Elon Musk adds new reason for termination of Twitter deal

Twitter and Musk are set to face off in court on Oct. 17.

August 30, 2022, 5:34 PM

The ongoing acquisition drama between Elon Musk and Twitter continues.

On Monday, Musk's counsel sent a letter to Twitter’s general counsel and head of legal, Vijay Gadde, citing "an additional notice of termination." Twitter responded on Tuesday by denying the allegations.

In July, Musk backed out of the $44 billion sale agreement he made with Twitter. He did so because he said Twitter provided "false and misleading representations" of multiple forms of user data including the quantity of "false or spam accounts" on the social media platform. Twitter is working to force the deal, which values the company at a share price that is roughly 25% above this week's value.

Now, Musk’s legal team has another reason for terminating the deal, this time involving information published in The Washington Post. The newspaper obtained a whistleblower complaint filed with the Securities and Exchange Commission by Peiter "Mudge" Zatko against Twitter.

PHOTO: The Twitter splash page is displayed on a digital device in San Diego, April 25, 2022.
The Twitter splash page is displayed on a digital device in San Diego, April 25, 2022.
Gregory Bull/AP, FILE

Zatko, a hacker and the former head of security for Twitter, alleges multiple forms of misconduct at the social media company. In Monday's letter, Musk’s counsel, law firm Skadden, Arps, Slate, Meagher & Flom, argued that if Zatko's allegations against Twitter are correct, "the Musk Parties [have] the right to terminate the Merger Agreement." The letter singles out aspects of Zatko's complaint including the allegations that Twitter is "uniquely vulnerable to systemic disruption" and that "the platform is built in significant part on the misappropriation and infringement of third party intellectual property."

In a statement released to the public, Zatko's lawyers said the security expert believes "Twitter has been, at all relevant times including today, in violation of numerous laws and regulations."

Twitter responded by both reaffirming its view that Zatko’s complaint is "riddled with inconsistencies and inaccuracies," and adding that Musk continues "to knowingly, intentionally, willfully, and materially breach the Agreement."

"I think that the Skadden letter was an interesting but maybe risky strategy,” David Bernstein, who specializes in mergers and acquisitions with Goodwin Procter LLP, told ABC News. "There is an underlying implication that there is a weakness in the original termination."

Neither Musk's lawyers nor Twitter's legal counsel at Wachtell, Lipton, Rosen & Katz immediately responded to ABC News' requests for comment.

PHOTO: Vijaya Gadde, chief legal officer of Twitter Inc., attends a global technology conference in Laguna Beach, Calif., Oct. 21, 2019.
Vijaya Gadde, chief legal officer of Twitter Inc., attends a global technology conference in Laguna Beach, Calif., Oct. 21, 2019.
Bloomberg via Getty Images, FILE

On Oct. 17, Twitter and Musk are set to face off in front of the Delaware Court of Chancery for a five-day trial. Twitter would like Chancellor Kathaleen McCormick to compel Musk to buy Twitter at the originally agreed-upon amount, whereas Musk is hoping to avoid the purchase.

Bernstein believes there is a chance that Monday's letter from Skadden hurts Musk’s case. Because this latest letter is not supplementing the original argument for termination but rather adding a totally separate reasoning, it could be perceived as an admission that the spam account argument is not as strong as Musk had hoped.

“I'm not saying that it totally abandons the first [notice of termination],” Bernstein explained. "I'm saying that it seems to me to indicate some doubt about the strength of the first termination.”

McCormick’s decision will likely be handed out before the end of 2022.

Editor's note: This story has been updated to correct that Musk's counsel's letter singled out parts of Zatko's complaint that included allegations about the company.

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