Musk’s legal team will be allowed to use Zatko Payout in case against Twitter deal

I don’t know if that makes a difference, but…

In the latest move ahead of the upcoming legal battle between Twitter and Elon Musk, Delaware Chancery Court Judge Kathaleen McCormick today ruled that Musk’s team will be allowed to amend their counterclaim, in their attempt to walk away from the $44 billion takeover bid dollars from Musk, to include Twitter’s payment to former security chief Peiter Zatko as an item, which Musk’s team says is in violation of the original agreement.

In June, Twitter agreed to a settlement with Zatko as part of his exit from the company, which would ultimately see Zatko win a Payment of $7 million for his deal. Musk’s team says this payment is in violation of the original merger agreement, which, in their view at least, stipulates that Musk himself must be consulted on any material management changes and expenditures, as new CEO.

Given that Musk was not consulted in this case, the view is that Musk’s team may be able to use this as an example of Twitter’s failure to comply with the original terms, which could provide an exit route for Musk.

Although it may not be so clear.

Twitter has already refuted this, and each of Musk’s other claims regarding the original terms of the deal, which Twitter says are backed by “airtight” commitments from Musk’s team.

This specific example relates to Section 6.1 of the Merger Proposal, which notes that

[Twitter] shall use its commercially reasonable efforts to conduct the business of the Company and its Subsidiaries in the ordinary course of business, and to the extent consistent therewith, the Company shall use its commercially reasonable efforts to preserve material components of its organization substantially intact current business.”

This includes key personnel, with the full layout basically stating that Twitter should consult Musk, as the new owner, on any major changes.

Which Musk’s team has previously tried to slam on Twitter when it comes to key manager departures.

According to Musk’s team:

“Twitter also failed to meet its obligations under Section 6.1 of the Merger Agreement to seek and obtain consent before deviating from its obligation to conduct business in the ordinary course and to ” preserve practically intact the material components of its current commercial organization”. Twitter’s conduct in laying off two key high-ranking employees, its head of revenue products and the general manager of Consumer, as well as announcing on July 7 that it was laying off a third of its talent acquisition team, involves the disposition of the normal course.

Musk’s team claims that because Twitter did not receive consent from Musk for these changes, it is therefore in violation of the merger agreement. The large payment to Zatko is, in their view, another example of Twitter’s conduct in this regard, which in combination hopes to help build its case to exit the deal and save Musk from his 44-year commitment. billions of dollars.

Of course, Musk’s biggest problem, or at least the one he’s stated publicly, is with bots on the platform, and Twitter claims that only 5% of its active user base are bot/spam accounts. . Musk says that number must be higher than that, based on his own experience and that of other users. And if, in fact, more than 5% of Twitter’s active accounts are bots, then that complicates any calculations when it comes to monetization projections because non-user profiles don’t interact with ads.

That argument makes sense, but Twitter says Musk agreed to buy the platform essentially “as is,” foregoing various due diligence steps that might have allowed him to walk away from the deal on that element.

That’s why Musk’s legal team is now looking at alternative approaches, and it could be that the court considers Zatko’s exit and payment to be a big enough decision to trigger that element of the contract.

But Twitter’s legal team seems very confident that they are on solid ground on all fronts. Does the fact that the court accepts this consideration change anything in this regard?

We will find out very soon, with the trial due to start on October 17.

About Myra R.

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