Who will finance Musk to buy Twitter
Elon Musk and the Twitter board have reached an agreement for the acquisition of the social platform by Musk. The $ 44 billion deal is a combination of debt and equity. But how will the richest man in the world pay? All the details
Tesla and SpaceX founding billionaire Elon Musk will buy Twitter.
The company's board of directors unanimously approved the $ 54.20-per-share acquisition in a $ 44 billion transaction. Therefore the agreement is expected to be finalized by 2022.
At first, the board attempted to thwart Musk's advance by adopting a defensive measure known as the poison pill to discourage the billionaire's hostile offer. However, over the weekend the board of directors returned to the negotiating table and accepted the offer from Tesla's owner, in what is one of the largest leverage buyouts, purchase also through debt, of a listed company.
Elon Musk is the richest person in the world, with a fortune of 257 billion, according to the Bloomberg Billionaires Index. However, according to Bloomberg estimates, it only has about $ 3 billion in cash and liquid assets.
Musk has a $ 25.5 billion loan from a group of banks led by his financial advisor Morgan Stanley. It also pledged to provide $ 21 billion in equity commitment. On Musk's part, however, it remains a mystery: How will he cover the $ 21 billion stake in the transaction he personally secured? Bloomberg wonders.
Meanwhile, S&P put Twitter Inc.'s BB + rating on negative creditwatch following the acquisition agreement with Elon Musk. The agency fears that the company and its debt will be downgraded.
All the details.
THE OPERATION
Twitter shareholders will receive $ 54.20 in cash for every Twitter common share they own at the close of the proposed transaction. The purchase price represents a 38% premium over Twitter's closing share price on April 1, 2022. That is the last trading day before Musk revealed his approximately 9% stake in Twitter.
HOW MUCH MUSK HAS COLLECTED SO FAR
The US entrepreneur has secured $ 25.5 billion of fully committed debt and margin loan (thanks to the agreement with several banks), as well as a $ 21 billion equity commitment (on which he has not provided further details).
SUPPORTED BY MORGAN STANLEY, BANK OF AMERICA AND BARCLAYS
“In addition to Morgan Stanley, the loans come from Bank of America and other international institutions (from Barclays to Societé Generale, up to Bnp Paribas and Mizuho Bank). A good 12.5 billion, on the other hand, are guaranteed by Tesla securities which represent the safe of the American tycoon's fortune ”, summarizes Il Sole 24 Ore .
THE REMAINING FROM THE EQUITY SALE
But Musk gave further details on the $ 21 billion equity commitment.
One path for the American billionaire is to find like-minded investors who adhere to his Twitter vision to join him in his purchase. Bloomberg News reported Monday that Musk is fielding equity partners and continuing talks with other potential co-investors.
SALE OF TESLA SHARES
Also according to Bloomberg , even if Musk couldn't muster many other equity investors, he has the financial firepower to make it mostly on his own, thanks to the crown jewel of his huge fortune: his stake in Tesla.
After pledging stock to hedge his $ 12.5 billion margin loan, Musk will continue to own uncommitted shares of the automaker valued at approximately $ 21.6 billion, based on Tesla's closing price on Monday. . After tax, that sale would come close to covering his full commitment, although a lot will depend on the price he gets for the stock.
That strategy has its own set of risks. For one, concerns about Musk needing to sell some of his shares may already weigh on the electric carmaker's share price. It fell about 8% since the beginning of the month.
OR YOUR SHAREHOLDINGS IN SPACEX AND THE BORING COMPANY
Additionally, another option up Musk's sleeve is the sale of his stakes in his private companies, SpaceX and The Boring Company. It would be possible, but unlikely, because they are much less liquid, according to Bloomberg .
DRAW YOUR CRYPTOCURRENCIES PORTFOLIO?
Finally, Bloomberg points out that Musk's cash estimate is based on documents relating to publicly traded stocks and news, but much of the information on his private finances is limited.
Musk said in July that he owns Bitcoin, Ether, and Dogecoin . While it's unclear how much it holds or how long it has owned them, the top two cryptocurrencies have gained around 720% and 2,600% respectively since March 2020. Dogecoin, meanwhile, rose nearly 30% on Monday after that. Musk has agreed to buy Twitter.
WHY S&P LOWERED THE TWITTER RATING
Meanwhile, S&P has placed Twitter's “BB +” ratings on “negative creditwatch” due to the acquisition agreement. The rating agency plans to resolve the “negative creditwatch” positioning once the proposed deal is concluded, with the transaction likely to result in a multiple downgrade of Twitter and its debt. "The deal will be financed with a combination of debt and equity and we expect Twitter's leverage to rise substantially above the 1.5x limit, level for a BB + rating downgrade," reads a Note.
The proposed transaction includes the issuance of $ 13 billion of new debt by Twitter and a margin loan of $ 12.5 billion against $ 62.5 billion in Tesla stock, against a current debt of the group. "Only" 5.29 billion dollars, remembers S&P. "We plan to gather more information on the details of the margin loan but it is possible that we will consolidate the loan into Twitter's capital structure and credit metrics." The acquisition could therefore “lead to a multiple downgrade of the issuer's rating, probably no higher than category 'B'. According to S&P, the transaction also "increases" the "risks and uncertainties about potential changes in strategy, management and governance".
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/chi-finanziera-musk-per-comprare-twitter/ on Tue, 26 Apr 2022 10:25:17 +0000.