Elon Musk’s efforts to arrange new financing that would limit his cash contribution to his $44 billion (about Rs 3,41,800) Twitter acquisition have stalled because uncertainty surrounding the deal, people familiar with the matter said.
Musk threatened to walk away from the deal unless the social media company provided him with data to back up their estimate that fake or spam accounts make up less than 5% of their user base. This culminated in a letter from Musk’s lawyers to Twitter on Monday warned he could walk away unless more information is available.
Musk is willing to pay $33.5 billion (approximately Rs 2,60,300) in cash to fund the deal after arranging debt financing to cover the rest. His liquidity is limited as his wealth, pegged at $218 billion by Forbes (about Rs. 16,93,800 crore), is largely tied to his shares. Teslaelectric car maker he leads.
Musk has been in talks to arrange between $2 billion (approximately Rs 15,500) to $3 billion (approximately Rs 23,300) in preferred equity funding from a group of private equity firms led by Apollo Global Management , in order to further reduce his cash contribution, according to sources. These conversations are currently on hold until there is clarity on the future of the acquisition, one of the sources said.
The halt in funding activities is the first clear sign that Musk’s threats are interfering with steps that could help close the deal. Twitter has so far maintained that Musk has been performing his obligations under their contract, including helping secure regulatory approval of the deal.
Spokespersons for Musk and Twitter did not respond to requests for comment. Apollo declined to comment.
Musk sold $8.5 billion worth of Tesla shares (about Rs 66,000) in April after signing a deal to buy Twitter, and it’s unclear how much cash he has to meet his obligations. He has raised $7.1 billion (approximately Rs 55,200) from a group of equity co-investors to reduce his contribution. Musk also sought to reduce this level of risk further by arranging a risky $12.5 billion (about Rs 97,100) margin loan tied to Tesla shares, but later scrapped it. last month.
Preferred equity will pay a fixed dividend from Twitter, in the same way that a bond or a loan pays regular interest, but will increase in price relative to the equity value of the company.
Buyer’s Regret
The uncertainty of the deal has also weighed on the banks’ plans to take on $13 billion in debt (about Rs 1,01,000) that they have pledged to buy back off the books through syndication. While still preparing to provide loans, the banks plan to wait until it is clear on the deal to launch the process, sources said.
Banks do not believe credit investors will buy into the debt if the unrest persists, sources said. Banks also find Musk’s disparaging comments about the company unhelpful and hope he’ll help them now with investor presentations to consolidate the deal, sources said. know more.
To be sure, stopping these operations doesn’t affect Musk’s and the banks’ commitments to finance the deal. Twitter can take them to court to force them to comply with their financial obligations under the agreement if they fall short.
Debt aggregation could become a major issue for banks as Musk’s dispute with Twitter escalated in litigation and they were forced by a judge to fund the deal. In that scenario, they might have a hard time getting investors to buy the debt if Musk doesn’t want to own the company.
However, that possibility is considered remote. Most investors are trading Twitter shares on the assumption that the company is more likely to strike a deal with Musk or let him go, rather than going through lengthy lawsuits.
© Thomson Reuters 2022
