June 7 (Reuters) – Elon Musk’s efforts to arrange new funding that will limit his $ 44 billion contribution to Twitter Inc (TWTR.N) have been postponed due to uncertainty over the deal, people familiar with the matter said.
Musk threatened to drop the deal unless the social media company provided him with data to support his assessment that fake or spam accounts accounted for less than 5% of its user base. It ended with a letter from Musk’s lawyers to Twitter on Monday, warning that he could leave unless more information emerged. Read more
Musk is on the hook to pay $ 33.5 billion in cash to finance the deal after settling debt financing to cover the rest. Its liquidity is limited, given that its fortune, which is fixed by Forbes at $ 218 billion, is largely tied to shares in Tesla Inc (TSLA.O), the electric car maker it manages.
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Musk is in talks to arrange $ 2 billion to $ 3 billion in preferred capital funding from a group of private equity companies led by Apollo Global Management Inc. (APO.N), which will further reduce his cash contribution, according to sources. These talks are now on hold until the future of the acquisition is clear, one source said.
The pause in financial activities is the first clear sign that Musk’s threats are hampering steps that could help close the deal. Twitter has so far insisted that Musk is fulfilling its obligations under their contract, including helping to secure regulatory approval for the deal.
Musk and Twitter spokesmen did not respond to requests for comment. Apollo declined to comment.
Musk sold $ 8.5 billion worth of shares in Tesla in April after signing a deal to buy Twitter, and it’s unclear how much money he has to meet his obligation. He raised $ 7.1 billion from a group of co-investors in equities to reduce his contribution. Musk also tried to further reduce that exposure by arranging a risky $ 12.5 billion margin loan tied to Tesla shares, but then declined last month.
Preferred equity will pay a fixed dividend from Twitter, in the same way that a bond or loan pays regular interest, but will increase according to the value of the company’s equity.
REPENTANCE OF THE BUYER
The uncertainty of the deal also weighed on the banks’ plans to get $ 13 billion in debt they took on for the acquisition, outside of their books through syndication. While they are still preparing for debt syndication, banks plan to wait until there is clarity on the deal to start the process, sources said.
Banks do not believe credit investors will buy debt as long as uncertainty persists, sources said. Banks also said Musk’s disparaging public comments about the company were useless and hoped he would help them so far with presentations to investors to syndicate the deal, the sources added.
Of course, the suspension of these activities does not affect the commitments made by Musk and the banks to finance the deal. Twitter can take them to court to force them to meet their funding obligations under the deal if they fail.
Debt syndication could be a major problem for banks as Musk’s Twitter dispute escalated into lawsuits and they were forced by a judge to finance the deal. In this scenario, they could struggle to get investors to buy the debt if Musk does not want to own the company.
However, this possibility is considered remote. Most investors are trading Twitter shares on the assumption that the company is much more likely to reach an agreement with Musk or let him go instead of going through lengthy litigation. Read more
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Report by Crystal Hu and Greg Rumeliotis in New York Additional reports by Chibuike Oguh in New York Edited by Matthew Lewis
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