Musk’s Twitter acquisition unlikely to be disrupted by possible national security review, experts say

Elon Musk’s purchase of Twitter last week and his plans to reshape the company are highly unlikely to be interrupted by a possible government review of the deal’s national security implications, experts tell FOX Business.

On Monday, Sen. Chris Murphy, D-Conn., asked the Committee on Foreign Investment in the United States (CFIUS) to review the deal because the new company will be partly owned by non-U.S. entities. CFIUS, a multi-agency committee led by the Treasury Department, has the power to block foreign ownership in critical U.S. industries for national security reasons. Murphy asked it to review Musk’s acquisition of Twitter because the new company will give Saudi- and Qatar-backed interests a stake of about 5%.

"As has been publicly reported, at least $1.89 billion of the financing necessary for Musk’s bid to take Twitter private was secured from members of the Saudi Arabian royal family," Murphy said in a letter Monday to CFIUS Chair and Treasury Secretary Janet Yellen. "Another $375 million came from the Kingdom of Qatar. Collectively, these stakes account for approximately 5% of the new ownership of Twitter."

"Given Twitter’s critical role in public communication, I am concerned by the potential influence of the Government of Saudi Arabia," Murphy wrote. "Any potential that Twitter’s foreign ownership will result in increased censorship, misinformation, or political violence is a grave national security concern."

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However, lawyers who specialize in CFIUS reviews said there are good reasons to think CFIUS would not stand in Musk’s way.

"This is not something where I would have told a company it needs to file [with CFIUS], from everything I’ve heard," said Stewart Baker, who represented the Department of Homeland Security on CFIUS issues in the George W. Bush administration.

"I think it would be a stretch to say CFIUS has jurisdiction," added John Kabealo, the founder of Kabealo Law who has worked on thousands of CFIUS-related matters for clients.

For decades, CFIUS was focused on critical national security industries, but under a 2018 law, CFIUS does have a theoretical toehold on the Twitter merger. The 2018 law required CFIUS to examine foreign ownership in a broader range of companies, including companies like Twitter that collect and hold data on more than 1 million Americans.

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However, because the Saudi ownership stake is so low, CFIUS would need to find that Musk has given the Saudi’s some kind of control, a board seat or some other special status that gives it a say in the company’s operations. Both lawyers said without that, it would be difficult for CFIUS to exert any control over the terms of Musk’s new company.

"Five percent ownership plus a board seat, observer status or some special access to information could trigger it," Baker told FOX Business. "But there’s no indication that… Musk is giving anybody anything."

Baker added that the Securities and Exchange Commission does not require disclosure of shareholdings below 5%, a signal that this ownership level is generally of less interest to U.S. regulators. "This should not be a problem unless the Saudis are acquiring special rights to private Twitter data," he said.

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"The foreign investor can’t be passive," Kabealo said. "They have to have some meaningful governance. If it’s only 5%, and he’s along for the ride with no meaningful rights, he’s a passive co-investor and [CFIUS] won’t have jurisdiction."

Kabealo added that his view of the transaction is that there is no glaring piece of information, at least in public, that would compel CFIUS to act. "With a transaction this high profile, my experience indicates that if they saw something in public reporting that gave them a sense that they had jurisdiction, they would have called it in," he said, adding there are no indications CFIUS has done so.

If CFIUS were to find some element of the ownership structure that raises national security issues, CFIUS could require the company to negotiate a national security agreement that addresses those issues. CFIUS would have the final say on how to fix the problem.

Both lawyers agreed that Murphy’s request is irrelevant to the process inside CFIUS, since government officials are routinely tracking transactions and deciding on their own which ones command a national security review. Baker said Murphy’s letter is mostly "irrelevant" to the process, while Kabealo said it injects a dose of politics into what should be a politics-free zone.

"It puts the committee in a bad place," Kabealo said of Murphy’s letter. "They are supposed to operate independently from political interference."

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CFIUS never discusses its activities, and declined to comment on a FOX Business request for comment. Even when formal reviews are launched, CFIUS leaves it to the parties involved to publicly discuss the results of those reviews.