Twitter cites UK national security law in legal letter to Musk as $44bn deal teeters

Twitter cited a new British law in a legal letter to Elon Musk, in what lawyers say may indicate that the UK government had concerns about what the $44bn transaction would mean for UK national security.

Twitter’s legal team demanded the billionaire comply with his obligations under the merger agreement “including by taking all steps necessary to obtain a favourable outcome under the United Kingdom’s National Security and Investment Act 2021”, according to a 10 July letter to Musk’s lawyers.

The social media platform’s legal team sent the letter after the Tesla boss said on 8 July he would ditch the $44bn deal.

“Relaxing controls around misinformation could be about national security,” a UK antitrust partner said, adding they wouldn’t be surprised if the UK government wanted to know more about how Musk “would control disinformation”.

Twitter, which did not immediately respond to a request for comment, may have cited the law because of actions by the UK government, perhaps a “formal call-in” or a “more informal information gathering request,” a corporate partner said.

The UK government may also have questions about who might be providing Musk with financial backing, one of the partners added, to understand “what their intentions might be and what levels of controls they might have”.

The UK rules cited in the letter took effect in January. They require businesses and investors to notify the government about certain acquisitions in 17 “sensitive” areas of the economy, ranging from defence and energy to transport and emergency services, but also include sectors such as communications and data infrastructure. In theory, the UK could block the deal based on compliance with this law.

While Twitter is US listed and Musk is a US citizen, legal experts said raising the Act is a sign that the UK government may have at least an eye on what the deal could mean for its own interests.

“The jurisdictional element is not controversial; for the NSIA to apply the UK government would only need to establish that Twitter either carries on activities in the UK, or supplies goods/services to persons in the UK,” says Dominic Long, a partner at law firm Allen & Overy.

The Act also allows the government to scrutinise and – if necessary – intervene in other acquisitions across the UK economy that could harm its national security. Under the rules, the business secretary has the power to ask for further information to weigh up an acquisition or call individuals to give evidence on potential deals. Firms could be hit with a fine of up to 10% of turnover if they fail to comply with the government’s requests.

BEIS said it did not comment on individual transactions or the hypothetical application of the Act to specific businesses. The department monitors the market at all times to identify acquisitions of potential national security interest, it added.

The UK government weighing in on deals with an international element is not without precedent. In May, it called for a full national security assessment of French media company Altice’s acquisition of 6% of BT’s shares.

“The Act is wide and as we’ve seen from the BT review communications is a sensitive sector,” another corporate partner said.

The letter from Twitter’s lawyers — signed by William Savitt of Wachtell, Lipton, Rosen & Katz LLP — to Mike Ringler of Skadden, Arps, Slate, Meagher & Flom, who is acting for Musk, runs only to one page. No other piece of international antitrust or financial services legislation is referenced. Both individuals were approached for comment.

The antitrust lawyer said that while some of the sectors among the 17 sensitive areas of the economy are clearly defined, others like communications have much looser definitions.

“It’s odd to draw [the Act] out so clearly in what was otherwise a short letter,” they said. “Instinctively I wouldn’t rule out it would fall in part of the communications sector”.

A competition and regulatory lawyer added that artificial intelligence is another one of the sensitive sectors where the government must be informed about deals, and that Twitter might fall into that sector by virtue of any research into the “identification or tracking of objects, people or events” — an activity specifically identified as one that would fall under the mandatory notification requirement.

READ Politicians interfering in IPOs is a recipe for disaster

“Even if it’s not within mandatory regime, the government could effectively call you in if it has concerns around the deal provided you can show Twitter had activity in the UK,” the antitrust partner added.

Twitter’s Securities and Exchange Commission filings reference the need to clear foreign investment laws in terms broad enough to capture the National Security and Investment Act, the antitrust lawyer said.

Musk was at risk of similar national security scrutiny in the US in May, Reuters reported, having secured the backing of Saudi Arabia’s Prince Alwaleed bin Talal, Qatar’s sovereign wealth fund and crypto exchange Binance to help him fund his Twitter purchase. The US government was already looking to probe deals involving the likes of fellow social media platform TikTok.

The $54.20 per share deal for Musk to buy Twitter is in limbo, if not dead, as the social media company official filed a lawsuit on 12 July, claiming that after Musk signed the deal agreement, he “apparently believes that he — unlike every other party subject to Delaware contract law — is free to change his mind, trash the company, disrupt its operations, destroy stockholder value, and walk away.”

While some lawyers point to the inclusion of the UK Act as a hint of more procedural issues, there could still be drama to come.

One competition practice head said: “We are of course now looking at quite a tough stand-off on the conditions precedent under the merger agreement, so Twitter’s lawyers will be pointing at failure to adhere to the relevant conditions. It will be interesting to watch.”

To contact the author of this story with feedback or news, email Justin Cash

Leave a Comment