National Post (National Edition)
Musk seeks to scrap Tesla margin loan with Twitter funding
Elon Musk is in talks to raise enough equity and preferred financing for his proposed buyout of Twitter Inc. to eliminate the need for any margin loan linked to his Tesla Inc. shares, according to people with knowledge of the matter.
The billionaire's advisers, led by Morgan Stanley, have begun soliciting interest from potential investors for as much as US$6 billion in preferred equity financing, the people said, asking not to be named discussing a private transaction.
Musk, 50, had originally teed up a US$12.5-billion-margin loan as part of his US$44-billion deal to buy Twitter. That was halved to US$6.25 billion after he disclosed US$7.1 billion in equity commitments from investors including Larry Ellison, Sequoia Capital, Qatar Holding and Saudi Prince Alwaleed bin Talal, with the latter rolling his Twitter stock into the deal.
Since then, Musk has received commitments for another US$1 billion in equity, and is in talks for more, one of the people said.
That additional equity, on top of the preferred financing, would be enough to erase the margin loan, cutting the risk of the deal for both Musk and his lenders.
It would also alleviate pressure on Tesla's stock, which is the cornerstone of Musk's US$216 billion fortune, the world's largest. The electric carmaker has tumbled more than 25 per cent since he agreed to purchase Twitter, stoking concerns among investors that he may sell even more than the US$8.5 billion he's disposed of to fund the buyout.
The preferred equity may have a 20-year maturity and include a feature allowing interest to be paid in kind at a rate of 14 per cent, the people said. That interest rate would be increased by 75 basis points in the seventh, eight and ninth year, they added. The financing may alternatively be structured with a 10 per cent interest rate and warrants, one of the people said.
Terms and size of the financing aren't finalized and could change. Musk can block any transfers of the preferred equity, some of the people said.
A representative for Musk did not respond to requests for comment.
Firms including Apollo Global Management Inc. and Sixth Street are already discussing participating in the preferred financing.
Investors, especially those who specialize in merger arbitrage, have been hyper-focused on Musk's margin loan since he made his offer for Twitter. That's because as of June 30, Tesla's chief executive had already pledged more than half of his shares toward other borrowings, leaving him with a limited amount he could put up for the social media company and raising the risk that a slide in the stock could jeopardize the buyout.
Tesla fell 0.8 per cent to close at US$728.00 on Thursday. Twitter, meanwhile, surged as much as 3 per cent intraday, before paring its advance. It ended the day at US$45.08, down 2.2 per cent, and remains below Musk's US$54.20 offer.