Highlights
- Elon Musk needs to keep banks, investors on board to buy Twitter.
- He is currently the world's richest man, but the majority of his fortune is invested in Tesla stock, which he owns and manages.
- He has reportedly sold more than $15 billion in Tesla stock since April, most likely to cover his stake.
- The taking-Twitter-private deal proposed by Musk is worth about $44 billion.
If the hoopla over Elon Musk's second attempt to acquire Twitter ever comes to an amicable closure, analysts say he still confronts a significant challenge: maintaining his finance.
Earlier this week, Musk made a U-turn and said that he would proceed with his move to buy the social media firm on the same conditions he had agreed to in April. Amid the months of tweetstorms and legal jabs. There are wounds and misgivings on both sides.
Here's the story so far:
When does the deal need to be finalised?
Elon Musk and Twitter have until October 28, 2022.
How much is the amount involed?
The transaction involves a $44 billion takeover deal. One possible scenatio is that if not finalised by October 28, they will have to start the trial process all over again.
Recent, a US court decided to halt the legal battle in order for the deal to proceed.
How much of it will be financed by debt?
Even the richest man in the world requires some "help" for a purchase of this magnitude.
According to experts, banks may be frantically seeking to find purchasers for the deal's $12.5 billion in debt, while Musk is attempting to keep a group of equity investors from throwing in additional billions of dollars. The remainder is the responsibility of the Elon Musk.
The help comes in the form of two loan commitment letters from Morgan Stanley and other unnamed financial institutions (one for $13 billion and another for $12.5 billion, the latter of which was ultimately cut to $6.25 billion). Musk said in April that he had "secured" $46.5 billion in funding for the transaction.
Forbes estimated Musk's net worth at more than $251 billion in a September report. Everyone is now waiting for Musk to actually have the funds available to transfer.
What's the squabble all about?
It's about money and alleged huge number of "bots", or fake accounts on Twitter. Musk had earlier compared fake accounts to "termites", eating up a house.
Musk is a long-time Twitter user with more than 100 million followers, using the platform as a megaphone for his corporate and personal ambitions. On April 4, he revealed he had splashed out nearly $2.9 billion on a 9.2 percent stake in the company.
Musk then offered to buy Twitter for $54.20 per share, or $44 billion. Twitter shares soared. Musk was offered a seat on the board, and CEO Parag Agrawal called him "a passionate believer and intense critic of the service", saying it was "exactly what we need". Both sides appeared to be getting along very well.
Why did the deal turn sour?
Things started to unravel a week later. Musk decided against joining the board. Agrawal said it was "for the best". Musk launched a hostile takeover bid, an April 13 filing showed, and Twitter adopted a "poison pill" defence that would allow shareholders to buy additional stock.
Weeks later, he announced his was pulling out of the deal. He made disparaging remarks about the company. Then, months of tweetstorms and legal jabs ensued. Accuations and counter-accusations flew.
Musk alleged that Twitter officials, including CEO Parag Agrawal, ordered whistleblower Peiter Zatko to destroy evidence of their missteps. Twitter stocks sank, to as low as $32.56 on July 11, 2022.
On October 4, the New York Stock Exchange suspended trading of Twitter shares following a tweet from Musk himself and a subsequent Bloomberg report on a possible new takeover offer for Twitter by the billionaire. The next day, October 5, Twitter stocks spiked to $51.95, a 37% jump from the July low.
Giuseppe Pampena says that when Musk agreed last week to go ahead with his purchase of Twitter, at the originally agreed upon price, he "essentially acknowledged that he had been bluffing all along" about backing out of the deal.
The flip-flops and Musk's accusations about Twitter sunk its stock price, hurting investors while all the while improving Musk's bargaining position, according to the securities class-action complaint filed Monday in federal court in San Francisco.
Musk has previously been sued at various points along the way in the Twitter buyout saga. Representatives of Quinn Emanuel Urquhart & Sullivan LLP, the law firm that represents Musk in several legal matters including the Twitter buyout, didn't immediately respond outside regular business hours to a request for comment.
The case is Pampena v. Musk, 22-cv-05937, U.S. District Court, Northern District of California (San Francisco).
- Bloomberg
What did the judge do?
On Thursday, Musk's attorneys said Twitter is refusing to accept his revived bid to buy the company. They sought to delay an upcoming trial on Twitter's lawsuit that could force him to complete the deal.
But Twitter's attorneys said it's Musk who is holding everything up, and his effort to put the trial on hold "is an invitation to further mischief and delay."
In the end, a judge agreed to give Musk more time to close the deal but said the trial will go ahead in November if he doesn't.
Musk is even more on the hook to complete the deal than he was in April because he's now made the commitment to a judge, not just Twitter, that he has the financing and just needs more time, said Zohar Goshen, a law professor at Columbia University.
"Now the judge is in a position to say, `Fair or not fair, I don't care. You bring the money'," Goshen said.
Who are his potential financial backers?
A group of banks, including Morgan Stanley and Bank of America, signed on to loan $12.5 billion of the money Musk needs for the deal. In Thursday's court motion, Musk alleges that Twitter doesn't want to set the lawsuit aside because of a "baseless'' fear that Musk could fail to get the bank financing.
"No such failure has occurred to date,'' the motion said. "Counsel for the debt financing parties has advised that each of their clients is prepared to honor its obligations.''
Can the banks back out?
There are banks with signed contracts that "essentially cemented" funding for the acquisition, Wedbush analyst Dan Ives told Reuters.
But since April, the debt market has seen a significant transformation. In an effort to slow the economy, the Federal Reserve has raised interest rates, the stock market has fallen, and inflation is at an all-time high.
Banks would sell the debt to institutional investors, but there is currently little interest in taking part in takeovers that burden businesses with significant debt. Banks might be required to make loans on their own.
