Third Time a Charm? Elon Musk Tries to Back Out of Twitter Merger Agreement, Again

Elon Musk really doesn’t want to buy Twitter. Musk’s legal team sent a letter to Twitter, filing a copy with the Securities and Exchange Commission, in which it claimed that the company’s severance agreement with former head of security Peiter “Mudge” Zatko violated the terms of Musk’s agreement to acquire the company for $44 billion. The two sides are set to meet in a trial in the Delaware Court of Chancery, slated to begin Oct. 17, with Twitter as the plaintiff and Musk as the defendant. Musk’s legal team wrote, “On June 28, 2022, Twitter entered into a separation agreement with Peiter Zatko under which Twitter made severance payments to Zatko and his counsel totaling $7.75 million. Twitter did not seek defendants’ consent under Section 6.1(e) before making this payment, nor was this payment disclosed to defendants. In fact, defendants only learned of this payment when Twitter filed the separation agreement with the court Sept. 3, 2022. This severance payment violated Section 6.1(e) and cannot be cured. Defendants are thus not required to close under Section 7.2(a) and have an additional basis to terminate the merger agreement if the Musk parties’ termination of the merger agreement pursuant to the July 8 termination notice and the Aug. 29 termination notice is determined to be invalid for any reason.” Twitter responded, filed in a Form 8-K with the SEC, “As was the case with both your July 8, 2022, and Aug. 29, 2022, purported notices of termination, the purported termination set forth in your Sept. 9, 2022, letter is invalid and wrongful under the agreement, including under Section 8.1(d) thereof. Twitter has breached none of its representations or obligations under the agreement, and following the receipt of the approval of Twitter’s stockholders at its Sept. 13, 2022, special meeting, all of the conditions precedent to the closing of the merger will be satisfied (other than those conditions that by their nature are to be satisfied at closing). Twitter intends to enforce the agreement and close the transaction on the price and terms agreed upon with the Musk parties.” The dance between Musk and Twitter began when Musk purchased 9.2% of Twitter’s stock March 14, although he did not file a Schedule 13G form with the SEC until April 4. The day after the Schedule 13G was revealed, Musk was added to Twitter’s board of directors, only to inform CEO Parag Agrawal April 10 that he would not join the board after all. Twitter revealed April 25 that it officially entered into an agreement to be acquired by an entity wholly owned by Musk, with the transaction valued at approximately $44 billion, or $54.20 per share in cash, which would make Twitter a private company upon closure of the deal. Musk revealed in an SEC filing May 5 that he would serve as Twitter’s interim CEO once the transaction closed. The Federal Trade Commission said the following day that it was conducting an antitrust review of the agreement over concerns that free speech could be threatened. A 5:44 a.m. ET tweet from Musk May 13 questioned Twitter’s assertion that spam and fake accounts represent fewer than 5% of its monetizable daily active users. Agrawal responded in a lengthy tweet thread May 16, in which he admitted that spam affects Twitter’s user experience, noted that the platform suspends more than 500,000 spam accounts per day and added, “Unfortunately, we don’t believe that this specific estimation can be performed externally, given the critical need to use both public and private information (which we can’t share). Externally, it’s not even possible to know which accounts are counted as mDAUs (monetizable daily active users) on any given day.” Musk then replied with the poop emoji heard round the tech world. In June, Musk threw something a little more substantial than a poop emoji at Twitter, sending a letter to the company, also filed with the SEC, in which he threated to cancel the acquisition due to his uncertainty about the extent of fake accounts, bots and spam on the platform. Twitter responded by providing access to its full firehose of data, encompassing roughly 500 million tweets per day, but this was not enough to satisfy Musk and his team. Musk filed a letter with the SEC July 8 calling off the deal, with Twitter chairman Bret Taylor responding in a tweet shortly thereafter that the company’s board was committed to closing the transaction and would pursue legal action to enforce the merger agreement, adding, “We are confident that we will prevail in the Delaware Court of Chancery.” Zatko joined Twitter in the newly created role of head of security in November 2020, after overseeing security at electronic payments platform Stripe—also led by former Twitter CEO Jack Dorsey—and stints at Google and the Defense Advanced Research and Projects Agency. He spent roughly three decades as a “hacker” before donning a white hat. In January, Twitter revealed that Zatko was no longer with the company and chief information security officer Rinki Sethi would depart soon thereafter, with Agrawal writing in a memo to employees at the time that the moves follow “an assessment of how the organization was being led and the impact on top priority work,” adding that he was limited with how much more he could share due to the “nature of this situation.” Zatko filed a complaint with the SEC in July accusing his former employer of violating its agreement with the Federal Trade Commission to maintain solid security practices, and Agrawal responded in a note to employees when the news broke last month, “There are news reports outlining claims about Twitter’s privacy, security and data protection practices that were made by Mudge Zatko, a former Twitter executive who was terminated in January 2022 for ineffective leadership and poor performance. We are reviewing the redacted claims that have been published, but what we’ve seen so far is a false narrative that is riddled with inconsistencies and inaccuracies and presented without important context.” Agrawal continued, “I know this is frustrating and confusing to read, given Mudge was accountable for many aspects of this work that he is now inaccurately portraying more than six months after his termination … Given the spotlight on Twitter at the moment, we can assume that we will continue to see more headlines in the coming days—this will only make our work harder. I know that all of you take a lot of pride in the work we do together and in the values that guide us. We will pursue all paths to defend our integrity as a company and set the record straight.” The Aug. 29 letter from Musk’s legal team, referenced above, cited Zatko’s allegations as a reason why the merger agreement should not proceed.

Merger & Acquisition News

Third Time a Charm? Elon Musk Tries to Back Out of Twitter Merger Agreement, Again

This time he cited the company’s severance agreement with former head of security Peiter 'Mudge' Zatko

David Cohen

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David Cohen