Hi there,
Twitter v. Wachtell.
What can we expect to happen?
And what does it mean for the future of the billable hour?
Earlier this week, I issued a special edition newsletter, where I first took a stab at answering these 3 questions:
- Is this the best example you’ve ever seen of why value-based billing trumps time-based billing?
- Was the $90M fee fair and reasonable?
- Will Elon Musk win?
In case you missed it, you can read the full special newsletter edition here or listen in on the podcast version here.
Today, I turn to the “when” and “how” I believe the situation will resolve.
And what it might all mean for the future of legal sourcing.
Will this case be over before we publish?
Obviously not, but I do think it will resolve FAST — and with Wachtell paying back a substantial part of the $90M.
And I’m talking within weeks — maybe a couple of months. It’s certainly not going to drag out.
Why am I so confident?
Simple. Wachtell has A LOT more to lose than Musk.
Let’s compare the “cons” of a prolonged resolution for each.
Cons for Musk
Musk’s legal costs "thrown away" if he loses. Call it $5M-$10M.
Perhaps I’m missing something, but that’s the only downside I can come up with for Musk. It’s a mere drop in the ocean for the tech billionaire.
And Wachtell?
Cons for Wachtell
It all comes down to discovery (as it often does in matters like this).
Wachtell is going to have to disclose all its internal comms in relation to how it came up with the $90M fee, why it did so in the hours before closing (if that is, in fact, the case), and all the internal Wachtell discussion around it, including before and after the $$ landed in their account (emails, texts, the “Woohoo!!” WhatsApp messages — the lot).
If anyone within Wachtell so much as hinted that they were in a strong negotiating position and that the directors of Twitter might not be as motivated as they otherwise would be to negotiate down Wachtell’s fee proposal — then that would be very bad news for Wachtell.
(Sometimes smart people — even really smart lawyers — write down stuff they shouldn’t, or that seems innocuous at the time, but takes on a very different look with the passage of time.)
Even if all of Wachtell’s internal comms were squeaky clean, Musk will also ask for full disclosure of “similar” deals Wachtell has made with its other clients in the past (which Wachtell used to support its fee proposal to Twitter) to show that the $90M fee was well beyond what Wachtell had previously achieved in comparable circumstances.
The last thing Wachtell needs is that kind of scrutiny over its past fee deals. And the magic sauce behind them.
Stepping into the shoes of my previous role as a managing partner, if I were a Wachtell partner right now, the decision would be simple.
Do a deal. Pay back the $60M. Shut the whole thing down. Fast.
We’ll make it up on the next deal. End of story.
Wachtell’s PPEP (profit per equity partner) was $8.4M in 2021-22. I expect it’s closer to $10M for the last 12 months. If they take a $60M hit because they repay that amount to Twitter I expect they’ll still be at a PPEP of $9M+.
Happy days. No threat to summertime in the Hamptons.
And how might this impact the legal industry more broadly?
Corporate legal teams have long escaped scrutiny in how and why they hire particular firms and at what price.
But times are changing.
The days of hiding in the "black box" of how legal is done — and how the legal procurement process really works — are fading.
This is especially true with new technologies and tools that can help create new transparency around the legal sourcing process. There’s simply no excuse.
And cases like Twitter v. Wachtell should be a wake-up call for boards and corporate legal departments regarding the standards of fiduciary responsibility to which they are held.
Legal leaders and the boards they report to will be failing in their duty to the corporation and shareholders if they don’t apply discipline and technology to buying legal services.
That’s my call. On both Twitter v. Wachtell and its impact!
Let’s see if I’m right.
And for those of you who think I am full of baloney, let me know. I’d love to hear why!
Cheers,
