Elon Musk Tries, Tries Again To Come Up With A Better Excuse To Get Out Of Buying Twitter

from the that's-the-ticket dept

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.

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Companies: twitter

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Comments on “Elon Musk Tries, Tries Again To Come Up With A Better Excuse To Get Out Of Buying Twitter”

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14 Comments
Anonymous Coward says:

Isn’t there a time limit on the ability to amend a complaint to prevent the other side from having no time to react before the trial date?
Or is that left up to the judge for the case?
Because even if Musks lawyers do that next week that means there is six weeks or less for the whole counter argument, depositions, etc. circus and both sides are still working on all that for the original claim.

This comment has been deemed insightful by the community.
Naughty Autie says:

Twitter’s platform is built in significant part on the misappropriation and infringement of third party intellectual property…

Reading that claim literally, it’s pure bullshit. Reading it non-literally, Mudge may be referring to UGC, in which case Twitter is covered by the Safe Harbor provision of the DMCA so long as they act rapidly upon notification of the alleged infringing content.

Darkness Of Course (profile) says:

Elon is sad

Having Mucked up his reputation, and his personal finances he wants to be free to walk away so he can moan endlessly about bots.

Funny thing, he is more bot than anything else:
His core (dumb idea generator) is wired directly to his mouth. This bypasses his brain, which is too busy naming his multiple offspring that keep springing up.

Maybe we could get less of Elon in the days ahead. Nah, not until the hearing, at the earliest. Bleah.

Anonymous Coward says:

Re:

Having Mucked up his reputation, and his personal finances he wants to be free to walk away so he can moan endlessly about bots.

You and Mike are both stating this as obvious, though I’m starting to wonder. Musk is not a person with real financial problems, but does like to be the center of attention. Maybe this whole “attempted purchase” and “getting out” thing was orchestrated, from the beginning and with an accepted cost in the billions of dollars, as a way to maximize publicity.

Anonymous Coward says:

Re: Re: Re:

I’d heard the theory that this purchase was meant to give Musk an excuse for selling Tesla shares, so as not to tank the stock price. And, yeah, since it did kind of tank, that’s a plausible excuse for trying to back out.

Of course, ordinary people would generally tried to make the deal contingent on acceptable financing, were that important to them. The deal Musk signed was so bad for him, in terms of being near-unbreakable, I have to wonder whether he signed it while high.

Anonymous Coward says:

Timing should be considered

So standard first disclaimer: I am not a lawyer.

However I have to think that timing has to play a part in this decision. Even if the new evidence of failure to comply with a consent decree is considered a valid release because Twitter ‘withheld’ that valid information, he notified Twitter the deal was off before he had that information. How can you then argue the reason he terminated a binding agreement two months ago was because he learned of this now?

I know he seems to like stainless steel vehicles but I don’t think he has a flux capacitor.

discussitlive (profile) says:

Who is still confused about Musk?

Before this point, no one should have been confused about what dealing with Mr. Musk entails. I can only imagine that folks that don’t immediately say “Oh, get along wid ye!” to any offers from him sees potential profit in not completing a transaction on the terms ostensibly offered.

That, or they are smoking what he’s smoking.

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