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Credit: Daniel Oberhaus | Flickr
Change of Heart
Just days before the October 17th court date, Elon Musk has announced that he is willing to still go through with his original deal to buy Twitter, perhaps to avoid lengthy litigation. The Delaware Court of Chancery has given Musk until 5pm EST on October 28th to close the deal, or else the court date will be rescheduled for November.
Between our last publication and Musk’s change of heart, a slew of his private text messages were entered into the court record and released to the public. Perhaps the most interesting message to be released detailed an offer from Oracle’s CEO, Larry Ellison, in April for $1B to help close the deal. Musk’s response was a request that Ellison consider increasing his offer to $2B.
On Monday, Bloomberg reported that Twitter has frozen all employee stock accounts. This change will allow for an easier transition into a private form, disallowing staff from accessing and trading shares as the deadline to reach a deal approaches.
Musk’s Plans for Privatization
Musk does not seem to have changed his plan for the future of Twitter as he moves along with the deal. As reported in our last installment on the Twitter saga, Musk plans to decrease censorship on the platform, relax community guidelines, and rid the platform of bots.
Musk did, however, tweet on Oct. 4, “Buying Twitter is an accelerant to creating X, the everything app,” resurfacing one of his earlier ventures, X.com. The site was an online bank that Musk co-founded in 1999, better known under its current name, PayPal. Some speculate that “X” will be a super app, like the popular Chinese app, WeChat, where users can shop, stream, network, make payments, rideshare, and even access external services like office suite tools and Airbnb.
Still, some Twitter employees are feeling some valid concern about the stability of their employment as Twitter makes the change. This week, the Washington Post reported that Musk shared his plan to lay off 75% of Twitter’s current workforce with potential investors. Within the past 90 days, over 500 Twitter employees have left the company in anticipation of the coming layoffs. 30% of those former employees have joined Meta or Google in their search for stability.
Further Financing
Even though Elon Musk is reportedly worth over $200 billion, most of his net worth is tied up in stocks and other assets. Between SpaceX, Tesla, and other ventures, Elon Musk has notoriously kept all his chips on the table and refrained from cashing out on his long-term investments. Because of this, financing his deal would be a logistical nightmare, requiring several big players to ensure it goes smoothly.
The original financing for the Twitter deal was leveraged by a staggering $21 billion in cash, some of which was acquired from Musk selling shares of Tesla Stock. Around $13 billion of the $44 billion needed to privatize Twitter at $54.20 per share will come out of the pockets of banks in a form of debt financing. The remainder of the funds needed for this deal to go through is around $12.5 billion worth of margin loans that will be secured against a 16% stake in Tesla.
Banks such as Morgan Stanley are included in this figure, and they are still finalizing funding for a deal this large. However, there are last minute players that still want in on this deal. An example of this would be Mirae Asset Financial Group, a South Korea-based bank that is considering providing 300 billion Korean won ($209.25 million) in funding to assist Musk with purchasing Twitter. Although $200 million may seem like peanuts, Musk will take anything he gets to keep as much of his prized Tesla stock as possible.
Final Thoughts
After reviewing all the publicly available information thus far, there is little doubt that the Musk Twitter deal won’t go through. However, some reports have surfaced that there is a possibility that government intervention can still halt this deal.
The amount of offshore funding being used in the deal including Saudi Arabia's Prince Alwaleed bin Talal, Qatar's sovereign wealth fund, and Finance Holdings (China) have concerned Biden administration officials. The President could suspend this deal if the CFIUS finds that this "transaction threatens to impair the national security of the United States."
The clock is ticking for a government official to step-in, and at this stage in the deal, it seems unlikely. In less than 48 hours, more news will surface on whether the deal will go through or be postponed again for litigation. By Friday night, we will know if Elon Musk adds Twitter to his portfolio of billion dollar companies.