Elon Musk’s recent $7 billion in Twitter funding could face scrutiny from US regulators: experts

Elon Musk’s decision to accept some foreign investors as part of his $44 billion (roughly Rs. 3.37,000) buyout of Twitter risks provoking the kind of US national security regulatory scrutiny that faced by social media peer TikTok, legal experts say.

Musk announced on Thursday that Saudi Arabia’s Prince Alwaleed bin Talal, Qatar’s sovereign wealth fund and Binance, the world’s largest cryptocurrency exchange founded by Chinese native Changpeng Zhao, were part of a group of investors who will help him complete the acquisition of fund twitter.

This could give the United States Committee on Foreign Investments (CFIUS) an opportunity to review the deal for potential national security risks, said six attorneys for regulators uninvolved in the transaction and interviewed by Reuters. CFIUS is a body of government agencies and departments that reviews mergers and acquisitions for potential threats to US security.

“To the extent that Musk’s proposed acquisition of Twitter involves foreign investment, it could very well fall within the jurisdiction of the CFIUS,” said Chris Griner, chair of the national security practice of the law firm Stroock & Stroock & Lavan LLP.

A spokesman for the US Treasury Department, which chairs CFIUS, declined to comment on whether the national security body intended to look into Musk’s Twitter deal.

Spokespersons for Musk, bin Talal, Qatar and Binance did not immediately respond to requests for comment.

Former President Donald Trump’s administration turned to CFIUS in 2020 to force TikTok’s Chinese parent company ByteDance to divest the short-video app. His successor, Joe Biden, abandoned those efforts after ByteDance agreed to changes in how US users’ data is stored and protected.

Regulators interviewed by Reuters said the risk of CFIUS blocking Musk’s deal is low because he will control Twitter as part of the proposed acquisition and the foreign investors are acquiring relatively small stakes.

They added that their view would change if Musk gave foreign investors influence over the company through a seat on the board or in other ways.

However, the risk is not negligible, as the handling of personal data by social media companies such as Twitter is typically considered by CFIUS to be a critical infrastructure, according to the lawyers.

“One of the items that are considered sensitive personal data is non-public electronic communications. So that would be email, messaging, or chat communications between users. Twitter allows you to do that,” said Richard Sofield, a partner at the law firm Vinson & Elkins LLP.

One possible area of ​​scrutiny for CFIUS, the attorneys say, could be Musk’s business dealings with foreign governments hostile to free speech or interested in technologically overtaking the United States. Tesla, the electric car maker he runs, for example, relies heavily on China to manufacture and sell its vehicles.

China blocked Twitter in 2009, but many Chinese officials have been active on the social media platform. Some of them have complained that the company’s efforts to limit misinformation are being unfairly targeted at them.

“One of the considerations would be whether there will be an opportunity for China to use its operations to achieve a desired outcome,” Sofield added.


There is precedent for the CFIUS shooting down a deal due to the risk that an acquirer’s business relationships could jeopardize it, the lawyers said. In 2018, Trump blocked the $117 billion takeover of US competitor Qualcomm by chipmaker Broadcom.

Broadcom was a publicly traded company with US shareholders headquartered in Singapore, but the White House feared that Broadcom’s relationship with “foreign third parties” would set the US back in its technology race with China.

Nevena Simidjiyska, a regulatory attorney at law firm Fox Rothschild LLP, said it was possible CFIUS would investigate whether Musk or other US investors in the Twitter deal could be similarly influenced by foreign companies.

“CFIUS can determine that even US investors in Twitter fall under the CFIUS test if they are controlled by foreign parties,” Simidjiyska said.

Musk’s Twitter deal doesn’t face the most common regulatory risk encountered in mergers and acquisitions — rejection by antitrust authorities. The world’s richest man has no media holdings and regulators have said they don’t expect the deal to face significant antitrust scrutiny.

© Thomson Reuters 2022 Elon Musk’s recent $7 billion in Twitter funding could face scrutiny from US regulators: experts

Ryan Sederquist

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