Musk sent a letter dated Aug. 29 to Twitter, according to a filing with the Securities and Exchange Commission. It follows reports last week that Twitter’s former security chief, Peiter Zatko, filed a whistleblower complaint with the SEC alleging the company deceived its board and federal authorities about vulnerabilities to hackers and its efforts to fight spam. Those claims provided Musk with fresh ammunition in the billionaire’s legal battle to get out of his $44 billion deal to acquire Twitter.
In the letter, Musk alleged that Zatko’s whistleblower complaint “demonstrate that Twitter has breached the following provisions of the Merger Agreement, thereby giving the Musk Parties the right to terminate the Merger Agreement.”
Musk and his lawyers wrote in the letter that 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.”
Lawyers for Musk and Twitter have subpoenaed Zatko. Musk’s lawyers are seeking documents relating to the effect of false or spam accounts on Twitter’s business operations, among other requests, according to a court filing.
Twitter responded to Musk’s lawyers shortly after his letter was disclosed. “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,” read part of the response.
The legal applicability of whistleblower claims is hard to determine. It adds a wrinkle to the already-dramatic proceedings. “Zatko whistleblower situation adds complexity,” wrote Wedbush analyst Dan Ives in a note on Tuesday. He thinks it helps Musk calling it a “huge potential win.”
Ives sees four potential outcomes from the Twitter/Musk legal drama: Musk pays the $1 billion break up fee and walks away; Musk is forced by the Delaware court to pay $54.20 a share to purchase Twitter; a settlement between Musk and Twitter at either a lower price or higher break fee; or Musk wins in Delaware and walks without paying.
Settlement along with the court forcing buying are Ives’ two highest scenarios. The trial is currently slated to begin Oct. 17 in Delaware.
Investors expect a lower-priced deal. Future Fund Active ETF (FFND) cofounder Gary Black ran a Twitter poll this past week asking his 215,000-plus followers what they expected. His options were a little different than Ives, but settlement won by a landslide.
Black is a Tesla shareholder. He probably hopes Musk won’t end up owning Twitter. The Twitter situation has been an overhang on Tesla stock for months with investors worried about distraction for the Tesla CEO. Black didn’t immediately respond to a request for comment.
Tesla stock has fallen about 21% since Musk’s Twitter stake was announced in early April, but the market has declined too.
The impact on Twitter stock is easier to see. Shares have risen about 2% since Musk’s stake was announced, outperforming the Nasdaq by about 18 percentage points.
Ives, for his part, covers both stocks. He rates Twitter shares Hold and has a $50 price target for shares. He rates Tesla stock at Buy and has a $360 price target for that stock.
https://www.barrons.com/amp/articles/elon-musk-twitter-acquisition-51661855559