Elon Musk’s $44 billion purchase of Twitter could face a probe into potential national security risks posed by Musk’s foreign investors, according to a Reuters report on Friday. The foreign investment could invite “the kind of regulatory scrutiny over US national security that social media peer TikTok faced,” the report said.
Musk’s investors include Qatar’s sovereign wealth fund and Saudi Arabia’s Prince Al Waleed bin Talal al Saud. The Saudi Kingdom Holding Company already owns 5.2 percent of Twitter stock and plans to roll that $1.9 billion stake into Musk’s privatized Twitter. The Qatar investment is for $375 million.
Musk also has a $500 million investment from Binance, a major cryptocurrency exchange that has faced its own government scrutiny. Binance was founded in China in 2017 but quickly left the country when China’s government restricted cryptocurrency trading; it now operates without an official headquarters. Binance’s founder is Changpeng Zhao, who was born in China but reportedly moved to Canada with his family when he was 12 years old.
Those three investors “could give the Committee on Foreign Investment in the United States (CFIUS) an opening to scrutinize the deal for potential national security risks, six regulatory lawyers not involved in the transaction and interviewed by Reuters said,” according to the Reuters report.
“To the extent that Musk’s proposed acquisition of Twitter includes foreign investment, it very well could fall under CFIUS jurisdiction,” Reuters was told by Chris Griner, chair of Stroock & Stroock & Lavan LLP’s national security practice.
Risk to deal is small
The lawyers “said the risk of CFIUS blocking Musk’s deal is small because he will control Twitter under the proposed takeover and the foreign investors are acquiring relatively small stakes,” but that “would change were Musk to give the foreign investors influence over the company, through a seat on its board or other means,” the report said.
The risk to the deal is heightened a bit because “the business of handling personal data by social media companies such as Twitter is typically viewed as critical infrastructure by CFIUS.” Sensitive personal data could include non-public communications such as Twitter direct messages.
The CFIUS is an interagency committee chaired by the Treasury Department that can review transactions involving foreign investment to determine their impact on national security. The committee raised concerns about Broadcom’s attempted acquisition of Qualcomm in 2018, shortly before then-President Donald Trump blocked the deal. The committee also investigated TikTok’s Chinese owner ByteDance.
A Treasury Department spokesperson “declined to comment on whether the national security panel planned to scrutinize Musk’s Twitter deal,” Reuters wrote.
Musk also has a $1 billion investment from Oracle co-founder Larry Ellison.
Free speech concerns
The CFIUS could apply scrutiny to “Musk’s business dealings with foreign governments hostile to free speech or keen to overtake the United States technologically,” the Reuters report said, noting that the Musk-led Tesla relies heavily on China. With Twitter, CFIUS may consider “whether or not there will be an opportunity for China to leverage its business activity in order to achieve a desired outcome,” Vinson & Elkins LLP partner Richard Sofield told Reuters.
Reuters noted that “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 restrict misinformation have targeted them unfairly.”
While Musk has said he’s buying Twitter to protect free speech, both Saudi Arabia and Qatar impose heavy restrictions on speech. Last month Musk questioned Saudi Arabia’s treatment of journalistic free speech in a tweet responding to Al Waleed bin Talal, who initially opposed Musk’s purchase of Twitter.
But Musk’s explanation of his free speech views suggests that he doesn’t oppose government-imposed restrictions on speech. “By ‘free speech,’ I simply mean that which matches the law,” Musk wrote. “I am against censorship that goes far beyond the law. If people want less free speech, they will ask government to pass laws to that effect.”
Possible antitrust investigation
Separately, the Musk/Twitter deal could face an antitrust investigation. The Federal Trade Commission “is reviewing Elon Musk’s $44 billion Twitter takeover, a person familiar with the deal said, setting up a deadline in the next month for the agency to decide whether to conduct an in-depth review of the transaction,” Bloomberg reported on Thursday.
“Under US merger law, Musk is required to notify the FTC and the Justice Department of the transaction and wait at least 30 days before closing to allow an investigation into potential antitrust concerns,” the report continued. “The FTC can ask for additional information, issuing what’s known as a second request, which would further delay closing.”
However, the FTC may not be a big obstacle, as Bloomberg notes that “antitrust experts don’t expect the deal to raise antitrust concerns.” Reuters’ report on the potential CFIUS review also stated that “regulatory experts have said they do not expect the deal to face significant antitrust scrutiny.”
Musk and Twitter are also facing a shareholder lawsuit that challenges the acquisition.