Twitter, Musk talks warm up as buyout closing deadline nears

Advisers to Twitter Inc. and Elon Musk are hard at work trying to get the $44 billion deal closed by the end of the month, according to people familiar with the matter.

Both sides' bankers and lawyers are preparing paperwork for the buyout to be completed by the Oct. 28 court-issued deadline, the people said, asking not to be identified because the matter is private.

After months of public acrimony and accusations, talks between the two sides have turned cordial and are focused on closing the transaction rather than litigation, according to one of the people.

The Wall Street banks involved, led by Morgan Stanley, are also ironing out the steps needed to finalize funding about $13 billion of debt commitments. One of the banks has told its staff to expect a borrowing notice from Musk on Tuesday, said another person familiar with the matter.

Representatives for Twitter and Morgan Stanley declined to comment. A spokesperson for Musk didn't immediately respond to a request for comment.

It's unclear what led to the breakthrough between Twitter and Musk. In early October, their talks were stuck over Musk's statement that his offer was contingent on receiving $13 billion in debt financing, even though banks were already on the hook to provide the debt through a commitment letter from April.

Musk allegations

Another sticking point was that Musk had been seeking to reserve his rights to file a fraud lawsuit over his claims the platform's executives misled him and other investors about the number of spam and automated accounts, Bloomberg News reported.

Musk said Wednesday on a Tesla Inc. earnings call that he was "excited about the Twitter situation." He described the social media company as an asset with "incredible potential" that has "sort of languished for a long time." He also said that, at $54.20 a share, he was obviously overpaying for it.

The transaction closing would follow a rollercoaster of events that started in April with the deal announcement. Musk previously tried to walk away from his offer, prompting Twitter to sue to force him to fulfill the contract. A judge delayed a planned trial that had been set for Oct. 17 to give the two sides more time to finalize the details.

Earlier this week, Twitter froze the equity awards accounts for employees in anticipation of the deal closing.

Workforce cuts

The relative calm may not last long.

Potential investors are being told Musk plans to cut 75% of Twitter's workforce, which now numbers about 7,500, and expects to double revenue within three years, said a person familiar with the matter. Musk's plans also would allow for the return of former President Donald Trump and others who have been kicked off the platform because Twitter will loosen content moderation standards, that person said.

The Washington Post reported earlier that Musk plans to slash Twitter's workforce by almost 75% in a matter of months. Musk had told investors he intended to shrink staff in his initial pitch to bankers for funding, Bloomberg News reported in April.

Twitter workers have been bracing for layoffs for months. Executives discussed plans earlier this year to lay off roughly 25% of employees, but that plan was scrapped after Musk agreed to purchase the company, according to people familiar with the matter.

Instead, Twitter has been trying to cut costs in other ways, implementing a hiring freeze in May and announcing a series of office closures over the summer. It's possible the company may need to do layoffs if the Musk deal falls through, though none are currently planned, the people said. Even if Twitter wanted to carry out job cuts sooner, it might not be able to under the terms of the deal agreement, which stipulate Twitter cannot take certain actions that may be considered outside of the ordinary course of business.

Banks' pain

The banks had originally intended to sell $12.5 billion of the debt commitments to money managers in the form of junk bonds and leveraged loans before the deal closed. Due to Musk's reversals and volatile debt markets, the banks will instead have to provide the cash themselves and then try to sell the debt to investors later.

The banks are expected to see paper losses of more than $500 million compared to where the bonds and loans would currently trade. The banks won't realize the losses until they eventually sell the debt to investors at steep discounts to par. They'll be paid interest in the meantime, which could offset some of that pain.