PE firms are staying away from political controversies and fear that they won’t be able to control Musk
Elon Musk, the wealthiest person in the world, is scrambling to assemble co-investors for a cash infusion to buy out Twitter Inc (NYSE: TWTR).
The billionaire — who offered $43 billion to take over Twitter — is willing to invest between $10 billion and $15 billion of his own money, New York Post reported on Tuesday, citing two sources familiar with the matter.
Musk currently owns a 9.1% stake in the social media company that he revealed on April 4, worth about $3.4 billion.
The report said Musk is looking for outside financing to carry out the bid and has tapped Morgan Stanley to raise another $10 billion in debt against Twitter, like what is being done in a traditional leveraged buyout.
However, the bulk of the money — about $20 billion — will come from co-investors who will finance a hostile offer directly to Twitter shareholders.
“The co-investors will combined have more equity than Musk, but he will be the biggest single holder,” one of the sources told the news outlet.
Tight time to make move
The Tesla Inc (NASDAQ: TSLA) chief executive hinted at the hostile approach in a cryptic tweet over the weekend quoting Elvis Presley’s 1956 hit “Love Me Tender.”
The tweet followed a day after Twitter opted for the ‘poison pill’ plan to sell shares at a discount if any shareholder amasses a stake of more than 15%.
However, the report said Musk is planning to launch the “tender” buyout offer in about 10 days.
The NY Post report said Musk has very little time to make his move as Twitter’s annual shareholder meeting is scheduled for May 25, and the billionaire has begun inquiring about financing a few days before he disclosed his stake.
For his bid to succeed, Musk would have to win support from Twitter’s majority shareholders by making a fully financed offer made directly to them.
Then he could start a proxy contest trying to change the board directors and remove the poison pill.
Concerns around valuation and controversy
Although Musk’s Twitter bid is drawing interest from investors who have financed his previous ventures, including Tesla and SpaceX, most private equity firms are choosing to stay away from political controversies and fearing that they will not be able to control Musk, the report said.
“Private equity firms don’t get paid for headline risk,” a source told the news outlet, referring to Musk’s taste for controversy.
Moreover, few private equity firms are willing to participate in a hostile bid aside from controversies.
The report also said that Morgan Stanley is struggling to lure other banks to participate in the cash raise.
Similarly, many investors are doubtful whether Twitter is worth $43 billion, sources mentioned, saying, “A lot of private equity firms are doing the work and struggling on the valuation.”
“This is not growing like Instagram or TikTok.”
“You can only raise $10 billion of bank debt, and then maybe some preferred shares,” another source added, referring to a type of debt that can be converted to stock. “Twitter does not have a whole lot of cash flow.”
Picture Credit: Inc Magazine
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