Elon Musk’s legal team has continued to seek ways to allow the tech entrepreneur to back out of his $44 billion deal to buy social media platform Twitter. On Tuesday, Musk’s lawyers filed an additional notice, disclosed to the SEC, which cited allegations made last month by the company’s former security chief Peiter “Mudge” Zatko as additional reasons to terminate the deal.
The notice filed on Tuesday followed a July 8 that alleged the social media company had failed to comply with its contractual obligations. Musk is now citing claims made by Zatko – who has become known as the “Twitter Whistleblower” – as a justification for backing out of the deal.
“Allegations regarding certain facts, known to Twitter prior to and as of July 8, 2022, but undisclosed to the Musk Parties prior to and at that time, have since come to light that provide additional and distinct bases to terminate the Merger Agreement,” Mike Ringler, Musk’s legal representative from Skadden, Arps, Slate, Meagher & Flom, wrote in a letter to Twitter’s legal chief, Vijaya Gadde, CNBC reported.
Twitter’s legal team quickly responded, stating that Musk’s termination case was “invalid and wrongful under” the acquisition agreement.
“It is based solely on statements made by a third party that, as Twitter has previously stated, are riddled with inconsistencies and inaccuracies and lack important context,” the letter written by William Savitt of Wachtell, Lipton, Rosen & Katz law firm said. “Contrary to the assertions in your letter, Twitter has breached none of its representations or obligations under the Agreement, and Twitter has not suffered and is not likely to suffer a Company Material Adverse Effect.”
Dual Challenges For Twitter
Twitter must now deal with the threat from Musk, as well as the accusations contained in Zatko’s complaint. Though the accusations made by the two men are not exactly the same, neither are their motives. The social media platform, however, is still facing two separate challenges – and will be forced to respond to each.
“It’s hard to say whether either Musk or the whistleblower pose any substantial threat to Twitter at this point,” suggested technology industry analyst Charles King of Pund-IT.
That could certainly change in the coming months.
“Heading into Delaware Chancery Court in October the Twitter vs. Elon Musk case is around the corner with both legal teams getting ready for this unprecedented battle around the $44 billion Twitter deal,” explained Dan Ives, managing director of Equity Research at Wedbush Securities, via an email.
“A potentially major development… has been whistleblower case from former security chief and Twitter executive Peiter ‘Mudge’ Zatko which could give Musk a much-needed small victory,” Ives continued.
Musk’s legal team has now subpoenaed Zatko to appear for a deposition in its legal fight against Twitter on September 9th. Zatko alleged in his 200-page whistleblower disclosure that Twitter has serious privacy and security vulnerabilities that could put users at risk, and pose national security risk given the data issues.
“Importantly, Zatko claims that Twitter does not have an accurate count of the number of spam and fake bot accounts on its platform, which will be front and center for the Musk team when they speak to Zatko as this could significantly beef up its claims vs. Twitter,” said Ives.
“There are also a number of other legal back and forths going on in this Twitter case,” Ives noted. “But ultimately the Zatko development and timing is a huge potential win for Musk, which could complicate the Twitter case.”
What Does It Mean For Twitter
Twitter’s board of directors now seems intent on holding Musk to his original agreement – but whether the deal is forced through or not, changes are likely coming to the platform.
“Despite his various protestations, their case looks pretty strong,” King told this reporter. “If Musk is forced to purchase the company, it is probably that he’ll make substantial changes to Twitter’s leadership and management corps but that assumes that the people he’d likely target would still be around. Overall, I believe that many Twitter employees would bail out rather than work for Musk.”
Even if Musk is able to get out of the deal to purchase the platform, Twitter could face future challenges.
“The whistleblower is a different situation,” King continued. “Depending on how his (Zatko’s) testimony to Congress proceeds, Twitter could be required to make substantial changes to the way it manages security and access to users’ accounts.”
That could be seen as a good thing for both the company and its users.
“However, that assumes that there is substance to the whistleblower’s complaints,” King also noted, adding, “It isn’t entirely clear at this point.”