Elon Musk must keep banks, investors in buying Twitter: experts – National

If the argument stops By Elon Musk renewed bid to buy TwitterExperts say he still faces a huge obstacle in closing the $44 billion deal: Keeping his finances intact.

Earlier this week, Musk reversed course and said he would complete the acquisition of the social media company on the same terms he agreed to in April. But after months of turbulence and legal blunders, there are scars and suspicions on both sides.

Experts say that behind the scenes, banks may be scrambling to find a buyer of the $12.5 billion in debt from the deal, and Musk is trying to assemble a growing group of equity investors. calls for billions of dollars more. The capricious billionaires are on the hook for the rest.

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The fight continued on Thursday, when Musk’s lawyers said Twitter was refusing to accept his revived offer to buy the company. They have sought to delay an upcoming trial on Twitter’s lawsuit that could force him to close the deal.

But Twitter’s lawyers said it was Musk who was keeping things, and that his attempt to postpone the trial “was an invitation to continue mischief and delay.”

Ultimately, a judge agreed to give Musk more time to close the deal but said the trial would proceed in November if he didn’t.

There’s still a chance the sale could end. But with so many games, here’s what can cause the deal to go awry, again:

A group of banks, including Morgan Stanley and Bank of America, have signed on to lend the $12.5 billion Musk needs for the deal. During Thursday’s trial, Musk alleged that Twitter didn’t want to put the lawsuit aside because of “unfounded” fears that Musk might not receive financing from the bank.

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“No such failure has occurred to date,” the proposal said. “Advocates for debt financers have advised that each of their clients should be prepared to meet their obligations.”

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Wedbush analyst Dan Ives said the banks were “basically bolstered” with the deal by solid contracts. But the debt market has changed dramatically since April. The stock market tumbled, inflation was high, and interest rates rose as the Federal Reserve tried to slow the economy.

Banks will sell debt to institutional investors, but now there’s not much interest in participating in the takeovers that have left companies piling up in debt. Banks can make loans themselves.

“Banks would be really happy if they didn’t have to risk funding these loans,” said Erik Gordon, a professor of law and business at the University of Michigan. “The deals seem very strong, but I think the banks have their lawyers pulling people who work all night trying to get them out of it if they can.”

Investors who want equity on Twitter are expected to rake in billions of dollars. Ives estimates they agreed between $15 and $16 billion. But some investors may overlook staying with market changes and Musk’s repeated accusations against Twitter about the number of bots on the platform.

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Qatar’s Sovereign Wealth Fund declined to comment this week on the $375 million its subsidiary pledged in May. Several other investors did not respond to requests for comment on whether they were still involved.

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Kevin Kaiser, an adjunct professor of finance at the University of Pennsylvania’s Wharton, said Musk’s equity commitments – including $1 billion from Musk’s friend and Oracle co-founder Larry Ellison. Schools.

“Nobody knows – I don’t know anyway – what their commitment is,” Kaiser said. “So can they retreat? Because if they can back off, he’s in sight. “

Musk, the world’s richest man with a net worth of $231 billion according to Forbes, has to raise his own money, but how much depends on how many equity investors stay.

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Much of his fortune is tied up in shares of the electric car company he runs, Tesla Inc. Since April, he’s sold more than $15 billion worth of Tesla stock, presumably to pay for his shares.

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However, if any of the equity investors give up, Musk will have to replace them or throw in more money, fueling speculation that he may have to sell more Tesla stock. Ives estimates Musk’s stake in the original deal to be around $15.5 billion.

It’s clear that Twitter’s board of directors is highly suspicious of Musk because he’s been trashing the company for months now, assuming it has far fewer daily users than investors reported, Gordon said. .

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That has reduced Twitter’s value and made it less attractive to invest in the deal, he said. And because Musk tried to back out of the deal once, Twitter will want some reassurance that he won’t back out again.

Ives said that it could be a large amount of money held in a non-refundable escrow account that will go to Twitter if Musk does not deliver.

There are some signs that the deal has yet to be done. Twitter said it hopes to close the deal by October 28. The dismissal of Musk’s lawsuit, scheduled for Thursday in Austin, Texas, has been postponed. Musk’s offer says bankers are still participating. And the initial group of investors did not speak publicly about the rescue.

© 2022 Canadian Press


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