Elon Musk Gets Minor Win in Twitter Fight
Elon Musk can make the case that a $7.75 million severance payment to
former head of security allows him to get out of his $44 billion deal for the firm.
Chancellor Kathaleen St. Jude McCormick, the chief judge of the Delaware Chancery Court, ruled in a filing Thursday that Musk can his counterclaims to include the payment to Peiter Zatko. Twitter (ticker: TWTR) did not oppose the motion, and its stock was little moved on the news.
Tulane Law School professor Ann M. Lipton told Barron’s that McCormick is simply saying Musk can advance his arguments—she isn’t saying whether or not the arguments have merit.
Twitter is suing Musk, co-founder and CEO of
(TSLA), to complete his $44 billion, or $54.20 a share, acquisition in Delaware Chancery court. Musk has argued that the company’s disclosures about the prevalence of bot accounts and concerns about vulnerabilities to hackers raised by Zatko allow him to walk away from the deal. Twitter has denied Musk’s claims about bots and described Zatko’s complaint as “statements made by a third party that, as Twitter has previously stated, are riddled with inconsistencies and inaccuracies and lacking important context.”
Zatko was fired by Twitter in January. He has since become a key player in Musk’s battle with Twitter, when in August multiple outlets reported he filed a whistleblower complaint alleging Twitter misled regulators and its board of directors about the company’s vulnerability to hackers and its efforts to fight spam. Zatko testified before the Senate Judiciary Committee earlier this month.
At a recent $41.31, Twitter shares are trading at nearly a $13 discount to what Musk could be forced to pay. But many analysts believe the stock would fall from the current price if Musk were able to walk away.
The trial is set to begin Oct. 18. Boston College Law School professor Brian Quinn tells Barron’s that the latest ruling doesn’t change the timing of the trial, but he thinks it’s notable that Twitter asked that the judge condition it on Musk answering whether he and his team had any communication with the whistleblower prior to the complaint coming public.
“It’s pretty clear that Twitter thinks there is some coordination going on,” Quinn says.
Musk didn’t respond to a request for comment immediately.
Quinn notes that if there were some coordination, that could reduce the credibility of Zatko’s testimony. Lipton notes that there is no publicly available evidence to suggest any coordination.
“I’ll also add that Twitter’s inquiries go back pretty far, before Musk’s bid for the company,” Lipton says. “If Twitter can show Musk knew about Zatko early on, that would suggest Musk was not defrauded—as he claims—by the lack of disclosure.”
Wedbush analyst Dan Ives told Barron’s that while Musk’s case about the severance payment would be a stretch, Zatko’s claims have given Musk more ammo.
“It ultimately shows how the Zatko situation has opened up a Pandora’s box situation for Twitter and given Musk a legal leg to stand on possibly,” Ives says.
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