I’ve seen so much confusion about who is funding what, I am compelled to publish this here for constant reference.
From Matt Levine writing in Money Stuff on 21 April 2022:
Elon Musk needs about $46.5 billion to buy Twitter at $54.20 per share: about $39.4 billion to pay for the 91% of Twitter’s stock that he doesn’t currently own, about $4.3 billion of debt to refinance and various miscellaneous costs. To pay that, he has:
- A letter from his banks offering to lend $13 billion to Twitter, if he buys it, with $7 billion of that coming in the form of senior secured bank loans and $6 billion coming in the form of junk bonds.
- A letter from his banks offering to lend him $12.5 billion personally, secured by $62.5 billion worth of his Tesla Inc. stock. At yesterday’s closing price, that comes to about 64 million shares, or about one-third of his Tesla stake.
- An agreement with himself to put up the other $21 billion, give or take.
Musk is on the hook for most of this funding. The value of these loans depend upon Musk’s personal fortune (the margin loan, and the $21 billion from somewhere). However, there is $13 billion which depends on the value of Twitter itself. If Musk drives the value of Twitter into the ground, yes, his banks are stuck collecting Twitter (the company) since it is the collateral for that $13 billion dollar loan.
Elon Musk does not seem like the type to blow up his net worth on an ill-fated roll of the dice with Twitter. He might not have a solid business plan for it, but I would feel confident in saying he’s not tossing $33 billion into the wind.
Update 26 May 2022. From Matt Levine’s column today:
Earlier this month, he announced a change in the financing:
- $13 billion of LBO debt, same as before. This was always an aggressive amount of debt for Musk’s banks to lend to Twitter — something like 8 times expected 2022 earnings before interest, taxes, depreciation and amortization — and, having gotten them to commit, he’s not going to let that go.
- Only $6.25 billion of margin loans, half the original amount. At a 20% LTV that would require him to post $31.25 billion of Tesla stock.
- $27.25 billion of equity. The equity would not be all his own money: He had commitments from other investors to either chip in money or else to roll their existing Twitter shares into Musk Twitter, totaling about $7.1 billion. But he signed an equity commitment letter for the $27.25 billion: If for some reason those other people flake, he still has to put up the money; as far as Twitter is concerned he’s on the hook for the whole $27.25 billion.
So basically he replaced half the margin loan with money from other equity investors. He still had to pitch in about $20 billion of his own money, that is, proceeds from selling Tesla stock.
And he goes on…
Yesterday he announced another change in the financing:
- Still that $13 billion of good LBO debt.
- Never mind the margin loan; it is gone now.
- $33.5 billion of equity. The entire margin loan has been replaced by an equity commitment.
The party continues! It will be fun to revisit this post in a year. I wonder how many more updates we’ll see to this.
Update 6 October 2022. With the Twitter deal finally nearing completion (maybe?), an update from Levine on the financing. Long story short, Apollo Global Management Inc. will not be leading a preferred equity round announced earlier this year that they might have led. This changes nothing, but the “news” made a splash when it landed yesterday.
Update 25 October 2022. Deal closes this week! (Maybe.) The banks who have funding commitments to Musk will fund, although they won’t be happy about it:
Banks that committed to help finance Elon Musk’s takeover of Twitter Inc. plan to hold all $13 billion of debt backing the deal rather than syndicate it out, according to people familiar with the matter, in another blow to a market that serves as a crucial source of corporate funding.
The banks decided to park the debt on their balance sheets to avoid selling it at a loss to bond and loan fund managers, who have grown increasingly skittish amid rising market turmoil, the people said.
Twitter could have the dubious distinction of being the biggest so-called hung deal of all time, surpassing a crop of them in the global financial crisis, when banks were stuck with around $300 billion of committed debt they struggled to sell to investors.
There is something poetic about the world’s richest person issuing the world’s largest pile of unsellable debt. Most of the time, if you are a lender, you would rather lend to someone with a lot of money than to someone with less money. But at some point that relationship might reverse. Musk did not become the world’s richest person by being stable and conservative and always honoring the letter and spirit of his commitments. Will he pay back this debt? Maybe! We have a few years to find out.
More on leveraged buyouts and how they are priced here.
Update 27 October. It closed.
In other fun news, here is The Verge discussing how much Elon’s “deal making” impacted Matt Levine’s planned time off. Credit to The Verge for putting together this wonderful list of Money Stuff Programming Notes.
- April 4th, 2022: Programming note: Money Stuff was supposed to be off today but, Elon. So here we are.
- April 7th, 2022: Programming note: Money Stuff will be off tomorrow, back on Monday. Unless Elon Musk does something weird I guess.
- April 12th, 2022: Programming note: Money Stuff will be off the rest of the week for a little spring break, back next Monday, April 18.
- April 15th, 2022: “On Tuesday I wrote a column saying it was unlikely that Elon Musk will buy Twitter Inc. On Wednesday I left on a family vacation. On Thursday, for my sins, Elon Musk announced an offer to buy Twitter for $54.20 per share in cash. 420 is a weed joke.”
- May 13th, 2022: Programming note: Money Stuff was supposed to be off today, but then my boss, Elon Musk, called me in to work anyway.
- May 17th, 2022: Programming note: Money Stuff will be off tomorrow, back on Thursday. Unless. You know.
- July 9th, 2022: Programming note: Ugh, here we are again, huh?
- July 12th, 2022: Programming note: Money Stuff is going to be off for a few weeks starting tomorrow. I planned this before Elon Musk tried to cancel his Twitter deal, and I am not a monster, so there will be occasional columns as Musk or other news require. But it will not publish every day; we’ll resume normal service sometime in August.
- July 13th, 2022: Programming note: Lol.
- July 18th, 2022: Programming note: Don’t feel bad about my vacation or anything. I am trying to take some time to focus on other work, so Money Stuff will be published infrequently for the next few weeks.
- October 4th, 2022: Programming note: Money Stuff will be off tomorrow, back on Thursday.
- October 5th, 2022: Programming note: I apparently have some very bad sins to atone for.
- October 6th, 2022: Programming note: If you are Elon Musk, please stop reading this newsletter right now. You have like six companies to run! Get back to work. For the rest of you: Money Stuff will be off tomorrow and Monday, back on Tuesday.
- October 7th, 2022: Programming note: This isn’t working, so let’s try something different. Money Stuff will be back with special editions this afternoon, this evening and at midnight tonight. It will also have several special editions per day over the weekend and on Monday. I don’t know how I am going to fill all this space. I hope news happens, frequently! For instance, it would be enormously helpful to me, as I struggle to find things to write about, if Elon Musk was doing weird things every few hours of this long weekend, so that I could write about them. If you know Musk, you might pass that request along for me. “Elon, Matt Levine really wants you to keep changing your mind on Twitter, so that he can write about it,” you could tell him. I’m sure he would sympathize, and I just don’t know what I will do this weekend without more drama from him
- October 24th, 2022: “I guess this thing is closing this week! It is a good thing I have booked a lavish nonrefundable vacation to start Saturday morning…. I’m kidding, this is a joke about Musk constantly doing wild Twitter stuff every time I say I’ll take a day off Money Stuff, there is no vacation, frankly if I have to write an emergency Money Stuff this Saturday because, like, North Korean hackers intercepted Musk’s closing payment, I’ll be perfectly happy.”
- October 27th, 2022: Programming note: Money Stuff will be off tomorrow, back on Monday. Unless …
As always, find Matt Levine at Bloomberg.