Title: “Revealing the Inner Workings of Wachtell, Lipton, Rosen & Katz: Insights from the Musk Lawsuit”
Introduction:
In a recent lawsuit, Elon Musk’s X Corp, Twitter’s holding company, sued Wachtell, Lipton, Rosen & Katz for a staggering fee of $90 million. This legal battle has provided a rare glimpse into the inner workings of the renowned law firm. Known for its high fees, Wachtell operates on a unique model that goes beyond traditional hourly billing. This article delves into the details of the lawsuit, explores Wachtell’s payment structure, and offers insights into the value it brings to its clients.
I. The Lawsuit Unveiled: Musk vs. Wachtell
– Musk’s dissatisfaction with Wachtell’s representation of Twitter’s former board of directors.
– Allegations of an unreasonable fee and collusion with the outgoing board.
– Surprising documents from the dispute shed light on Wachtell’s operating methods.
II. Wachtell’s Unconventional Fee Structure
– Wachtell pays its staff based on a “success” fee model.
– The company charges customers a fee for closed deals or won lawsuits.
– Negotiations with Twitter’s management and board reveal specific benchmarks for fee calculations.
III. Comparing Wachtell’s Fees with Bank Fees
– Wachtell’s negotiation processes refer to banking fees as comparison points.
– The case entailed both M&A negotiations and subsequent disputes, affecting fee calculations.
– The fee was determined to be 68% of the total bank fees, consistent with Wachtell’s historical charging range.
IV. Challenging Circumstances
– Wachtell’s involvement limited to Twitter’s Delaware court case, not the deal negotiation.
– Criticism of several other law firms’ involvement in a seemingly straightforward dispute.
– The argument that Wachtell’s expertise goes beyond what Twitter could have obtained from other firms.
V. The Worth of Wachtell’s Services
– Despite the hefty price tag, Wachtell’s lawyers are known for delivering results.
– In the case of the failed Twitter deal, Wachtell’s representation saved shareholders billions of dollars.
– The fee can be likened to an insurance policy, protecting clients from potential financial losses.
Unique Perspectives: Drawing Deeper Insights
I. Wachtell’s Success Fee Model: A Shift in Legal Billing
– The success fee approach challenges traditional hourly billing structures.
– It incentivizes law firms to prioritize achieving favorable outcomes for clients.
– Clients may find comfort in the shared interest between lawyers and the success of a deal or lawsuit.
II. Value Assessment: The Price of Expertise
– Wachtell’s high fees reflect the expertise and track record the firm brings to the table.
– Clients must weigh the potential financial gain or loss against the cost of legal representation.
– The Musk lawsuit prompts a larger discussion on the value-add of top-tier law firms.
III. Legal Battles and Reputation Management
– Musk’s litigiousness highlights the importance of managing public perception during legal battles.
– Wachtell’s reputation for delivering favorable outcomes may encourage clients to consider their services.
Conclusion:
The Musk lawsuit against Wachtell, Lipton, Rosen & Katz has shed light on the firm’s fee structure and approach to legal representation. While the $90 million fee may seem exorbitant, it aligns with Wachtell’s historical charging practices and the value it brings to its clients. The unique success fee model provides an alternative to traditional hourly billing, emphasizing results and shared interests. Understanding the inner workings of renowned law firms like Wachtell allows us to appreciate the complexities and considerations involved in high-stakes legal battles.
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Wachtell, Lipton, Rosen & Katz is known for its sky-high fees, and Wall Street has long been intrigued by the question of how the corporate law firm is structured. Thanks to Elon Musk’s litigiousness, we can now take a look.
Theft and others reported Friday that Musk’s X Corp, Twitter’s holding company, is suing Wachtell over his fee — now revealed to be $90 million — for representing Twitter’s former board of directors.
Musk is unsurprisingly unhappy with the company as it tried to force the billionaire out of the $44 billion deal last year. The complaint calls the fee “unreasonable,” and in fact alleges that Wachtell ripped off Twitter with help from the outgoing board.
But most interesting is a set of documents from the 2022 dispute that provide a rare look at how Wachtell does business.
Wachtell, which typically ranks first or second in American Lawyer Magazine’s average earnings per partner ranking ($7.3 million in 2022), is known to pay its staff as bankers. That is, rather than simply billing by the hour, the company charges a “success” fee to customers for a closed deal or won lawsuit.
As it happens, Wachtell refers directly to bank fees when negotiating his payments.
In late October, when Musk finally agreed to close the deal, Wachtell negotiated his blockbuster fee with Twitter’s management and board, and shared this document showing comparables:
When a closed M&A transaction wasn’t the relevant benchmark, the firm got double or triple its “execution rate”, or a multiple of any implied hourly billing:
In the first approximately 4 months Wachtell was hired to fight Musk, he billed a total of $26.6 million in hours, according to the complaint. Based on that rate, for the last month of the case, the total hours billed were on track to be approximately $35 million.
While the final fee was 2.5 times that amount, it fit Wachtell’s shared compositions. Twitter bankers JPMorgan and Goldman Sachs were jointly paid $133 million, including $113 million structured as a success fee paid only if the Musk takeover closed.
Put another way: The $90 million total was 68% of bank fees, in line with the 60-80% it said it has historically charged.
There are some tricky circumstances, however. Wachtell’s fee payments cite merger and acquisition negotiations with subsequent disputes over the deal, but he was only involved in Twitter’s Delaware court row, not the negotiation of the deal. (This led to Wachtell slips awkwardly into Twitter lawyers’ inboxes last June to launch his services).
While Wachtell will certainly offer his side of the matter, we should note a couple of things. First, Musk has a constant habit of trying to avoid payments to workers, owners AND sellers. Secondly, company directors benefit from a “commercial judgment rule” which protects them from liability if they make careful decisions in good faith, regardless of the outcome of those decisions.
Several documents in Musk-via-X Corp’s filing show the board’s deliberations in approving the Wachtell fee — that $90 million was $5 million less than what Wachtell had penciled — in the busy days before the closing in end of October.
One director was at least initially surprised, though:
Sure, $90 million sounds like a lot, even for a case that required the attention of dozens of elite lawyers over 5 months.
In the complaint, Musk’s attorneys allege that Twitter was paying several other law firms for what they describe as a “relatively simple breach of contract dispute” in which:
. . . there were no new or difficult legal issues involved, nor did the litigation require any special expertise beyond what Twitter could have procured by paying hourly rates to many other reputable law firms with experience in litigation in Delaware Chancery Court, including those hired to work alongside Wachtell.
It’s an interesting argument, considering that if Musk had chosen to honor the deal he signed, there would have been no opportunity to hire Wachtell in the first place.
And Wachtell has a sales pitch to back up his price tag: It’s expensive, but his lawyers get results in can’t-miss situations, and that makes them worth the premium. If the Twitter deal had been renewed, and instead of getting $54.20 a share, the price had been reduced to $35.00 a share, that would have cost Twitter shareholders $15 billion.
What if the deal totally fails and Twitter’s stock falls to $20? The shareholders would have been out $26 billion. $90 million might seem like a reasonable insurance policy, in retrospect.
Indeed, Musk himself must appreciate Wachtell’s work as much as anyone, after signing and then not backing down from what appears to be a disastrous deal.
Find the full deposit here.
Further reading:
— FT profile of Bill Savitt, Wachtell’s attorney who represents Twitter’s former board
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