People who try to take over companies typically go to great lengths to show they have put together the money they need to do it. Not Elon Musk.
In his offer to take Twitter Inc. private for about US$43-billion, Mr. Musk said the deal was partly contingent on “completion of anticipated financing.” He provided no clues, however, about how exactly he would raise the funds to buy the roughly 90 per cent of Twitter that he doesn’t already own.
“It’s one of the barest-bones acquisition offers I’ve ever seen,” said Howard Berkenblit, head of the capital markets team at Sullivan & Worcester LLP, a law firm. “It’s almost like he tweeted the offer” and plans to determine the next steps “depending on what Twitter wants to do.”
Twitter’s board appeared to be leaning against a deal last week. The directors were weighing whether to adopt a so-called poison pill, a defensive corporate manoeuvre intended to ward off an unwanted takeover offer by making the target’s shares more expensive.
At a TED conference last week, Mr. Musk said he had “sufficient assets” to pull off the acquisition. “I can do it if possible,” he said, adding that he has a Plan B if Twitter’s board rejects his offer.
Mr. Musk also made no secret of his bullishness. “Twitter has extraordinary potential,” he said in an earlier filing. “I will unlock it.”
On top of determining whether Mr. Musk has the financial heft to put together a deal, the board has to take into account the billionaire’s volatile and unpredictable nature, said Drew Pascarella, a senior lecturer of finance at Cornell University.
“A simple personality conflict, it does not disqualify an offer,” Mr. Pascarella said. “But if they are tying Elon’s personality traits to the likelihood of the deal happening – can you come up with the cash, and will the deal actually close – then that can very much be taken into consideration.”
Mr. Musk is the richest person in the world, with a net worth pegged at well north of US$200-billion. But his wealth is mostly tied up in Tesla Inc. stock. As chief executive of Tesla and as one of its largest shareholders, Mr. Musk owned about one-fifth of the electric carmaker as of December. But Tesla limits its executives to using no more than 25 per cent of their stock as collateral for borrowing, and Mr. Musk already has pledged a portion of his Tesla shares for other loans, according to company filings.
He could theoretically pledge the rest of his eligible Tesla shares to raise enough funding to buy Twitter. But Tesla remains a wildly volatile stock, trading between US$766 and US$1,145 in a matter of weeks – which would give pause to banks considering lending to Mr. Musk against his Tesla holdings.
Mr. Musk could also go to banks to help provide the US$15-billion to US$20-billion in debt financing that analysts say the bid requires, which would be added to Twitter’s balance sheet. But Morgan Stanley, the investment bank that is advising Mr. Musk, is not known on Wall Street for pulling together the kind of large-scale financing that a purchase of Twitter would require.
Morgan Stanley could rope in banks with bigger balance sheets, such as JPMorgan Chase and Bank of America. But a tense bit of history between JPMorgan and Mr. Musk could compel the bank to sit it out. Last year, JPMorgan sued Mr. Musk over a misleading Twitter post in which he claimed to have secured funding for his offer to take Tesla private, alleging that it violated the terms of a contract between the two entities.
JPMorgan declined to comment.
A third option for Mr. Musk is private equity. When he contemplated taking Tesla private in 2018, he famously brought in the services of Silver Lake, a technology-focused private equity firm. Silver Lake already has a connection to Twitter. Silver Lake co-CEO Egon Durban joined Twitter’s board in 2020 after a US$1-billion investment by Silver Lake.
But there’s a catch there, too. When it invested in Twitter, Silver Lake signed an agreement that severely limits its ability to acquire more than 5 per cent of the company. That agreement could hinder its willingness or ability to team up with Mr. Musk.
Silver Lake also declined to comment.
Other private equity firms could team up with Mr. Musk, but any such deal would be complicated. Private equity firms typically seek out companies with steady cash flow so they can safely take out large sums of debt, which can be paid back with the cash the company generates. But Twitter had negative cash flow of US$370-million last year and isn’t a candidate for the kind of cost-cutting that private equity firms traditionally employ.
Any potential partner would also have to take into account the possibility that Mr. Musk’s unconventional entanglements with Twitter could draw the ire of regulators. That could reduce the likelihood of a deal even if the financing came together.
Some Twitter shareholders are suing Mr. Musk for failing to disclose in a timely manner that he was amassing a stake of more than 5 per cent in the company, denying them the opportunity of benefiting from the price gain when he eventually disclosed his stake.
Securities lawyers said the Securities and Exchange Commission, which is the U.S.’s top financial regulator, was likely to scrutinize Mr. Musk’s moves. If it pursues a case, that could deter banks, private equity firms and Twitter shareholders from embracing his offer.
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