Analysis: Musk’s new Twitter funding could draw TikTok-like US scrutiny

May 6 (Reuters) – Elon Musk’s decision to join some foreign investors as part of his $ 44 billion buyout of Twitter Inc (TWTR.N) runs the risk of inviting the kind of regulatory scrutiny over US national security that social media peer TikTok faced. legal experts say.

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 read more

This could give the Committee on Foreign Investment in the United States (CFIUS) an opening to scrutinize the deal with potential national security risks, six regulatory lawyers said in a transaction and interviewed by Reuters. CFIUS is a panel of government agencies and departments that review 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 under CFIUS jurisdiction,” said Chris Griner, chair of law firm Stroock & Stroock & Lavan LLP’s national security practice.

A spokesperson for the US Treasury Department, which chairs CFIUS, declined to comment on whether the national security panel planned to scrutinize Musk’s Twitter deal.

Spokespeople for Musk, Bin Talal, Qatar and Binance did not respond to requests for comment immediately.

Former President Donald Trump’s administration turned to CFIUS in 2020 for a bid to force TikTok’s Chinese parent ByteDance to divest the short video app. His successor Joe Biden abandoned that effort after ByteDance agreed to the changes in how the US users are stored and protected. read more

The regulatory lawyers interviewed by Reuters said the CFIUS blocking Musk’s deal with the risk is small because of the proposed takeover under Twitter and the foreign investors’ acquiring smaller stakes.

They added that their valuation would change Musk’s ability to influence foreign investors through a company, a seat on its board or other means.

The risk is not negligible, however, given the business’s handling of personal data by social media companies such as Twitter, a critical infrastructure by CFIUS, the lawyers said.

“One of the items is sensitive personal data, which is non-public electronic communications. So, that would be email, messaging, or chat communications between users. You can do that on Twitter,” said law firm Vinson & Elkins LLP partner Richard Sofield.

CFIUS for the potential scrutiny of one area, the lawyers said, could be Musk’s business dealings with foreign governments hostile to free speech or keen to overtake the United States technologically. Tesla Inc (TSLA.O), the electric car maker he leads, relies heavily on China, for example, to manufacture and sell its vehicles.

China Blocked Twitter 2009 Some of them have complained that the company’s efforts to restrict misinformation have targeted them unfairly.

“One of the considerations would be whether or not there would be an opportunity for China to leverage its business activity to achieve a desired outcome,” Sofield added.

There is a risk based on the CFIUS shooting down the precedent for an acquirer’s business to compromise them, the lawyers said. Trump blocked chip maker Broadcom Inc’s (AVGO.O) $ 117 billion acquisition of US peer Qualcomm Inc 2018 deals with CFIUS raised concerns.

Broadcom was a publicly listed company with US shareholders that were headquartered in Singapore, but the White House fretted that Broadcom’s relationship with “third-party foreign entities” would set the US back in its technology race.

Nevena Simidjiyska, a regulatory lawyer at law firm Fox Rothschild LLP, said it was possible CFIUS would look into Musk or other US investors in a similar way in which foreign entities could be influenced by Twitter.

“The CFIUS review of CFIUS may be even under US investors if they are controlled by foreign parties,” Simidjiyska said.

Musk’s Twitter dealt with the most common type of regulatory risk seen in mergers and acquisitions – pushback from antitrust regulators. The most richest man has no media holdings, and regulatory experts have said they do not expect a deal with significant antitrust scrutiny.

Reporting by Echo Wang in New York Additional Reporting by Alexandra Alper in Washington, DC Editing by Greg Roumeliotis and Lincoln Feast

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