As we highlighted recently, despite press coverage saying otherwise, former Twitter security boss Peiter “Mudge” Zatko’s whistleblowing report about the company actually supported Twitter’s underlying legal argument regarding how it counts spam in the mDAU. Remember, Musk doesn’t really have an escape clause here and the spam stuff is made up nonsense. The underlying issue is that the only real exist from the deal is if Musk can show that Twitter somehow hid from him a “material adverse event” (MAE) that could get him out of the deal. As we noted down at the very end of our long post about Mudge’s whistleblower report, it’s not the spam stuff that’s interesting (beyond actually confirming Twitter’s position, rather than undermining it). Rather, some of the other stuff alleging fraud and possible FTC consent decree violations that might, possibly, if you squint create an actual MAE that could offer Musk an off-ramp.
But, of course, that’s not what he was currently using to get out of the deal.
So, into the breach we go again, as Musk has sent a new letter to Twitter with a new excuse for getting out of the deal, based on those other parts of Mudge’s report.
We write on behalf of X Holdings I, Inc. and X Holdings II, Inc. (the “Musk Parties”) to provide an additional notice of termination of the Agreement and Plan of Merger by and among the Musk Parties and Twitter, Inc. (“Twitter”) dated as of April 25, 2022 (the “Merger Agreement”). On July 8, 2022, the Musk Parties terminated the Merger Agreement (the “July 8 Termination Notice”) on certain bases. Since that time, Twitter has challenged the validity of the July 8 Termination Notice and contends that the Merger Agreement remains in force, a position that the Musk Parties are contesting. 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. Although the Musk Parties believe this termination notice is not legally necessary to terminate the Merger Agreement because they have already validly terminated it pursuant to the July 8 Termination Notice, the Musk Parties are delivering this additional termination notice in the event that the July 8 Termination Notice is determined to be invalid for any reason.
In other words “new shit has come to light.”
And that new shit is, as I predicted, that Twitter may be in noncompliance with its FTC consent decree:
On August 23, 2022, the Washington Post published a whistleblower report to Congress, the SEC, FTC, and DOJ filed by Peiter “Mudge” Zatko, Twitter’s former chief security officer, on July 6, 2022 (the “Zatko Complaint”). The Zatko Complaint alleges far-reaching misconduct at Twitter—all of which was disclosed to Twitter’s directors and senior executives, including Parag Agrawal—that is likely to have severe consequences for Twitter’s business. For example, Mr. Zatko alleges that:
- Twitter is in material noncompliance with both its obligations under a 2011 FTC consent decree and its general obligations under data privacy, unfair trade practice, and consumer protection laws and regulations;
- Twitter is uniquely vulnerable to systemic disruption resulting from data center failures or malicious actors, a fact which Twitter leadership (including its CEO) have ignored and sought to obfuscate;
- Twitter’s platform is built in significant part on the misappropriation and infringement of third party intellectual property; and
- Twitter acquiesced to demands made by the Indian government that its agents be hired by Twitter and given access to Twitter user information.
I’ll just note that they do not mention the spam stuff. Because it’s irrelevant and actually helps Twitter way more than it helps Musk. This is all, of course, still shooting in the dark, but Musk has to try to come up with alternatives, since his fundamental argument is so weak. His lawyers have to file this.
Of course, I’m expecting that they will also file another termination notice based on this story about child sexual abuse content on Twitter, because why not? Let’s try all the reasons.
That said, it’s not clear if any of this will actually help him get out of the deal. Professor Ann Lipton, who knows this stuff, seems pretty skeptical, noting that “Musk’s arguments do not appear to be very strong,” though caveating that with the fact that Mudge’s revelations do still remain a wildcard. Of course, as she notes, Musk will need to amend the pleadings in Delaware, and then who knows what happens.
What does seem pretty damn clear is that Musk didn’t actually rely on anything in deciding to make this deal other than whatever whim he had in his head about how he’d be welcomed as the new speech overlord. And now he regrets it. And he has very expensive lawyers who will try anything they can possibly throw at the wall and hope something sticks.
Elon Musk Tries, Tries Again To Come Up With A Better Excuse To Get Out Of Buying Twitter
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