Elon Musk’s efforts to secure new financing that will limit his cash contribution to his $44 billion (approximately Rs. 3,41,800 crore) acquisition from Twitter have been suspended due to uncertainty surrounding the deal, people familiar with the value said. Matter.
Musk has threatened to walk away from the deal unless the social media company provides him with data to back up its estimate that fake or spam accounts make up less than 5 percent of his user base. This culminated in a letter from Musk’s lawyers to Twitter warning Monday that he could walk away unless more information emerges.
Musk is about to pay $33.5 billion (about Rs. 2,60,300 crore) in cash to fund the deal after arranging debt financing to cover the rest. His liquidity is limited as his net worth, which is pegged at $218 billion (approximately Rs 16,93,800 crore) by Forbes, is largely tied to the shares of Tesla, the electric car maker he leads.
Musk has been in talks to arrange $2 billion (about Rs. 15,500 crore) to $3 billion (about Rs. 23,300 crore) in preferred equity financing from a group of private equity firms led by Apollo Global Management that would further reduce its cash contribution, according to the sources. One of the sources said that these talks are now on hold until there is clarity about the future of the acquisition.
The pause in financing activities provides the first clear sign that Musk’s threats interfere with steps that would help close the deal. Twitter has so far insisted that Musk fulfill his obligation under their contract, including helping to obtain regulatory approval for the sale.
Spokespersons for Musk and Twitter did not respond to requests for comment. Apollo declined to comment.
Musk sold $8.5 billion (about Rs. 66,000 crores) worth of Tesla stock in April after signing his deal to buy Twitter, and it’s not clear how much cash he has available to meet his obligation. To reduce his contribution, he has raised $7.1 billion (about Rs. 55,200 crores) from fellow equity investors. Musk also sought to further reduce this exposure by arranging a risky $12.5 billion (approximately Rs. 97,100) margin loan pegged to Tesla’s stock, but canceled it last month.
Preferred stock would pay a fixed dividend from Twitter; in the same way, a bond or loan pays regular interest but would increase in line with the value of the company’s equity.
Uncertainty over the deal has also weighed on banks’ plans to syndicate $13 billion (approximately Rs. 1.01,000 crore) in debt they pledged for the acquisition from their books. While they are still preparing to syndicate the debt, the banks plan to wait for clarity on the deal to start the process, the sources said.
The sources said that the banks do not believe credit investors will buy the debt as long as the uncertainty continues. The sources added that the banks also found Musk’s disparaging public comments about the company useless and hoped he would now help them with investor presentations to syndicate the deal.
Certainly, the cessation of these activities will not affect Musk’s and the banks’ commitments to fund the deal. If they fall short, Twitter can sue them to force them to meet their financing obligations under the deal contract.
Debt syndication could become a major problem for the banks as Musk’s dispute with Twitter would escalate into lawsuits, and a judge forced them to fund the deal. In that scenario, they could struggle to get investors to buy the debt if Musk wasn’t willing to own the company.
However, that possibility is seen as distant. Most investors trade Twitter’s stock on the premise that it’s much more likely that the company can reach a settlement with Musk or let him walk away rather than going through lengthy lawsuits.