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Musk’s Legal Team Seeks to Use Allegations from Former Twitter Security Chief in Takeover Exit

Twitter Announces Major Staffing Changes as Musk Deal Continues to Take Shape

The Musk/Twitter drama continues …

As expected, Elon Musk’s legal team is looking to use the latest accusations against the platform to bolster its legal case, as it seeks to exit Musk’s $44 billion Twitter takeover bid.

Last week, former Twitter security chief Peter Zatko alleged that Twitter has major security vulnerabilities, and has also, at times, deliberately mislead investors, as well as its own board, as to the extent of its various internal security and detection issues.

Now, Musk’s lawyers are trying to add this into their case against Twitter – though whether that will work is not really clear.

As reported by Bloomberg:

In a securities filing on Tuesday, lawyers for Musk said the allegations by Peter Zatko, Twitter’s ex-head of security, including claims of “egregious deficiencies” in the platform’s defenses against hackers and privacy issues, meant that Twitter had breached the terms of the merger agreement.”

Which seems like a stretch, especially given claims from Twitter’s lawyers that the deal is ‘airtight’, which, in its view, means that Musk is still locked into the terms that he originally agreed to back in April.

Indeed, in response to these latest claims, Twitter’s lawyers say that Musk’s updated case for termination of the deal is ‘invalid and wrongful’.

“Twitter reiterated on Tuesday that Zatko’s complaint is “riddled with inconsistencies and inaccuracies and lacks important context.” Twitter argues it hasn’t breached any of its obligations and it intends to enforce the deal and close the transaction “on the price and terms agreed upon.”

The final assessment in the case will essentially come down to what will be allowed, and what won’t, in assessment, and how the court views the original agreed terms – and whether there’s any way in which they’ve been irreparably altered since.

As noted, Twitter’s lawyers claim that the original terms of the deal don’t include any variability provisions for corrections in its bot and spam numbers – or really, anything else at all – because Musk essentially agreed to purchase the platform ‘as is’.

As stated in the original documentation:

On April 25, 2022, Musk, acting through and with his solely-owned entities, Parent and Acquisition Sub, agreed to buy Twitter for $54.20 per share in cash, for a total of about $44 billion. That price, presented by Musk on a take-it-or-leave-it basis in an unsolicited public offer, represented a 38% premium over Twitter’s unaffected share price. The other terms Musk offered and agreed to were, as he touted, “seller friendly.” There is no financing contingency and no diligence condition. The deal is backed by airtight debt and equity commitments.”

In order to hasten the deal, Musk agreed to various clauses and contingencies that will now restrict his capacity to exit the deal, though Musk’s team is trying to build the case that these subsequent revelations about the company constitute ‘material noncompliance’ on Twitter’s behalf, due to its alleged failures in obligations around data privacy and consumer protection.

If Twitter is found to be in breach of related laws, that could enable Musk to exit the deal on ‘Material Adverse Effect’ grounds – i.e. a significant alteration of the company’s operating environment that could not have been foreseen when the original terms were established. But with Zatko scheduled to appear before the US Senate for questioning about his claims on September 13th, any subsequent investigations, and rulings as a result of such, are unlikely to be tabled before the October trial of the Musk/Twitter case.

In other words, even if Musk and Co. knew that regulatory fines were very likely as a result of Zatko’s claims, the court can’t consider potentially pending rulings until they’re finalized, which means that the operating environment for Twitter hasn’t changed as yet. Even if it likely will in the near future.

As such, it doesn’t seem like this is the exit pathway that Musk and Co. are hoping for. But they’re gonna’ give it a shot anyway – and maybe, the broader revelations and concerns could influence some level of consideration for the coming hearing.

But again, it seems unlikely, which will likely still mean that Musk will have to pay up, or agree to some other form of exit that will still cost Musk billions, if he chooses to get away from the company any way that he can.

Either way, it’s a mess, with no good outcome for Twitter itself. Even if the company is able to somehow extract a huge settlement from Musk, that won’t fix the raft of concerns at the company – reputational and otherwise – though it may help to soften the blow, and better enable it re-group in the wake of the Musk drama.

But the signs are not good, and Twitter seemingly has a heap of work to do to get its operations back on track, whether that’s under Elon or some other chief.

Add to this the latest revelations that Twitter has a major problem in dealing with child sexual exploitation and non-consensual nudity, and they paint a broader picture of growing concern at the app.

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