Elon Musk is racing to secure funding for his $43 billion bid to buy Twitter.
Morgan Stanley, the investment bank working with Mr. Musk on the potential deal, has called on banks and other potential investors to shore up funding for the offer, four people with knowledge of the situation said. Mr. Musk is focused on raising debt first and has yet to begin seeking equity financing for his bid, one of the people said.
Mr. Musk is valuing various sets of debt, including more senior debt known as senior debt and a loan against his shares in Tesla, the electric car maker he runs, two of the people said. Apollo Global Management, the private equity firm, is among the parties considering offering debt financing in a Twitter offering. The capital it needs is probably considerable.
Mr. Musk is aiming to put together a fully-funded offer as early as this week, one of the people said, though that timeline is far from certain. People with knowledge of the discussions were not authorized to speak publicly as the details are confidential and changing.
It’s unclear whether Mr. Musk’s efforts will be successful, but they aim to answer a key question about his Twitter offering. Last week Mr Musk, the world’s richest man, made an unsolicited bid for the social media company, saying he wanted to keep it private and wanted people to be able to speak more freely on service. But his offer was viewed with skepticism by Wall Street as he did not include details of how he would raise the money for the deal.
Although Twitter’s board did not reject Mr Musk’s offer, he responded days later with a defensive tactic known as the “poison pill”. A poison pill would effectively prevent Mr. Musk from owning more than 15% of Twitter shares. The 50-year-old had accumulated a stake in the company and owns more than 9% of Twitter, making him its largest individual shareholder.
Learn more about Elon Musk and his Twitter offering
The billionaire’s offer could be worth more than $40 billion and have huge ramifications for the social media company.
Mr Musk, whose net worth has been reported at $255 billion, did not respond to a request for comment. On Tuesday, in what appeared to be a veiled hint to Twitter, he tweeted his thoughts on social media and their policies.
Morgan Stanley declined to comment. Twitter, which also declined to comment, is expected to provide an update on its deal-making prospects when it reports quarterly results on April 28.
Tesla did not return a request for comment. It’s unclear how Tesla shareholders will view Mr. Musk’s decision to potentially take out a loan against shares in the company; some of its major shareholders declined to comment. The automaker will release its quarterly results on Wednesday. Mr. Musk often speaks on Tesla’s earnings call with investors.
A deal for Twitter, if structured as a traditional leveraged buyout, would potentially be the largest such deal in at least two decades and would be difficult for any buyer to fund. That’s because Twitter doesn’t have the typical financial profile of debt-fueled acquisitions.
In most leveraged buyouts, companies have large and steady cash flows. But Twitter’s business has been inconsistent, with revenue growth slowing. Its profits excluding costs such as interest only total about $1 billion a year, and financiers are generally loath to take on too much debt with companies that generate profits of this size.
There are also particular obstacles to Mr. Musk. In 2018, Mr. Musk tried to take Tesla private and tweeted “funding secured”, sending Tesla shares higher. He had not prepared financing for such a transaction. The Securities and Exchange Commission later filed a securities fraud complaint against him, accusing him of misleading investors. Mr. Musk paid a $20 million fine and agreed to step down as Tesla chairman for three years.
Some investors are hesitant to get involved in funding Mr. Musk’s Twitter bid, concerned about the risks of teaming up with the mercurial billionaire and such a politically divisive company as Twitter, a person with knowledge of the situation said. For banks, offering a loan against Tesla stock is also risky, given the stock’s volatility.
Mr. Musk has not publicly articulated his business plan for Twitter, although he has spoken of reversing Twitter’s moderation policies and providing additional transparency on how its algorithms work. He made it clear that profit was not his goal, which could complicate investing efforts with traditional Wall Street financiers.
“That’s no way to make money,” Musk said in an interview at a TED talk last week. “My strong intuitive feeling is that it’s extremely important to have a public platform of maximum trust that is broadly inclusive.”
Mr. Musk’s offer for Twitter is $54.20 per share. Several analysts said the company’s board would likely only accept an offer of $60 per share or more. Twitter’s stock topped $70 a share last year when the company announced its goal of doubling revenue, though its stock has since fallen to around $45 as investors questioned its ability to reach these goals.
Mr. Musk, who began racking up Twitter shares in January, was asked this month to join the company’s board. At the time, Twitter chief executive Parag Agrawal and other board members said they welcomed Mr. Musk as a director given his use of the platform. Mr Musk has more than 82.5 million Twitter followers and tweets frequently.
Mr. Musk and Mr. Agrawal also share similar views on how to decentralize Twitter so users can better control their social media feeds, a tactic the pair see as a way to promote greater freedom of movement. ‘expression. The move would also reduce the burden on Twitter, which has faced questions about toxic content and misinformation, to decide which posts can stay and which should be removed.
But then Mr. Musk rejected the board seat and began trying to take over the company.
Twitter, which has brought in advisers from Goldman Sachs and JPMorgan Chase, has also considered whether to invite offers from other potential buyers, two people familiar with the company said. At least one interested party, private equity firm Thoma Bravo, has emerged, although it’s unclear whether it will ultimately submit a bid.
Kate Conger, Michael Isaac and Jack Ewing contributed report.