It’s take two for Elon Musk‘s legal team, as they seek to terminate the billionaire’s $44 billion deal to buy Twitter.
In a letter to Twitter leadership disclosed in a securities filing Tuesday, Musk’s team lays out a new case for why the deal needs to called off, based on revelations from Twitter whistleblower Peiter “Mudge” Zatko, the company’s former chief security officer.
Zatko alleges that Twitter misled government regulators and the company’s own board about the prevalence of spam on the platform, as well as its own security protocols and internal reporting. He spoke out a week ago in interviews with The Washington Post and CNN.
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“The Zatko Complaint alleges far-reaching misconduct at Twitter — all of which was disclosed to Twitter’s directors and senior executives, including (CEO) Parag Agrawal — that is likely to have severe consequences for Twitter’s business,” Musk’s attorneys wrote in the letter. They previously sent a letter “terminating” the deal on July 8, with the case now in Delaware Chancery Court.
Zatko made a variety of allegations, including that Twitter was not in compliance with a 2011 FTC consent decree; that the company was vulnerable to hackers; that the company was infringing on third-party intellectual property; and that the company gave jobs and user information access to agents of the Indian government, among other claims.
Zatko has been deposed by Musk’s team and has agreed to testify.
“The facts supporting these breaches, which were withheld from the Musk Parties but known to Twitter as of the date of the Merger Agreement and at the time of the July 8 Termination Notice, provided additional bases to terminate the Merger Agreement as of that date and provide additional bases to terminate the Merger Agreement today if the Musk Parties’ termination of the Merger Agreement pursuant to the July 8 Termination Notice is determined to be invalid for any reason. This also provides a basis for rescission [revoking the legality of the merger agreement],” the lawyers wrote. “For the avoidance of doubt, these bases are in addition to, and not in lieu of, the bases for termination identified in the July 8 Termination Notice.”
The pivot to rescission marks a legal turn for Musk’s team, as in addition to trying to argue that Twitter is in breach of the contract, they are now arguing that the merger agreement itself was invalid, due to the alleged fraud from Twitter executives, which was “hidden” from Musk.
Twitter responded to Musk’s team in a letter of its own Tuesday morning.
“As was the case with your July 8, 2022 purported notice of termination, the purported termination set forth in your August 29, 2022 letter is invalid and wrongful under the Agreement,” the company’s lawyers write. “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. 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.”
Musk’s original termination letter was built around Twitter’s claims about the number of bots on its platform, and whether it represented those numbers accurately in securities filings. Zatko’s revelations seem to support Twitter’s claims about the number of monetizable daily active users (mDAUs), the metric Twitter uses in its filings, but he adds that the platform has far more bots than are counted in the mDAU number.
