Elon Musk arrives at the Met America Theme Gala: An Anthology of Fashion at the Metropolitan Museum of Art in New York City, New York, USA, May 2, 2022. REUTERS / Andrew Kelly
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June 7 (Reuters) – Elon Musk’s efforts to organize new funding that will limit his cash contribution to his acquisition of Twitter Inc. (TWTR.N) for $ 44 billion have been halted due to uncertainty surrounding the deal, according to people familiar with the matter.
Musk has threatened to withdraw from the deal unless the social media company provides him with data to back up his estimate that fake or spam accounts account for less than 5% of his database. users. That culminated in a letter from Musk’s lawyers on Twitter on Monday warning that he could leave unless there is more information. Read more
Musk is yet to pay $ 33.5 billion in cash to finance the deal after arranging debt financing to cover the rest. Its liquidity is limited as its wealth, set at $ 218 billion by Forbes, is largely tied to the shares of Tesla Inc. (TSLA.O), the leading electric car maker.
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Musk has been in talks to raise $ 2 billion to $ 3 billion in preferential equity financing from a group of private equity firms led by Apollo Global Management Inc (APO.N) that would further reduce its cash contribution. according to sources. These talks are now on hold until there is clarity about the future of the acquisition, one source said.
The pause in funding activities provides the first clear signal that Musk’s threats are interfering with the steps that would help complete the deal. Twitter has so far insisted that Musk has fulfilled his obligation under his contract, including helping to get regulatory approval for the deal.
Spokesmen for Musk and Twitter did not respond to requests for comment. Apollo declined to comment.
Musk sold $ 8.5 billion worth of Tesla shares in April after signing his agreement to buy Twitter, and it’s unclear how much cash he has available to meet his obligation. It has raised $ 7.1 billion from a group of capital co-investors to reduce its contribution. Musk also tried to further reduce this exposure by arranging a $ 12.5 billion risky margin loan linked to Tesla shares, but later ruled it out last month.
Preferred capital would pay a fixed Twitter dividend, just as a bond or loan pays regular interest, but would be valued based on the company’s equity value.
BUYER’S REMEMBRANCES
The uncertainty of the deal has also weighed on banks’ plans to raise $ 13 billion in debt that they have pledged to acquire their books through syndication. While they are still preparing to syndicate the debt, banks plan to wait until there is clarity on the deal to start the process, sources said.
Banks do not believe that credit investors will buy the debt as long as uncertainty persists, sources said. Banks also found Musk’s derogatory public comments about the company to be unhelpful and hoped that by now he would be helping them with investor presentations to syndicate the deal, the sources added.
Certainly, stopping these activities does not affect the commitments made by Musk and the banks to finance the deal. Twitter can take them to court to force them to meet their funding obligations under the contract agreement if they fall short.
Debt syndication could emerge as a major problem for banks if Musk’s dispute with Twitter escalated into litigation and a judge forced them to fund the deal. In this scenario, they could struggle to get investors to buy the debt if Musk did not want to own the company.
This possibility, however, is considered remote. Most investors are trading Twitter shares on the assumption that the company is much more likely to reach an agreement with Musk or let him go, rather than go through a lengthy litigation. Read more
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Report by Krystal Hu and Greg Roumeliotis in New York Additional report by Chibuike Oguh in New York Edited by Matthew Lewis
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