Elon Musk has added more than a dozen new individuals and investment firms to his $44 billion proposal to buy Twitter, including Oracle founder Larry Ellison, Saudi Arabia’s Prince Alwaleed and Binance, the Chinese cryptocurrency exchange.
Musk has secured $7.1 billion in equity commitments from this group, reducing the strain on his personal fortune in financing the bid, according to a new SEC filing. With these new co-investors, Musk will be able to use less debt, which relies in turn on a high Tesla stock price.
Musk is continuing to negotiate with Jack Dorsey, the Twitter cofounder and ex-CEO who remains a board member, to possibly take part in his bid, too. Dorsey has voiced public support for Musk’s takeover even though it may substantially change the company’s direction, a path Dorsey himself had set for the company as CEO through last November.
Other notable firms and people involved in the new equity commitments: Fidelity, Brookfield, the Qatari sovereign wealth fund, Draper Fisher Jurvetson, Andreessen Horowitz and Sequoia. To some degree, the group represents a familiar set of faces from Musk World: Ellison is a longtime friend and serves on Tesla’s board. Sequoia is an investor in Musk’s SpaceX, and Musk and Sequoia partner Roelof Botha worked together at PayPal. Tech VC firm VyCapital has put money into two other Musk operations, Neuralink and Boring Co. And Andreessen Horowitz cofounder Marc Andreessen has been a prominent supporter of Musk’s takeover of Twitter. He and his cofounder, Ben Horowitz, share Musk’s belief that Twitter has moved too aggressively to curb speech on the platform.
“While Twitter has great promise as a public square, it suffers from a myriad of difficult issues ranging from bots to abuse to censorship. Being a public company solely reliant on an advertising business model exacerbates all of these,” Horowitz wrote on Twitter Thursday. “Elon is the one person we know and perhaps the only person in the world who has the courage, brilliance and skills to fix all of these.
The biggest equity commitment is Ellison’s $1 billion—followed by Sequoia ($800 million), VyCapital ($700 million) and Binance ($500 million). Alwaleed, who initially opposed the $54.20-a-share offer, will roll over his 35 million Twitter into the Musk buyout, a stake worth around $1.7 billion at Twitter’s current share price.
In little more than a month, Musk has briskly gone from initially disclosing his large investment in Twitter, a 9.2% stake, to making an unsolicited bid for the firm and winning board approval for it. Much of Musk’s vision for Twitter remains obscured, though he has prominently said he’d like it to be seen as politically neutral and allow more speech. (Like many other social media firms, Twitter receives complaints from liberals, who say it does too little to combat bad content, and from conservatives, who say it exerts too much control over content.) Next, shareholders will vote on Musk’s offer in the coming weeks, and the company expects the deal to finish by the end of this year.
When Musk first detailed the financing around his offer, he said he planned to use a $12.5 billion margin loan, securing it with his Tesla stock. (Musk derives the vast majority of his $265 billion fortune from Tesla shares, with few liquid assets.) He now plans to use a $6.25 billion margin loan, using the newly arrived equity investors to make up the difference.
Anything to reduce the margin loan’s size is good for Musk. There’s the matter of the interest payments at a 4% rate, which accrue monthly payments. It’ll save him tens of millions of dollars. That may sound like a pittance for a multi-multi-billionaire—but remember, he’s light on cash. It’s good for Tesla shareholders, too. If something did go wrong with Tesla shares, and they started to fall, Musk could get wrapped up in a margin call, where he’d need to sell Tesla stock—further worsening the situation—to re-secure his Twitter stake.
“This was a smart financial and strategic move by Musk that will be well received across the board and also shows the Twitter deal is now on a glide path to get done by the end of this year,” says Dan Ives, a Wedbush analyst who covers Tesla.
So here’s the math as it stands: $13 billion in typical leveraged-buyout loans that go on Twitter’s books, $6.25 billion in a margin loan, $7.1 billion from Ellison and the rest and $21.5 billion in cash. Musk is responsible for the cash, and he’s lately been selling Tesla stock to raise the funds, some $8 billion worth, which has weighed on Tesla shares. (A lot is being piled on those shares.) Musk has said he isn’t planning further Tesla stock sales. Of course, he could change his mind and sell more. But given the comments in the latest SEC filing, including the part about Dorsey, it seems Musk hopes to reduce the cash amount by bringing in more investors.
Twitter shares rose nearly 3% in pre-market trading to over $50, still a distance from Musk’s proposed price. It signals that the equity commitments have reassured some investors that the buyout will go through, but some doubts continue to linger.
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