Just 12 days ago, some of the most experienced operators on Wall Street and in Silicon Valley privately dismissed Elon Musk’s offer to buy Twitter for$44bn as nothing more than a gimmick.
However, Monday was a game-changer as the world’s richest man pulled off a stunning victory, winning unanimous support for his takeover approach from Twitter’s board after putting his personal wealth on the line to underpin $33bn of the deal’s financing.
Doubts over Musk’s intentions were widespread after the surprise disclosure of his takeover plan on April 14, just days after he said he wanted to be nothing more than a passive investor in the company.
Adding to that disbelief was the memory of Musk’s infamous “funding secured” tweet in 2018 when he said he had a deal to take his electric vehicle company Tesla private but was later charged by the US with securities fraud for misleading the market.
At first, a search by Musk’s advisers for private equity investors to provide financial firepower threatened to slow his momentum as some of the biggest groups ruled themselves out.
The adoption of a poison pill by Twitter’s board also appeared to set up an extended cat-and-mouse game that often takes months to play out.
Information from Twitter’s board according to Financial Times indicated that the directors never intended to block Musk from a negotiated deal to acquire the social media company, but wanted to stop the Tesla chief from buying it on the cheap.
Late last week, Musk went public with the financial commitments needed to take Twitter private, much of it backed by his personal wealth.
Read also: Twitter reaches agreement with Elon Musk
Along with a promise to put down $21bn of equity, he also sought to use part of his Tesla stake for a $12.5bn margin loan that he will remain responsible for, resulting in a personal interest payment of more than $400mn a year.
Morgan Stanley, the Wall Street investment bank, was instrumental in helping Musk line up the financing at breakneck speed, according to people close to Musk and Twitter’s board.
The lender contacted rivals on Easter Sunday, when some bankers were on holiday with family, and told them they would need to commit by Wednesday.
Chief executives at some lenders were quickly briefed on the discussions so they could decide if their banks would join in financing Musk’s deal.
In the end, seven banks agreed to finance $13bn of traditional loans, with another five joining forces to finalise the $12.5bn margin loan.
For many, the loan secured against Musk’s Tesla shares was the easiest part of the transaction to get on board with, given Musk’s wealth and that Tesla stock trades at a furious pace.
The value of Tesla shares traded on any given day often dwarfs the next most actively traded stock in the US, including Apple, chipmaker Nvidia and Amazon.
That liquidity gave bankers comfort: in a potential crisis in which Musk defaulted, lenders believed they could sell enough Tesla stock in the open market, even while it was falling in value, to be made whole on the loan.
Most importantly, it was the $21bn of equity that Musk promised to commit personally that turned the tide and led banks to scramble for a piece of the action.
By the end of the week, Musk’s determination was changing minds. The 38 per cent premium his offer represented started to look especially attractive as a stock market sell-off hit other tech stocks.
A hasty round of personal pitches by Musk to some of Twitter’s large investors on Friday helped move things along.
Several large shareholders called members of Twitter’s board on Friday and Saturday to press directors to take Musk’s offer seriously, said people briefed on the conversations.
Although Twitter’s share price hit an all-time peak of almost $80 during the pandemic as consumers spent more hours on the platform, many big investors had acquired the stock when it was trading at about $20.
On Sunday, Musk communicated directly with Twitter’s chair Bret Taylor, allowing them to set the tone and guidelines to reach an amicable agreement, with protections and guarantees in place to safeguard shareholders.
In a board meeting that started late on Sunday and went through the night, Twitter’s directors instructed its advisers at JPMorgan Chase and Goldman Sachs to put the finishing touches to the agreement with Musk. In addition to Morgan Stanley, the Tesla chief executive was advised by Barclays and Bank of America.
Musk still has several matters to resolve, the biggest being how he will finance the $21bn cash component of the offer. Sources also indicate that Musk is ready to sell shares in his electric vehicle maker if the need arises.
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