School loan

Why Twitter is stuck with Musk’s $44 billion deal

Tesla CEO Elon Musk has lined up a combination of loans and his own equity commitment to get Twitter to agree to a $44 billion privatization deal.

Suzanne Cordeiro/AFP via Getty Images

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Don’t expect another bidder to emerge for


Twitter
,

who agreed to sell himself to Elon Musk in a deal valued at around $44 billion.

Monday,


Twitter

(ticker: TWTR) has accepted Elon Musk’s $54.20 stock offer for the social media platform. The deal includes $21 billion in equity, as well as $25.5 billion in fully committed debt and margin lending, according to a statement. It is expected to close later in 2022.

Twitter’s stock fell more than 3% on Tuesday, trading at $49.97.

Twitter searched globally for a second bidder but found none, said Dan Ives, senior equity research analyst at Wedbush Securities. “We believe that if a second bidder, a white knight, were to come in, the council would have found it. They came up empty-handed, which is why they had to sign, pen on paper, with Musk,” Ives said. .

Twitter declined to comment. Barrons.

Musk also pays a good price for Twitter. Some Twitter shareholders would expect $60 per share. “Twitter shareholders are popping champagne or drinking whiskey because they’re glad they got this award. There’s a better chance of me playing in the NBA playoffs than getting $60 a share,” Ives joked.

It’s highly unlikely that another bidder can match Musk’s offer, said Matthew Epstein, managing partner and founder of Newbold Partners, a fintech investment bank. The billionaire provides the $21 billion in equity. He also takes out a risky $12.5 billion margin loan that was secured using


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Stock, according to SEC filings. (Several banks have committed to provide $13 billion in loans.) “Few others have this type of capital at their disposal,” Epstein said.

Private equity was to participate in Musk’s bid. Last week, Musk was in talks with Thoma Bravo to participate in a bid, the New York Post reported.


Global Apollo Management

(APO) had also discussed the financing of a possible takeover bid on Twitter, Barrons reported. The companies were not listed in the deal announcement. Thomas Bravo and


Apollo

did not return calls and messages for comment.

“Elon Musk has the money to do it himself. He’s never needed private equity,” said Andrew Boone, an analyst at JMP Securities, a Citizen firm.

Buyout Shops took to Twitter due to Musk’s success with other companies such as


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(TSLA) and SpaceX. Tesla shares have soared to just over $1,000 per share since going public in 2010 at $17 per share. Tesla did not return messages for comment.

SpaceX has raised $7.8 billion in funding, Crunchbase said. It is said to be valued at $100 billion. Musk’s The Boring Company last week raised $675 million in fundingvaluing the tunnel company at $5.675 billion.

But just because they were interested in Twitter doesn’t mean private equity would invest in it, industry sources said. Twitter was not profitable in 2021, declaring $221 million in losses mainly related to the settlement of a dispute between shareholders. For the quarter ended Dec. 31, Twitter generated $181.7 million in revenue, or 21 cents per diluted share. That rose to 33 cents per share on an adjusted basis.

Reed Phillips, CEO of Oaklins DeSilva+Phillips, a media investment bank, also doesn’t think anyone will pay the premium Musk is offering for Twitter. Musk’s $54.20 per share offer represents a 38% premium to Twitter’s closing price of $39.31 on April 1, the day before Musk revealed his nearly $9 stake. % in social media company.

“Musk thinks Twitter was mishandled and convinced investors [of this], in part by putting his own money where his mouth is, that he can quickly make it profitable. Based on his track record, that’s probably a good bet,” Phillips said.

Twitter is expected to release first-quarter results on Thursday. It expects total revenue of between $1.17 billion and $1.27 billion and GAAP operating losses of between $175 million and $225 million, according to a Feb. 10 statement.


Goldman Sachs
,


JP Morgan
,

and Allen & Co acted as Twitter’s financial advisors, while Wilson Sonsini Goodrich & Rosati, Professional Corp and Simpson Thacher & Bartlett acted as their attorneys.


Morgan Stanley
,

BofA Securities and


Barclays

provided financial advice to Musk, while Skadden, Arps, Slate, Meagher & Flom provided legal advice.

Write to Luisa Beltran at [email protected]