San Francisco Chronicle - (Sunday)
Banks, investors vital in Musk’s bid for Twitter
If the squabbling ever stops over Elon Musk's renewed bid to buy Twitter, experts say he still faces a huge obstacle to closing the $44 billion deal: Keeping his financing in place.
Last week, Musk reversed course and said he'd go through with acquiring the social media company under the same terms he agreed to in April. But after months of tweetstorms and legal barbs, there are scars and suspicions on both sides.
Experts say that behind the scenes, banks could be scrambling to find buyers for $12.5 billion in debt from the deal, and Musk is trying to hold together a group of equity investors that is pitching in billions more. The mercurial billionaire is on the hook for the rest.
The fighting continued Thursday, when 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 that he has the financing, 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.
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 argued 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.”
The banks are “essentially cemented” to the deal by solid contracts, Wedbush analyst Dan
Ives said. But the debt market has changed dramatically since April. The stock market has tumbled, inflation is high, and interest rates are up as the Federal Reserve tries to slow the economy.
Banks would sell the debt to institutional investors, but there's not much appetite now to take part in takeovers that saddle companies with big debts. Banks could be on the hook to make loans themselves.
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.
Musk, with a net worth of $231 billion according to Forbes, has to kick in his own money, but just how much depends on how many equity investors stay in. If any equity investors drop out, Musk will either have to replace them or throw in more money. Musk's share of the original deal was about $15.5 billion, Ives estimated.