The world has been clamoring about the recent purchase of Twitter by Elon Musk. And along with his $44B deal, Musk has some foreign investors in the mix to help him finalize the transaction. The addition of foreign investors is causing some to wonder if they might pose a safety risk when Musk privatizes Twitter. Foreign investments are often heavily scrutinized because of the received threat that investors could seize total control. For a social media giant like Twitter, the concerns are certainly viable, as so much information passes through its portals each day.
Recently, Tesla’s CEO Elon Musk struck a deal to buy Twitter for $44B, but what people may not realize is that he has a group of 19 billionaires and institutions entrenched in the deal with him. Besides Musk’s own money, the team is set to invest more than $7B to make Musk’s Twitter deal happen. Along with this team of investors, Musk himself needs to pledge his Tesla shares for a loan in order to afford his piece of the pie.
But because Musk’s set of investors includes some from foreign soil, there could be a more extensive probe into the investors as the deal is unveiled. A similar inquiry took place in 2019 when American authorities were investigating TikTok to see if there was a national security issue.
With Qatar’s sovereign wealth fund and Saudi Arabia’s Prince Al Waleed bin Talal al Saud involved with Musk’s deal, this transaction has raised some eyebrows. The Saudi Kingdom Holding Company already owns 5.2% of the Twitter stock and is planning to roll a $1.9B stake into Musk’s personalized Twitter. Another investor that has caused a stir is Binance, a large cryptocurrency exchange that was founded in China by Changpeng Zhao in 2017.
Why worry, especially if it is only social media we are talking about? Because so much personal data is filtered through social media companies such as Twitter, this is viewed as critical infrastructure by the CFIUS, the Committee on Foreign Investment in the United States.
“One of the items that’s 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,” law firm Vinson & Elkins LLP partner Richard Sofield said.
Experts think that CFIUS will want to take a closer look. “To the extent that Musk’s proposed acquisition of Twitter includes foreign investment, it very well could fall under CFIUS jurisdiction,” said Chris Griner, chair of law firm Stroock & Stroock & Lavan LLP national security practice. This could give CFIUS an opening to scrutinize the deal for potential national security risks, and even potentially delay the closing.
“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 said. “The FTC can ask for additional information, issuing what’s known as a second request, which would further delay closing.”
Additionally, the scrutiny and assessment would be even more intense if the foreign investors were granted influence over the company, whether they are asked to serve on the board or to take a more active role in some other way.
Free Speech on Social Media
The purchase of Twitter brings to the forefront the idea of free speech, and one of the worries about foreign investors is just whose voice is being heard. Especially considering the foreign investors, some analysts are worried that Twitter will roll back efforts they had made to keep the most extreme voices off Twitter. Just recently Musk has said he would reinstate Donald Trump who had previously been banned.
Although Musk keeps his politics on the private side and hasn’t dramatically proclaimed how he would change the platform after privatizing it, restrictions outside of his control will also come into play. The Digital Services Act unfurling in the European Union will demand that social media sites regulate content more specifically in the future, and this could certainly affect the Twitter deal.
Although Musk has not formally declared what changes he would make, the investors he is working with are perhaps giving the world a hint. “In addition to a fairly typical assortment of Silicon Valley venture-capital firms and heavyweight foreign investors, there are a number of prominent Donald Trump supporters as well as advocates for looser moderation policies on social media and a major crypto exchange, which is surely thrilled to be in businesses with the planet’s most prominent booster of Dogecoin. Maybe they’re all there to make a buck: Musk pitched these investors on ambitious plans to grow Twitter by cutting down on costs and monetizing tweets. Just as likely, they want to make Twitter the social network they’d like to see in the world.”
Lawyers close to the situation also worry about foreign investors who might be interested in the United States’ technology. Musk’s connection with Tesla, which relies heavily on China, could create a conflict of interests. Interestingly, China blocked Twitter in 2009, although officials in China have still been using it. This is a murky area where investments and technology meet.
With fundamental American liberties at stake, namely, free speech and the autonomy Americans crave from other countries, this debate is far from over. Time will tell if Musk allows foreign investors to have a bigger stake in his company, and all eyes will be watching to see if CFIUS calls this deal into question before the ink is dry. At any rate, the world of Twitter has been changed forever with this move toward privatization.
I like to spend my time giving back with organizations that focus on mentoring aspiring entrepreneurs. I have supported after school programs that focus on entrepreneurial and global initiatives in local primary schools. I recently extended my mentoring to include students at Case Western Reserve University.