales of company products to their clients. Medifast delivers its food regimens to customers, which aided revenue during the pandemic lockdowns and helped earnings growth accelerate by an average 53% over the past two calendar years. That drove its shares to a record $337 in May 2021, but they have lost more than half of that since. Still, even accounting for the risk of an economic slowdown, Yoon expects Medifast’s heavy spending to improve its technology and distribution infrastructure, which could help raise annual sales to more than $2.5 billion, up almost $1 billion from 2021.

Yoon sees long-term profit growth in the double digits, in line with expected sales gains and with operating margins in the mid-teens.

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How One Founder Is Helping DIY Investors Navigate Risk

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August 14 is National Financial Awareness Day, and I had the opportunity to chat with John Duffy, founder of Trending Stocks, who went from personally absorbing the 2000 and 2008 market crashes to launching a risk-adverse stock market platform for DIY investors. Here, I chat with Duffy about trend following and investment risk management.

WHAT GAVE YOU THE IDEA FOR TRENDING STOCKS?

It took me 14 years to “get even” after two huge downturns in the stock market – first in 2000 (down 50%) and then in 2008 (down 56%). Losing 14 years of investing time and money was the impetus for me to research a better way in the market. I learned about the ancient trend following strategy – and while it worked well – there was no simple software or program to apply it. Spending hours upon hours charting and graphing doesn’t interest anyone, so I programmed and launched TrendingStocks.IO to automate the research time and hassle on the backend.

HOW DOES IT HELP INVESTORS AVOID RISK?

The trend following strategy inherently has a focus on risk management, so I applied that into the new platform. The risk management helps investor avoid riding the market down. You pre-set a fixed stop-loss amount based on your personal risk tolerance. As a stock goes up, which it should based on the trend following strategy’s identification, so does the stop-loss amount; it rides up. While the stop-loss amount fluctuates up and down causally with the stock, if it gets down far enough to cross below a bottom threshold – we flag you to sell and get out.

WHAT’S YOUR BACKGROUND?

Aside from studying finance, economics and business, I’m a Vietnam Navy Veteran. Oddly enough, this was my foray into programming and coding. I bunked with the first IBM IBM programmers in the world. Their expertise interested me, so I asked a bunch of questions and they taught me the science.

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Not to date myself, but this was before when computers could be owned, only leased. IBM recruited me to program after the war, so I entered as one of few who had learned how to program back then.

IS THIS FOR DAY TRADERS OR DIY INVESTORS?

This is definitely not a day-trading solution. Trending Stocks provides analysis at the end of every business day and therefore, it’s not suitable for day trading. It’s after-hours based.

The tech is suited for a long-term, DIY investor and anyone who’s a newbie or wants to get involved in the market. Aside from managing risk, being a diligent trend follower helps with wealth growth over time.

Once an individual has confidence they’re working with good investable trends and a solid risk management process, it’s an easy plan to follow and platform to supplement that plan.

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Entrepreneurship

Difference Between CFD and Shares

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Contracts for Difference (CFD) trading and share trading vary primarily in that when you trade a CFD, you speculate on a market’s price without acquiring ownership of the underlying asset, but when you trade shares, you must do so.

The main distinctions between a share and a CFD are ownership and leverage. You become the owner of the shares when you purchase shares. Investing in shares is equivalent to acquiring a modest ownership share in a business you support. You must pay the whole share price when purchasing stock shares.

CFDs vs shares

Contract for Difference is referred to as CFD. Without holding the underlying asset, you can speculate on the price of a security by engaging in online CFD trading. A stock, stock index, currency, commodity, or cryptocurrency might all be the underlying security for a CFD. With CFDs, you may join a trade with a lower initial investment because they trade on leverage.

Trading CFDs involves taking into consideration leverage and margin, fees and charges, instrument categories, going short, and asset ownership, which is one of the primary difference between CFD and share trading. Let me elaborate more.

What are Leverage and Margin?

Leverage and margin go hand in hand when trading CFDs. By using leverage, you may acquire exposure to an underlying asset without having to put down the whole amount of money needed to purchase and hold the real asset; instead, you just have to contribute a portion of the position’s overall worth.

The amount you must initially have available to begin a position, known as margin, fluctuates based on the contract size and the underlying asset you want to trade. Margin is not a cost. Based on the pre-determined leverage for the asset class, the first margin need is expressed as a percentage of the contract value. Risk is increased while trading on margin.

When you trade on the Invest trading platform, you must have the full asset value accessible, and you buy shares without applying leverage to your available funds.

Variety of Assets

You may trade on more than 2500 different assets on the Traders Union CFD platform, including shares, forex, commodities, indices, cryptocurrencies, ETFs, and options. You may do this to diversify your portfolio and get exposure to major exchanges across the world.

The Invest trading platform is a marketplace where you may buy and sell stocks and ETFs (ETFs). You may purchase and hold shares of your favorite businesses or any listed ETF on the platform, as well as benefit from the newest IPOs when firms go public, thanks to your access to over 1200 equities and 90 ETFs.

Asset Ownership

You may acquire exposure to an underlying asset, such as Gold (XAU), Apple (AAPL), or EUR/USD, without really holding it by using a CFD. Due to changes in the underlying asset’s price, you will either gain or lose money. The goal of CFD trading is to bet on changes in an underlying asset’s price. The size of the stake and price changes determine any profit or loss.

In contrast, when you purchase a stock on the Invest trading platform, you become the owner of the physical asset and look for a potential longer-term rise in the asset’s value before selling it.

Trader doing CFD trading

A Little More About How CFDs Can Differ From Investing

If your position remains open overnight while trading CFDs, you will be charged an overnight fee. While CFD trading is frequently utilized to speculate on near-term events like earnings announcements or the release of U.S. data reports, stock trading is typically favored for constructing portfolios.

In summary, both CFD and share stock trading offer benefits and drawbacks, and both let you profit from price changes that might result in either a gain or a loss. You should be able to choose which Traders Union platform best matches your trading preferences after you have an understanding of your trading goals. Which trading platform—CFD or Invest—does best for you?

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