Sign up for free updates on Mergers & Acquisitions and receive a daily email from myFT summarizing the latest news in the field. Wachtell, Lipton, Rosen & Katz, a corporate law firm known for its high fees, has recently been sued by Elon Musk’s X Corp, the holding company for Twitter. The lawsuit reveals that Wachtell charged $90 million for representing Twitter’s previous board in the deal with Musk. Musk is unhappy with the firm’s actions as they tried to force him to close the $44 billion deal last year. The complaint refers to the fee as “unconscionable” and suggests that Wachtell took advantage of Twitter with the help of the exiting board. The dispute documents shed light on how Wachtell conducts its business, showcasing their fee structure and negotiating process.
Wachtell, which consistently ranks among the top firms for average profit per partner, charges a “success” fee for closed deals or won lawsuits, similar to how bankers are compensated. In the negotiations with Twitter, Wachtell referred to banker fees and shared a document showing the comparables. If the relevant benchmark was not a closed M&A transaction, the firm would receive double or triple its “run rate” or a multiple of the hourly billings. The complaint reveals that in the first four months of fighting Musk, Wachtell billed $26.6 million worth of hours. Based on this rate, the final month of the case was on track to be around $35 million. Although the final fee was 2.5 times that amount, it was in line with the comparables shared by Wachtell. JPMorgan and Goldman Sachs, Twitter’s bankers, were paid a total of $133 million, including a success fee that would only be paid if the Musk buyout closed. Therefore, Wachtell’s fee of $90 million accounted for 68% of the bankers’ fees, which falls within its historical charging range of 60 to 80%.
However, there are some complicating factors to consider. Wachtell’s fee comparisons refer to M&A negotiations followed by deal litigations, but the firm was only involved in Twitter’s court fight and not the initial deal negotiation. Musk has a history of attempting to avoid payment to various parties, implying a potential motive for disputing Wachtell’s fee. Additionally, company directors are protected from liability by the “business judgment rule” if they make careful decisions in good faith, regardless of the outcome. Documents in the filing show the board’s deliberations in approving the Wachtell fee, which was $5 million less than the original estimate.
Musk’s lawyers argue that Twitter could have hired other reputable law firms to handle the “relatively straightforward breach of contract dispute” at hourly rates, rather than paying Wachtell’s substantial fee. However, this argument overlooks the fact that if Musk had honored the deal, there would have been no need to bring Wachtell on board. Wachtell justifies its high price point by emphasizing its track record of success in critical situations. In the case of the Twitter deal, a renegotiation or failure of the deal could have resulted in significant losses for shareholders. In hindsight, the $90 million fee could be viewed as a reasonable insurance policy.
Ultimately, it is clear that Musk himself must acknowledge the value of Wachtell’s work, despite his initial reluctance to proceed with the deal. The full filing can be found here. For more information, you can read the FT profile on Bill Savitt, Wachtell’s lawyer representing the previous Twitter board.
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