Will Elon Musk buy Twitter? Keys to closing the $44 billion deal – NBC Connecticut
If the bickering ever stops over Elon Musk’s new takeover bid on Twitter, experts say he still faces a huge hurdle to closing the $44 billion deal: maintaining his funding in place.
Earlier this week, Musk backtracked and said he would complete the acquisition of the social media company on the same terms he agreed to in April. But after months of tweetstorms and legal barbs, there are scars and suspicions on both sides.
Experts say behind the scenes banks could be scrambling to find buyers for $12.5 billion in debt under the deal, and Musk is trying to maintain a pool of equity investors that is investing billions what’s more. The erratic billionaire is on the hook for the rest.
The fighting continued on Thursday, when Musk’s lawyers said Twitter refused to accept his new offer to buy the company. They sought to delay an upcoming lawsuit over Twitter’s lawsuit that could force it into the deal.
But Twitter’s lawyers said it was Musk who was blocking everything, and his efforts to stay the lawsuit “is an invitation to further wrongdoing and delay.”
Ultimately, a judge agreed to give Musk more time to close the case, but said the trial would continue in November if he didn’t.
Musk is even closer to closing the deal than he was in April because he has now committed to a judge, not just on Twitter, that he has the funding and just needs to longer, said Columbia law professor Zohar Goshen. University.
“Now the judge is able to say, ‘Fair or not fair, I don’t care. You bring the money,” Goshen said.
But with so much at stake, here’s what could derail the case again:
A group of banks, including Morgan Stanley and Bank of America, have signed on to lend $12.5 billion of the money Musk needs for the deal. In Thursday’s lawsuit, Musk alleges that Twitter does not want to dismiss the lawsuit due to a “baseless” fear that Musk could not obtain bank financing.
“No such failure has occurred to date,” the motion reads. “Attorneys for the parties to the debt financing have indicated that each of their clients is prepared to honor their obligations.”
The banks are “essentially cemented” to the deal by strong contracts, said Wedbush analyst Dan Ives. But the debt market has changed dramatically since April. The stock market has fallen, inflation is high and interest rates are rising as the Federal Reserve attempts to slow the economy.
Banks would sell the debt to institutional investors, but there’s not much appetite left to participate in buyouts that burden companies with big debt. Banks could be required to lend themselves.
“Banks would be really happy not to have to take the risk of funding these loans,” said Erik Gordon, a law and business professor at the University of Michigan. “The deals seem to be very solid, but I think the banks have their lawyers spending sleepless nights trying to get them out of there if they can.
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Investors who would raise equity on Twitter are expected to inject billions. Ives estimates that they had agreed on $15-16 billion. But some investors may be reluctant to stick around given market changes and Musk’s repeated accusations against Twitter over the number of bots on the platform.
Qatar’s sovereign wealth fund declined to comment this week on the $375 million pledged by its subsidiary in May. Several other investors did not respond to requests for comment on whether they were still participating.
Musk’s capital commitments — including $1 billion from Musk’s friend and Oracle co-founder Larry Ellison — are on shaky ground if some of this diverse group of backers have changed hands. opinion, said Kevin Kaiser, assistant professor of finance at the Wharton School at the University of Pennsylvania. .
“Nobody knows – I don’t know anyway – what their commitment is,” Kaiser said. “So are they able to back down? Because if they’re able to back down, he’s on the hook.
Musk, the world’s richest person with a net worth of $231 billion according to Forbes, has to inject his own money, but how much depends on how many equity investors remain.
Most of his wealth is tied up in shares of the electric car company he runs, Tesla Inc. Since April, he has sold more than $15 billion worth of Tesla stock, presumably to pay for his cut.
If stock investors drop out, however, Musk will either have to replace them or pump in more money, fueling speculation that he may have to sell more Tesla shares. Musk’s share of the original deal was around $15.5 billion, Ives estimated.
It’s clear Twitter’s board is highly suspicious of Musk as he’s been trashing the company for months now, alleging it has far fewer daily users than it reports to investors, said Gordon.
That diminished Twitter’s value and made investing in the deal less attractive, he says. And because Musk has already tried to back out of the deal once, Twitter will want some kind of guarantee that he won’t back out again.
That, Ives said, is likely to be a large sum of money held in a non-refundable escrow account that would go to Twitter if Musk doesn’t deliver.
Signs of progress
There are signs that the deal will still be done. Twitter says it looks forward to closing the deal by October 28. Musk’s testimony in the trial, scheduled for Thursday in Austin, Texas, has been postponed. Musk’s motion says the bankers are still there. And the original investor group is not talking publicly about a bailout.
Krisher reported from Detroit, O’Brien from Providence, Rhode Island.