Twitter whistleblower complicates legal battle with Musk: analyst
Wedbush's Dan Ives sees Peiter Zatko's allegations as possibly bringing Twitter, Elon Musk back to negotiating table
Here's how Twitter whistleblower complaint could shakeup Musk merger deal
Binary Defense Co-Founder Dave Kennedy joined 'Kennedy' to discuss how Twitter whistleblower Peiter Zatko's disclosures could change the merger deal between billionaire Elon Musk and the social media company.
New allegations from Twitter whistleblower and former security chief Peiter "Mudge" Zatko could complicate the social media giant's legal case against Elon Musk and potentially offer the billionaire a "much needed small victory", according to one Wall Street analyst.
"Up until the Zatko development, the Street was factoring in Twitter to have a clear win in the Delaware Courts in October," Wedbush Securities analyst Dan Ives wrote in a note to clients on Tuesday.
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Ives believes the most likely outcomes of the legal dispute are that Musk will follow through on the terms of the original agreement, reach a settlement or pay damages to the company ranging between $5 billion and $10 billion. Meanwhile, two potential outcomes that Ives sees as less likely are Musk paying a $1 billion breakup fee and walking away from the deal or winning in the Delaware Court of Chancery with no breakup fee paid.
"We also believe with the Zatko situation being a potential Pandora's box situation for Twitter that the two sides could come to the negotiating table before the trial begins to try to resolve the Twitter $44 billion deal between Musk and the Twitter Board," he added. "We continue to believe a likely scenario is Musk still buying Twitter at a lower renegotiated price in the $50 range (our price target) and taking a brutal ‘Game of Thrones’ battle in Delaware for both sides off the table before it kicks off."
We also believe with the Zatko situation being a potential Pandora's box situation for Twitter that the two sides could come to the negotiating table….
Musk has accused Twitter of misrepresenting the total number of spam and fake accounts on the social media platform when the company accepted his $44 billion acquisition offer in April. Twitter maintains that spam and fake accounts make up less than 5% of its users.
Musk notified Twitter in July that he would terminate the deal due to the dispute over spam and fake accounts and issued a separate termination notice on Monday, citing the allegations from Zatko's 84-page complaint.
Zatko alleges that Twitter has "extreme, egregious deficiencies" related to cybersecurity issues that put the platform's users and national security at risk and that the company showed "negligence and even complicity" concerning efforts by foreign governments to "infiltrate, control, exploit, surveil and/or censor the company’s platform, staff, and operations."
He also claims Twitter executives are "not incentivized to accurately ‘detect’ or report total spam bots on the platform." Instead, they are allegedly incentivized to boost the company's monetizable daily active users (mDAU) count with bonuses that can exceed $10 million. In addition, Zatko says Twitter does not have the resources to fully understand the true number of bots on the platform.
Peiter Zatko, who is also known as ‘Mudge’ poses for a portrait on Monday August 22, 2022 in Washington, DC. (Photo by Matt McClain/The Washington Post via Getty Images) ((Photo by Matt McClain/The Washington Post via Getty Images) / Getty Images)
Twitter, which fired Zatko in January, has called his allegations a "false narrative" about its privacy and data security practices that is "riddled with inconsistencies and inaccuracies" and lacks important context.
"Mr. Zatko's allegations and opportunistic timing appear designed to capture attention and inflict harm on Twitter, its customers and its shareholders," the company adds. "Security and privacy have long been company-wide priorities at Twitter and will continue to be."
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Musk and Twitter's legal battle is slated to begin on Oct. 17. Zatko has been subpoenaed by Musk's legal team to testify in a deposition.
"Mr. Zatko will comply with his legal obligations of that subpoena and his appearance at the deposition is involuntary," Zatko's attorneys Debra Katz and Alexis Ronickher said in a statement. "He did not make his whistleblower disclosures to the appropriate governmental bodies to benefit Musk or to harm Twitter, but rather to protect the American public and Twitter shareholders."
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In addition, Zatko will testify before the Senate Judiciary Committee on Sept. 13 — the same day that Twitter will hold a special meeting with shareholders to vote on the deal.