The world’s richest man is trying to shore up debt financing, including potentially taking out a loan against his shares of Tesla, so he can buy Twitter for $43 billion.
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Elon Musk is racing to secure funding for his $43 billion bid to buy Twitter.
Morgan Stanley, the investment bank working with Mr. Musk on the potential deal, has been calling banks and other potential investors to shore up financing for the offer, four people with knowledge of the situation said. Mr. Musk is first focused on raising debt and has not yet begun to seek equity financing for his bid, one of the people said.
Mr. Musk is evaluating various packages of debt, including more senior debt known as preferred debt and a loan against his shares of Tesla, the electric carmaker that he runs, two of the people said. Apollo Global Management, an alternative asset manager, is among the parties considering offering debt financing in a bid for Twitter. The equity he needs is likely to be sizable.
Mr. Musk is aiming to pull together a fully funded offer as soon as this week, one of the people said, though that timeline is far from certain. The people with knowledge of the discussions were not authorized to speak publicly because the details are confidential and in flux.
It is unclear if Mr. Musk’s efforts will be successful, but they go toward addressing a key question about his Twitter bid. Last week, Mr. Musk, the world’s wealthiest man, made an unsolicited offer for the social media company, saying that he wanted to take it private and that he wanted people to be able to speak more freely on the service. But his offer was regarded skeptically by Wall Street because he did not include details about how he would come up with the money for the deal.
While Twitter’s board has not rejected Mr. Musk’s offer, it responded days later with a defensive tactic known as a “poison pill.” A poison pill would effectively prevent Mr. Musk from owning more than 15 percent of Twitter’s shares. The 50-year-old had been building up a stake in the company and owns more than 9 percent of Twitter, making him at one point its single-biggest individual shareholder.
Mr. Musk, whose net worth has been reported at $255 billion, did not respond to a request for comment. On Tuesday, in what appeared to be a veiled allusion to Twitter, he tweeted his thoughts about social networks and their policies.
Morgan Stanley declined to comment. Twitter, which also declined to comment, is expected to provide an update on its deal-making prospects when it reports quarterly earnings on April 28.
Tesla did not return a request for comment. It is unclear how Tesla’s shareholders will regard Mr. Musk's move to potentially take out a loan against shares of the company; some of its largest shareholders declined to comment. The automaker will report quarterly earnings on Wednesday. Mr. Musk often speaks during Tesla’s earnings call with investors.
A deal for Twitter, if structured as a traditional leveraged buyout, would potentially be the largest such deal in at least the last two decades and would be difficult to finance for any buyer. That’s because Twitter does not have the financial profile that is typical of debt-fueled acquisitions.
In most leveraged buyout deals, companies have large and steady cash flows. But Twitter’s business has been inconsistent, with revenue growth slowing. Its earnings excluding costs such as interest total only about $1 billion a year, and financiers are generally loath to pile on too much debt with companies that generate earnings of that size.
There are also obstacles particular to Mr. Musk. In 2018, Mr. Musk tried to take Tesla private and tweeted “funding secured,” propelling Tesla shares higher. He did not have financing prepared for such a deal. The Securities and Exchange Commission later filed a securities fraud lawsuit against him, accusing him of misleading investors. Mr. Musk paid a $20 million fine and agreed to step aside as Tesla’s chairman for three years.
Some investors are wary of getting involved in financing Mr. Musk’s Twitter bid, concerned about the risks of teaming up with the mercurial billionaire and a company as politically contentious as Twitter, one person with knowledge of the situation said. For banks, offering a loan against Tesla stock is also risky, given the stock’s volatility.
A blockbuster deal. Elon Musk, the world’s wealthiest man, capped what seemed an improbable attempt by the famously mercurial billionaire to buy Twitter for roughly $44 billion. Here’s how the deal unfolded:
The initial offer. Mr. Musk made an unsolicited bid worth more than $40 billion for the influential social network, saying that he wanted to make Twitter a private company and that he wanted people to be able to speak more freely on the service.
The response. Twitter’s board countered Mr. Musk’s offer with a defense mechanism known as a “poison pill.” This well-worn corporate tactic makes a company less palatable to a potential acquirer by making it more expensive for them to buy shares above a certain threshold.
Securing financing. Though his original offer had scant details and was received skeptically by Wall Street, Mr. Musk has been moving swiftly to secure commitments worth $46.5 billion to finance his bid, putting pressure on Twitter’s board to take his advances seriously.
Striking a deal. With the financing in place, Twitter’s board met with Mr. Musk to discuss his offer. The two sides soon reached a deal, with the social media company agreeing to sell itself for $54.20 a share.
Will the deal go through? For the purchase to be completed, shareholders have to vote and regulators have to review the offer first. Scrutiny is likely to be intense and questions remain about Mr. Musk’s plans for the company, especially after he suggested he needs more information on spam and fake accounts on Twitter for the deal to proceed.
Mr. Musk has not publicly articulated his business plan for Twitter, though he has spoken about reversing Twitter’s moderation policies and providing additional transparency about how its algorithms work. He has made clear that profit is not his focus, potentially complicating efforts to invest with traditional Wall Street financiers.
“This is not a way to sort of make money,” Mr. Musk said in an interview at a TED conference last week. “My strong intuitive sense is that having a public platform that is maximally trusted and broadly inclusive is extremely important.”
Mr. Musk’s offer for Twitter stands at $54.20 a share. Several analysts have said the company’s board is likely to accept only an offer of $60 a share or more. Twitter’s stock rose above $70 a share last year when the company announced goals to double its revenue, though its stock has since fallen to around $45 as investors have questioned its ability to meet those targets.
Mr. Musk, who began accumulating Twitter shares in January, was invited this month to join the company’s board. At the time, Parag Agrawal, Twitter’s chief executive, and other board members said they welcomed Mr. Musk as a director given his use of the platform. Mr. Musk has more than 82.5 million Twitter followers and tweets frequently.
Mr. Musk and Mr. Agrawal also share similar perspectives about how to decentralize Twitter so that users can gain more control over their social media feeds, a tactic that both men see as a way of promoting more free speech. That move would also reduce the burden on Twitter, which has faced questions about toxic content and misinformation, to decide what posts can stay up and what should be taken down.
But then Mr. Musk rejected the board seat and began the effort to take over the company.
Twitter, which has brought on advisers from Goldman Sachs and JPMorgan Chase, has also been weighing whether to invite bids from other potential buyers, two people close to the company said. At least one interested party, the private equity firm Thoma Bravo, has emerged, though it is unclear whether it will ultimately submit an offer.
Kate Conger, Mike Isaac and Jack Ewing contributed reporting.