Elon Musk has announced that he has secured $US46.5 billion ($63 billion) in funding for the purchase of Twitter, increasing pressure on the company’s board of directors to reach a deal. Musk unveiled a bid to purchase the social networking site last week, offering $US54.20 per share, or almost $US43 billion in cash. His first statement did not specify how he planned to fund his purchase. As reported on Thursday in papers filed with US securities authorities, Tesla CEO Elon Musk said that the money will come from Morgan Stanley and other banks, with part of it backed by his substantial stake in the electric vehicle manufacturer.
An official response from Musk has not been received by Twitter, which has implemented an anti-takeover mechanism known as a poison pill, which may make a takeover effort prohibitively costly. On Thursday, the business said that it had received Musk’s modified proposal as well as “additional information on prospective finance,” and that its board of directors was “committed to undertaking a thoughtful, complete, and deliberate examination.”
Musk, who owns approximately 9% of Twitter’s stock, has indicated that he is considering a tender offer, in which he would attempt to persuade other shareholders to pledge their stock to him at a specific price on a specific date, bypassing the board of directors. Musk has previously stated that he is considering a tender offer. In the event that a sufficient number of shareholders agree, Musk may use it as leverage to persuade the board of directors to remove the poison pill defense against his bid.
Musk, on the other hand, hasn’t determined whether or not to do so. The “poison pill” defence, which was accepted by Twitter’s board of directors last week, may render a takeover bid prohibitively costly. If someone were to purchase a 15% interest in the firm, it would result in a massive dividend distribution to shareholders, which may cause Twitter to go bankrupt.
Barclays, Bank of America, Societe Generale, Mizuho Bank, BNP Paribas, and MUFG are among the other financial institutions that have contributed to Musk’s finance. Morgan Stanley is one of Twitter’s largest stockholders, ranking third after Vanguard Group and Elon Musk in terms of value.
Musk’s documents state that $US13 billion in financing came from Morgan Stanley and other banks, that up to $US12.5 billion would be loans secured by his Tesla stock, and that he has committed $US21 billion in equity, “directly or indirectly,” from himself, though he did not specify where the funds would come from. According to the filing, the equity commitment may be lowered as a result of contributions from others or the assumption of new debt.
According to Forbes, Musk is the world’s richest individual, having amassed a fortune of almost $US279 billion. Much of his wealth, though, is invested in Tesla shares — according to FactSet, he owns approximately 17 percent of the firm, which is valued at more than $US1 trillion — and SpaceX, his privately-owned space enterprise. It’s not known how much money Musk has on hand.
Tesla enables senior officers to use their company’s stock as collateral for loans, but the amount of money they may borrow is limited to 25 percent of the value of the stock pledged. Musk has 172.6 million shares, which are worth $US 176.47 billion, according to Forbes. According to a Tesla proxy statement, a little more than 51 percent of his stock has already been pledged as a kind of collateral. That implies Musk could use the remaining share to borrow around $21.5 billion, which is a significant amount of money.
Musk’s recent step, according to Donna Hitscherich, a finance professor at Columbia University, demonstrates that he is “ratcheting up the seriousness of purpose” by lining up important institutions that may fund his bid for the company.
“If you’re looking for funding, they are the obvious suspects,” she said. “However, it is moving in the direction that he may be able to make good on his intentions if he goes ahead and launches the tender offer.”
Following the announcement of the funding, Twitter’s stock price jumped marginally to $US46.95 in late-afternoon trade on Thursday. The stock is now trading at $US7.25, which is 13% below Musk’s offer.
In the filings, it is stated that Musk “is attempting to negotiate a formal deal for the purchase of Twitter… and is willing to initiate such discussions immediately.” Tender offers are attempts to persuade other shareholders to commit their shares in exchange for cash at a certain price and on an established date. In the event that a sufficient number of shareholders agree, Musk may use it as leverage to persuade the board to abandon the poison pill defense. Musk hinted at the prospect of a tender offer in a series of tweets this week that included the term “tender” many times.
Source: SMH AP