Elon Musk is vying to secure funding for his $ 43 billion bid to buy Twitter.
Morgan Stanley, the investment bank working with Mr Musk on the potential deal, is calling on banks and other potential investors to secure funding for the offer, said four people familiar with the situation. Mr Musk is first focusing on debt collection and has not yet started seeking capital funding for his offer, one man said.
Mr Musk is estimating various debt packages, including a higher debt known as preferred debt and a loan against his shares in Tesla, the electric car maker he runs, two said. Apollo Global Management, a private investment company, is among the countries considering offering debt financing in a Twitter offer. The equity it needs is likely to be significant.
Mr Musk is seeking a fully funded offer as early as this week, one man said, although the timetable is far from certain. People familiar with the discussions were not authorized to speak in public, as details are confidential and subject to change.
It is unclear whether Mr Musk’s efforts will be successful, but they are aimed at resolving a key issue regarding his candidacy on Twitter. Last week, Mr Musk, the world’s richest man, made an unsolicited offer for the social media company, saying he wanted to do it privately and wanted people to be able to speak more freely in the service. But his proposal was viewed with skepticism by Wall Street because he did not include details on how he would find the money for the deal.
Although the Twitter board did not reject Mr. Musk’s proposal, he responded days later with a defensive tactic known as the “poison pill.” A poison pill would effectively prevent Mr. Musk from owning more than 15 percent of Twitter’s stock. The 50-year-old is gaining a stake in the company and owns more than 9 percent of Twitter, making him at one point the largest individual shareholder.
Read more about Elon Musk and his Twitter offer
The billionaire’s proposal could cost more than $ 40 billion and have profound consequences for the social media company.
Mr Musk, whose net worth is estimated at $ 255 billion, did not respond to a request for comment. On Tuesday, in what seemed like a veiled hint to Twitter, he tweeted his thoughts on social media and their policies.
Morgan Stanley declined to comment. Twitter, which also declined to comment, is expected to provide an update on its prospects for the deal when it reported quarterly earnings on April 28.
Tesla did not return a request for comment. It is unclear how Tesla’s shareholders will view Mr Musk’s move to potentially borrow against the company’s shares; some of its largest shareholders declined to comment. The carmaker will report a quarterly profit on Wednesday. Mr Musk often spoke during Tesla’s profits talks with investors.
The Twitter deal, if structured as a traditional leverage buyout, would potentially be the largest such deal in at least the last two decades and would be difficult to finance for any buyer. This is because Twitter does not have the financial profile that is typical of debt-fueled acquisitions.
In most leverage buyouts, companies have large and stable cash flows. But Twitter’s business is inconsistent, with revenue growth slowing. Its profits, excluding interest costs, are only about $ 1 billion a year, and financiers generally do not want to accumulate too much debt with companies that generate profits of this magnitude.
There are also obstacles, especially for Mr Musk. In 2018, Mr. Musk tried to make Tesla private and tweeted “funding has been secured” by raising Tesla’s shares. He had no prepared funding for such a deal. The Securities and Exchange Commission later filed a securities fraud lawsuit against him, accusing him of misleading investors. Mr Musk paid a $ 20 million fine and agreed to step down as chairman of Tesla for three years.
Some investors are wary of getting involved in financing Mr Musk’s offer on Twitter, worried about the risks of merging with the rebellious billionaire and a company as politically contested as Twitter, said someone familiar with the situation. Offering loans against Tesla shares is also risky for banks, given stock volatility.
Mr Musk has not made public his business plan for Twitter, although he has spoken out about reversing Twitter’s moderation policies and providing additional transparency on how its algorithms work. He made it clear that profit was not his focus, potentially complicating investment efforts with traditional Wall Street financiers.
“This is not a way to make money,” Mr Musk said in an interview with a TED conference last week. “My strong intuitive feeling is that having a public platform that is highly trusted and widely inclusive is extremely important.”
Mr Musk’s offer for Twitter was $ 54.20 per share. Several analysts said the company’s board was likely to accept only an offer of $ 60 a share or more. Shares of Twitter rose above $ 70 a share last year when the company announced its goal of doubling its earnings, although its shares have since fallen to about $ 45 as investors have questioned its ability to meet those goals.
Mr Musk, who began amassing shares on Twitter in January, was invited to join the company’s board this month. At the time, Parag Agraval, Twitter’s chief executive, and other board members said they welcomed Mr Musk as director, given his use of the platform. Mr Musk has more than 82.5 million followers on Twitter and tweets frequently.
Mr Musk and Mr Agrawal also share similar views on how to decentralize Twitter so that users can gain more control over their social media feeds, a tactic that both men see as a way to promote more freedom of speech. The move will also reduce the burden on Twitter, which faces toxic content and misinformation issues, to decide which posts can remain and which can be removed.
But then Mr. Musk turned down the board and began efforts to take over the company.
Twitter, which has attracted advisers from Goldman Sachs and JPMorgan Chase, is also considering whether to invite offers from other potential buyers, said two people close to the company. At least one interested party, the private investment company Thoma Bravo, has emerged, although it is unclear whether it will eventually submit a bid.
Kate Conger, Mike Isaac and Jack Ewing contributed to the reports.
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