Twitter shareholders on Tuesday approved Elon Musk’s offer to buy the company for $44 billion, clearing the way for the deal to be settled in a court.
The special shareholders’ meeting, convened through a conference call from Twitter’s San Francisco headquarters, lasted seven minutes. Nearly 99 per cent of the votes cast by stock owners endorsed the agreement with Musk to sell him the firm for $54.20 per share, Twitter said in a release, adding that the firm was ready to complete the merger agreement immediately and no later than September 15 as per a timeline mandated by the agreement. Twitter’s current trading price is below $42 a share.
The vote took place while Twitter’s former head of security Peiter Zatko testified to the US Congress, accusing Twitter of serious security deficiencies that made the platform vulnerable to exploitation.
The testimony has buoyed Musk’s bid to walk away from the deal as his legal team will be allowed to use the whistleblower’s testimony in court. The social media platform has sued Musk for violating the acquisition agreement, while the tech billionaire filed a countersuit accusing Twitter of fraud. The trial is scheduled to begin on October 17 in the Delaware Chancery Court.
Here’s what we know of the Twitter-Musk spat.
What’s Musk’s deal to buy Twitter?
Musk launched a hostile takeover bid for Twitter, casting it as a promotion of freedom of speech. Although Twitter’s board initially rebuffed Musk, it reached an agreement on April 25 that will allow Musk to acquire the company for around $44 billion and turn it into a privately held company.
Soon questions rose about Musk’s ability to fund the takeover since much of his holdings are in Tesla shares rather than cash. But the billionaire dismissed such reports and pointed to a 13-billion-dollar debt facility from a financing consortium led by Morgan Stanley, another $12.5-billion margin loan from the same bank and $21 billion from his personal fortune.
Why did Musk back off from the deal?
Musk walked out of the deal in July, claiming that Twitter had understated the prevalence of bots or spam accounts on the social media platform. The platform said less than 5 per cent of its monetisable daily active users (those who can look at adverts) are bots, but Musk said it could be many times higher. Twitter sued Musk to complete the acquisition, accusing him of using bots as a pretext to exit a deal.
What are the reasons cited in the three notices sent by Musk?
Musk’s legal team first filed a notice on July 8 with the US Securities and Exchange Commission to terminate the deal, accusing that “Twitter has not complied with its contractual obligations.”
On August 29, the Telsa CEO’s team cited allegations made by Peiter Zatko as a reason to scrap the deal. In a whistleblower complaint filed in July, the former Twitter employee accused Twitter of misleading regulators and the public about its safety practices.
On Friday (September 9), the legal team sent the third letter to Twitter, alleging that the severance payment to Zatko violated the terms of the deal. Zato was reportedly paid $7.75 million when he was sacked, and Twitter said it did not breach any obligations.
The lawsuit and countersuit in the saga
Twitter accused Musk of violating his acquisition agreement and filed a 60-page suit in the Delaware Chancery Court to force Musk to follow through with the purchase. They will meet in court in October, and a judge will decide whether or not Musk has to buy the company.
Musk’s legal team wanted the trial set for February 2023, but Delaware Chancery Court Chancellor Kathaleen St. Jude McCormick ruled in favour of Twitter. “The reality is that delay threatens irreparable harm [to Twitter] ... the longer the delay, the greater the risk,” the judge said in her ruling.
In response, the tech billionaire countersued, accusing Twitter of fraud, breach of contract and violation of a securities law in Texas.
Who is Peiter Zatko?
Pieter Zatko, better known by his hacker handle “Mudge,” is a highly respected cybersecurity expert who first gained prominence in the 1990s and later worked in senior positions at the Pentagon’s Defence Advanced Research Agency and Google, an Associated Press report said.
He was hired in 2020 by Twitter’s former CEO Jack Dorsey after a high-profile attack on the platform’s celebrity accounts. Zatko served as security chief until Twitter fired him early this year, citing ineffective leadership and poor performance.
What did the whistleblower say?
Testifying before the Senate Judiciary Committee in Washington, Zatko said he witnessed “extreme, egregious deficiencies by Twitter in every area of his mandate”. He said that Twitter was “a decade behind” security standards, and the firm is “misleading the public” about the platform’s security.
“I am here today because Twitter leadership is misleading the public, lawmakers, regulators, and even its own board of directors,” Zatko said in his sworn testimony. “They don’t know what data they have, where it lives and where it came from, and so, unsurprisingly, they can’t protect it,” he said. “Twitter leadership ignored its engineers,” he said, partly because “their executive incentives led them to prioritise profit over security.”
The testimony followed an 84-page long whistleblowing complaint Zatko made about security practices inside the social network. Twitter says that the claims are inaccurate and inconsistent.
Zatko has supported Musk’s claim that Twitter has more spam and fake accounts than it has admitted. A judge said Musk’s legal team would be allowed to use the whistleblower’s testimony in court.
Will there be more Senate hearings?
Although Tuesday’s Senate Judiciary Committee hearing was the first, there might be more. The Judiciary Committee’s Chairman Dick Durbin and its senior Republican Chuck Grassley said in a joint statement last month that if Zatko’s claims are accurate, “they may show dangerous data-privacy and security risks for Twitter users around the world.”
They said the panel “will investigate this issue further with a full committee hearing ... and take further steps as needed to get to the bottom of these alarming allegations.”
It’s unclear if Congress will take any firm steps to address the allegations since previous hearings over privacy, security, competition and efforts to regulate the companies have stalled.
Can Musk wriggle out of the deal?
Hedge funds, including David Einhorn’s Greenlight Capital and Pentwater Capital Management, are betting that Musk may not be able to wriggle out of this deal, Bloomberg reported. The so-called event-driven funds, which bet on mergers and acquisitions, are down 4 per cent on average, according to research firm PivotalPath.
“If it were anyone other than Musk, we would handicap the odds of the buyer wiggling out of the deal to be much less than 5 per cent,” Einhorn told investors in a letter last month. “We think that the incentive of the Delaware Chancery Court, the preeminent and most respected business court in the nation, is to actually follow the law and apply it here,” Einhorn wrote.
Carronade Capital Management, a $900 million multi-strategy credit hedge fund, is wagering that the deal will ultimately be done, either after a trial or through a settlement, the Bloomberg report said.
Kellner Capital’s Chris Pultz said Musk and Twitter might agree to forgo a trial for a discount of 10 per cent to 15 per cent from the original deal price, the report added.
— With inputs from Associated Press, Bloomberg and Reuters