Elon Musk is in talks with large investment firms and high net-worth individuals about taking on more financing for his $62 billion acquisition of Twitter and tying up less of his own wealth in the deal.
While Elon Musk has been declared by Forbes to be the world’s richest person, he has disclosed that he sold $US8.5 billion worth of Tesla stock following his agreement to buy Twitter last week.
Sources have stated that new financing, which could come in the form of preferred or common equity, could potentially reduce the $US21 billion cash contribution Musk has committed as well as a margin loan he secured against his Tesla shares.
The banks that agreed last month to provide $US13 billion in loans based on Twitter’s business balked at offering more debt for Musk’s acquisition given the San Francisco-based company’s limited cash flow.
Musk has also pledged some of his Tesla shares to banks to arrange a $US12.5 billion margin loan to help fund the deal, possibly seeking to trim the size of the margin loan based on the new investor interest in the deal financing.
Major investors such as private equity firms, hedge funds and high net-worth individuals are in talks with Musk about providing preferred equity financing for the acquisition.
Preferred equity would pay a fixed dividend from Twitter, in the same way that a bond or a loan pays regular interest but would appreciate in line with the equity value of the company.
While Apollo Global Management and Ares Management are among the private equity firms that have been in talks about providing financing for the acquisition, Musk is still deciding whether he will have partners team up with him in writing the equity check needed for the deal.
The Tesla CEO, not seeking to take on more debt for the Twitter deal currently, has been in talks with some of Twitter’s major shareholders about the possibility of them rolling their stake into the deal rather than cashing out.
Former Twitter chief executive and current board member Jack Dorsey and large institutional investors such as Fidelity are also reviewing whether they will roll over their stakes.
Wedbush Securities managing director Dan Ives said the news helped ease investors’ concerns that the Tesla and SpaceX CEO was relying too much on his company’s shares for the Twitter deal financing.
“This is big if it materialises as we believe the Twitter deal has been a $100+ per share overhang on Tesla’s stock due to the Musk financing concerns,” Ives tweeted.
Investors have been fretting over whether Musk will complete the Twitter deal given he has backtracked on his dealings in the past.
In April, he decided at the last minute not to take up a seat on Twitter’s board. In 2018, Musk tweeted that there was “funding secured” for a $US72 billion deal to take Tesla private but did not move ahead with an offer.
Elon Musk would have to pay a $1 billion termination fee to Twitter if he walked away, and the social media company could also sue him to complete the deal.
With AAP