Elon Musk and Twitter's Saudi situation
If Sen. Chris Murphy (D-Conn.) gets his way on Twitter, it could open the oversight floodgates for a Biden administration that's been much cooler toward MBS and company than was its Saudi slobbering predecessor.
Why it matters: This is one to watch for any U.S. tech company that's taken Saudi money, or any company thinking about doing so.
Catch up quick: Murphy on Monday asked the Committee on Foreign Investment in the U.S. (CFIUS) to investigate "potential national security concerns" arising from Saudi Arabia and Qatar's involvement in Elon Musk's takeover of Twitter.
- Saudi Arabia and members of its extended royal family are regular investors in U.S. tech companies, both directly and via private equity and venture capital funds. But they've been largely ignored by CFIUS, which investigated just six Saudi-involved deals between 2019 and 2021.
- CFIUS is empowered to recommend to the President that mergers be blocked on national security grounds, including for transactions that have already closed. Many of its recent recommendations to that effect have involved China.
Backstory: Saudi investment in Twitter isn't new.
- Prince Alwaleed bin Talal's Kingdom Holdings first invested $300 million for more than a 3% stake in 2011, prior to Twitter going public. At the time, CFIUS didn't have the authority to review minority, non-controlling investments — a limitation removed in early 2020.
- Bin Talal retained a position going forward, later buying even more shares, and in May signaled that it would roll over its stake into Musk's deal. That pledge was codified yesterday in SEC filings, which say that Kingdom is now Twitter's second-largest shareholder (albeit with around a 4% stake).
- Qatar also is rolling over existing shares, representing a smaller stake.
The big picture: Murphy is aware of the history. In a tweet, he argued: "The Saudis could have cashed out, like most everyone else. That would have been the financially sound thing to do. Instead, they allied with Musk ... There's a clear political motivation to their decision, and CFIUS should get to the bottom of it."
- A source familiar with the situation adds that Murphy's concern is exacerbated by the large amount of debt that Musk/Twitter now must service, and what demands that may enable Saudi to make. Particularly given that Musk, at least for the moment, is Twitter's sole director.
- All of this comes just days after the so-called Davos in the Desert, which included such speakers as Ben Horowitz (a16z), Ray Dalio (Bridgewater Associates), Jamie Dimon (JPMorgan), Steve Schwarzman (Blackstone) and David Solomon (Goldman Sachs).
Yes, but... CFIUS doesn't automatically snap to attention when senators bark, and there's every possibility that it will ignore Murphy.
- And, even if it investigates, that doesn't mean it would recommend that President Biden take action or that he would agree to do so. Remember, the White House last week denied a Bloomberg report that it was planning to submit several Musk ventures to a national security review (including Twitter).