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Elon Musk is racing to secure funding for his $43-billion bid to buy Twitter.
The Tesla boss is willing to invest between $10 billion and $15 billion of his own money to take Twitter private, the New York Post reported on Tuesday, citing two sources familiar with the matter. The billionaire, who is Twitter’s second-biggest shareholder with a 9.1 per cent stake, is planning to launch a tender offer in about 10 days and has tapped Morgan Stanley to raise another $10 billion in debt, according to the report.
Morgan Stanley has been calling banks and other potential investors to shore up financing for the offer, four people with knowledge of the situation said. Musk is first focussed on raising debt and has not yet begun to seek equity financing for his bid, one of the people said.
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.
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-fuelled 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 Musk. In 2018, 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. Musk paid a $20 million fine and agreed to step aside as Tesla’s chairman for three years.
It is unclear if Musk’s efforts will be successful, but they go toward addressing a key question about his Twitter bid. Last week, 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 sceptically 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 Musk’s offer, it responded days later with a defensive tactic known as a “poison pill.” A poison pill would effectively prevent Musk from owning more than 15 percent of Twitter’s shares. The 50-year-old had been building up a stake in the company.
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.
Some investors are wary of getting involved in financing 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.
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,” Musk said in a TED interview. “My strong intuitive sense is that having a public platform that is maximally trusted and broadly inclusive is extremely important.”
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