Elon Musk's efforts to arrange new financing that will limit his cash contribution to his $44 billion acquisition of Twitter have been put on hold because of the uncertainty surrounding the deal, people familiar with the matter said.
Musk has been threatening to walk away from the deal unless
the social media company provides him with data to back up its estimate that false
or spam accounts comprise less than 5 percent of its user base. This culminated
in a letter from Musk's lawyers to Twitter on Monday warning he may walk away
unless more information is forthcoming.
Musk is on the hook to pay $33.5 billion in cash to fund the
deal after arranging debt financing to cover the rest. His liquidity is limited
given that his wealth, which is pegged by Forbes at $218 billion, is largely
tied to the shares of Tesla, the electric car maker he leads.
Musk has been in discussions to arrange $2 billion to $3
billion in preferred equity financing from a group of private equity firms led
by Apollo Global Management that would further reduce his cash contribution,
according to the sources. These conversations are now on hold until there is
clarity about the future of the acquisition, one of the sources said.
The pause in financing activities offers the first clear
sign that Musk's threats are interfering with steps that would help complete
the deal. Twitter has insisted thus far that Musk has been performing his
obligation under their contract, including helping to secure regulatory
approval for the deal.
Spokespersons for Musk and Twitter did not respond to
requests for comment. Apollo declined to comment.
Musk sold $8.5 billion worth of Tesla shares in April after
he signed his deal to buy Twitter, and it is not clear how much cash he has
available to meet his obligation. He has raised $7.1 billion from a group of
equity co-investors to reduce his contribution. Musk also sought to reduce this
exposure further by arranging a risky $12.5 billion margin loan tied to the
shares of Tesla, but then scrapped it last month.
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.
Buyer's remorse
The deal uncertainty has also weighed on the plans of banks
to get $13 billion of debt they have committed to the acquisition off their
books through syndication. While still preparing to syndicate the debt, the
banks plan to wait until there is clarity on the deal to launch the process,
the sources said.
The banks do not believe credit investors will buy into the
debt as long as the uncertainty lingers, the sources said. The banks have also
found Musk's disparaging public comments about the company unhelpful, and were
hoping he would be helping them by now with investor presentations to syndicate
the deal, the sources added.
To be sure, the halt of these activities does not affect the
commitments made by Musk and the banks to fund the deal. Twitter can take them
to court to force them to comply with their financing obligations under the
deal contract if they come short.
The syndication of the debt could emerge as a major issue
for the banks were Musk's dispute with Twitter to escalate in litigation and
they were forced by a judge to fund the deal. In that scenario, they could
struggle to get investors to buy the debt if Musk were unwilling to own the
company.
That possibility, however, is seen as remote. Most investors
are trading Twitter's stock on the assumption it is far more likely for the
company to reach a settlement with Musk or let him walk away, rather than go
through protracted litigation.
© Reuters
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