Professor of law and business at the University of Michigan Erik Gordon remarked, "The banks would be tremendously glad to not have to incur the risk of backing these loans." He said, however, that it seems like the agreements are quite firm.
How much are equity investors pumping in?
Investors who would get equity in Twitter are supposed to kick in billions. Ives estimates they had agreed to $15 billion to $16 billion. But some investors may be skittish about staying in, given the market changes and Musk's repeated accusations against Twitter about the number of bots on the platform.
How much money did Musk's friends commit for the deal?
If any of that varied collection of investors have changed their minds, Kevin Kaiser, an adjunct finance professor at the University of Pennsylvania's Wharton School, said Musk's equity commitments, which include $1 billion from Musk's buddy and Oracle co-founder Larry Ellison, are unknown.
"Nobody knows — I don't know anyway — what their commitment is,'' Kaiser said. "So are they able to back out? Because if they're able to back out, he is on the hook:
How much does Musk need to contribute to close it?
As it stands, the amount of money that Musk must contribute depends on how many equity investors continue to participate.
The majority of his fortune is invested in Tesla Inc. stock, which he owns and manages. He has reportedly sold more than $15 billion in Tesla stock since April, most likely to cover his stake.
However, if any equity investors withdraw, Musk will either need to find replacements or contribute more cash.
What if other investors back out of the deal?
Analysts say it may fuel rumours that he may need to sell more Tesla stock. Ives calculated that Musk's portion of the original agreement was around $15.5 billion.
What guarantee does Twitter need and why?
Since Musk has been disparaging Twitter for months -- on the same platform he wants to buy -- for example, by claiming that it has considerably fewer daily users than it reports to investors, it is obvious that the company's board holds Musk in very low regard, according to Gordon.
According to him, this has reduced the value of Twitter and made investing in the deal less appealing. And because Musk already tried to back out of the deal once, Twitter will want a guarantee of some sort that he won't back out again. That, Ives said, is likely to be a large chunk of money held in a non-refundable escrow account that would go to Twitter if Musk doesn't deliver.
Will the deal go through?
Some indications point to the deal's potential success. Twitter says it hopes to complete the transaction by October 28. At the moment, however, the initial investors are not publicly discussing leaving.
TIMELINE:
A look at some of what's transpired between the billionaire Tesla CEO Elon Musk and the Twitter so far, according to the Associated Press:
January 31, 2022: Musk starts buying shares of Twitter in near-daily installments, amassing a 5% stake in the company by mid-March.
March 26: Musk, who has 80 million Twitter followers and is active on the site, said that he is giving `` serious thought '' to building an alternative to Twitter, questioning free speech on the platform and whether Twitter is undermining democracy. He also privately reaches out to Twitter board members, including his friend and Twitter co-founder Jack Dorsey.
March 27: After privately informing them of his growing stake in the company, Musk starts conversations with Twitter's CEO and board members about potentially joining the board. Musk also mentions taking Twitter private or starting a competitor, according to later regulatory filings.
April 4: A regulatory filing reveals that Musk has rapidly become the largest shareholder of Twitter after acquiring a 9% stake, or 73.5 million shares, worth about $3 billion.
April 5: Musk is offered a seat on Twitter's board on the condition he amass no more than 14.9% of the company's stock. CEO Parag Agrawal said in a tweet that "it became clear to us that he would bring great value to our Board.''
April 11: Twitter CEO Parag Agrawal announces Musk will not be joining the board after all.
April 14: Twitter reveals in a securities filing that Musk has offered to buy the company outright for about $44 billion.
April 15: Twitter's board unanimously adopts a "poison pill'' defense in response to Musk's proposed offer, attempting to thwart a hostile takeover.
April 21: Musk lines up $46.5 billion in financing to buy Twitter. Twitter board is under pressure to negotiate.
April 25: Musk reaches a deal to buy Twitter for $44 billion and take the company private. The outspoken billionaire has said he wanted to own and privatize Twitter because he thinks it's not living up to its potential as a platform for free speech.
April 29: Musk sells roughly $8.5 billion worth of shares in Tesla to help fund the purchase of Twitter, according to regulatory filings.
May 5: Musk strengthens his offer to buy Twitter with commitments of more than $7 billion from a diverse group of investors including Silicon Valley heavy hitters like Oracle co-founder Larry Ellison.
May 10: In a hint at how he would change Twitter, Musk says he'd reverse Twitter's ban of former President Donald Trump following the Jan. 6, 2021 insurrection at the U.S. Capitol, calling the ban a "morally bad decision" and "foolish in the extreme."
May 13: Musk said that his plan to buy Twitter is "temporarily on hold.'' Musk said that he needs to pinpoint the number of spam and fake accounts on the social media platform. Shares of Twitter tumble, while shares of Tesla rebound sharply.
June 6: Musk threatens to end his $44 billion agreement to buy Twitter, accusing the company of refusing to give him information about its spam bot accounts.
July 8: Musk says he will abandon his offer to buy Twitter after the company failed to provide enough information about the number of fake accounts. Twitter threatens to sue Musk to uphold the deal.
July 12: Twitter sues Musk to force him to complete the deal. Musk soon countersues.
July 19: A Delaware judge says the Musk-Twitter legal dispute will go to trial in October.
August 23: A former head of security at Twitter alleges the company misled regulators about its poor cybersecurity defenses and its negligence in attempting to root out fake accounts that spread disinformation. Musk eventually cites the whistleblower as a new reason to scuttle his Twitter deal.
October 4: Musk offers to go through with his original proposal to buy Twitter for $44 billion. Twitter says it intends to close the transaction after receiving Musk's offer.
October 7: Judge delays trial between Twitter and Elon Musk, giving Musk more time to close $44-billion deal to buy company.
