It seems that Elon Musk is still serious about trying to take Twitter (NYSE: TWTR) private.
In the latest twist, the billionaire has unveiled a $46.5bn financing package to fund his buyout.
It’s not surprising he’s managed to find the money – the billionaire executive of Tesla (Nasdaq: TSLA) is currently the richest person in the world, according to the Bloomberg Billionaires Index, with a fortune of $260bn.
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Musk has lined up $25.5bn in debt financing, including a margin loan of $12.5bn against his stake in Tesla, from his major banking partners. He is also looking to provide $21bn of equity for the deal himself.
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A bit of financial gymnastics will allow the billionaire to put up this figure without too much pain. The margin loan is secured against 85% of his 17% stake in Tesla, which is worth around $170bn at current prices.
That limits the amount of stock Musk can sell to fund the deal. However, under Tesla’s controversial 2018 bonus scheme, the CEO has three opportunities to buy more than eight million shares (each time) in the electric vehicle manufacturer at a 90% discount. With the next tranche of the bonus scheme set to kick in soon, this could provide the extra funding he needs for the equity slice.
Elon Musk needs to convince Twitter to sell
However, finding the money to finance the bid – which is an interesting challenge – was never really the biggest problem for Musk. Convincing the company to give itself up was always going to be a bigger headache.
And it doesn’t look as if Twitter is going to bend to Musk's wishes any time soon.
Last week it launched a so-called “poison pill” defence against the bid, aimed at blocking him from building a stake of more than 15%. The structure will allow existing investors to buy more shares at a heavy discount if Musk or anyone else attempts to buy more than 15% of the company without the board‘s backing.
Tesla’s CEO already owns 9.2% of Twitter and has said he is exploring a tender offer to buy a bigger stake in the company. Such a move is usually considered a hostile act because it bypasses the board of directors, who are ultimately supposed to represent shareholders. And now it would trigger the poison-pill defence, diluting his stake, and increasing the cost of a potential buyout.
Interestingly, Twitter has yet to issue a formal response to the initial buyout offer, so there could be yet another twist in this tale.
Is there something else going on behind the scenes?
The bigger question is what does Musk really want with Twitter? He has claimed that the company is a platform for free speech around the world and he wants to defend this right. However, the enterprise does not fit well alongside his collection of other businesses, namely Tesla and SpaceX, and the group is struggling for direction.
Twitter is trying to boost revenues by getting advertisers to pay more for their brands to appear on users' timelines, but it is still losing money. It reported a net loss of $221m in 2021 on revenues of more than $5bn.
Some of Musk’s critics have speculated that he could be pursuing Twitter in order to divert attention from as-yet-to-be-seen problems. If this is the case, it’s an expensive way to distract the media, but for a billionaire who has a history of playing fast and loose with the rules – and one whose own Twitter stream is essentially an ongoing publicity stunt – it would not be out of character.
It might be best for investors to sit this one out, rather than trying to guess what’s in store for either side of this increasingly bitter battle.
