Elon Musk’s Twitter deal threats put new funding on ice, sources say
Elon Musk’s Tweet displayed on a screen and the Twitter logo displayed on a phone screen are seen in this illustration photo taken in Krakow, Poland, April 14, 2022.
Jakub Porzycki | Nurphoto | Getty Images
Elon Musk’s efforts to arrange new financing that will limit his cash contribution to his $44 billion acquisition of Twitter Inc have been put on hold due to uncertainty surrounding the deal, people familiar with the matter have said.
Musk threatened to back out of the deal unless the social media company provided him with data to back up his estimate that fake or spam accounts account for less than 5% of its user base. This culminated in a letter from Musk’s attorneys to Twitter on Monday warning he may walk away unless more information is provided.
Musk is required to pay $33.5 billion in cash to fund the deal after arranging debt financing to cover the rest. His liquidity is limited given that his wealth, which is pegged by Forbes at $218 billion, is largely tied to shares of Tesla Inc, the electric car maker he heads.
Musk has been in talks to arrange a preferred stock financing of $2 billion to $3 billion from a group of private equity firms led by Apollo Global Management Inc, which would further reduce his cash contribution, the sources say. Those conversations are now on hold until the future of the acquisition is clear, one of the sources said.
The pause in fundraising offers the first clear sign that Musk’s threats are interfering with steps that would help seal the deal. Twitter has so far insisted that Musk was fulfilling his obligations under their contract, including helping secure regulatory approval for 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 stock in April after signing his deal to buy Twitter, and it’s unclear how much money he has to fulfill his obligation. It raised $7.1 billion from a group of equity co-investors to reduce its contribution. Musk also sought to further reduce that exposure by arranging a risky $12.5 billion margin loan tied to Tesla shares, but then dumped it last month.
Preferred stock would pay a fixed dividend from Twitter, similar to how a bond or loan pays regular interest, but would appreciate based on the value of the company’s shares.
The uncertainty of the deal also weighed on the banks’ plans to secure $13 billion in debt they pledged to buy off their books through syndication. While preparing to syndicate the debt, the banks plan to wait until the deal is clear before starting the process, the sources said.
Banks do not believe credit investors will buy debt as long as the uncertainty persists, the sources said. The banks also found Musk’s disparaging public comments about the company unnecessary and hoped he would now help them with investor presentations to syndicate the deal, the sources added.
Certainly, the cessation of these activities does not affect the commitments made by Musk and the banks to finance the operation. Twitter may sue them to force them to comply with their funding obligations under the Transaction Agreement if they fail.
Debt syndication could become a major issue for the banks if the dispute between Musk and Twitter escalates and they are forced by a judge to fund the deal. In this scenario, they might struggle to convince investors to buy the debt if Musk was unwilling to own the company.
This possibility, however, is considered remote. Most investors trade Twitter shares assuming the company is much more likely to reach a deal with Musk or let him walk away, than go through protracted litigation.