A week after Elon Musk finalized a $44bn deal to purchase Twitter, the billionaire is working to secure outside funding for the acquisition that would tie up less of his personal fortune.
The world’s richest person is in talks with large investment firms and high net-worth individuals to take on more financing, Reuters reported Monday. Though Musk has an estimated net worth of about $245bn, much of his fortune is tied up in stocks.
The Tesla CEO disclosed last week he had sold $8.5bn worth of stock following his agreement to buy Twitter. Additional financing, which could come in the form of preferred or common equity, could reduce the $21bn cash contribution that Musk has committed to the deal as well as a margin loan he secured against his Tesla shares, sources familiar with the matter told Reuters.
The banks that agreed last month to provide $13bn in loans based on Twitter’s business balked at offering more debt for Musk’s acquisition given the San Francisco-based company’s limited cashflow, Reuters reported last month.
Musk has also pledged some of his Tesla shares to banks to arrange a $12.5bn margin loan to help fund the deal. He may seek to trim the size of the margin loan based on the new investor interest in the deal financing, one of the sources said.
Major investors such as private equity firms, hedge funds and high net-worth individuals are in talks with Musk about providing preferred equity financing for the acquisition, the sources said. Preferred equity would pay a fixed dividend from Twitter, in the same way that a bond or a loan pays regular interest but would appreciate in line with the equity value of the company.
Apollo Global Management Inc and Ares Management Corp are among the private equity firms that have been in talks about providing the financing, the sources added.
Musk is still deciding whether he will have partners team up with him in writing the equity check needed for the deal, the sources said. Musk is not seeking to take on more debt for the Twitter deal currently, the sources added.
Musk has also been in talks with some of Twitter’s major shareholders about the possibility of them rolling their stake into the deal rather than cashing out, one of the sources said. Rolling stake involves selling the majority of shares in a company while retaining a minority ownership interest. The former Twitter chief executive and current board member Jack Dorsey is examining whether he will roll his take, one source added.
Large institutional investors, such as Fidelity, are also in talks about rolling over their stake, according to the source. Musk has tweeted that he would try to keep as many investors in Twitter as possible as he takes the company private.
The sources requested anonymity because the matter is confidential. Musk, Dorsey, Fidelity, Apollo and Ares did not immediately respond to requests for comment.
Investors have been fretting over whether Musk will complete the Twitter deal given that he has backtracked in the past. In April, he decided at the last minute not to take up a seat on Twitter’s board. In 2018, Musk tweeted that there was “funding secured” for a $72bn deal to take Tesla private but did not move ahead with an offer.
Musk would have to pay a $1bn termination fee to Twitter if he walked away, and the social media company could also sue him to complete the deal.
Twitter shares rose 1.2% to $49.63 in afternoon trading in New York on Monday, closer to the $54.20 a share acquisition price, as investors interpreted the news on the new financing as more certainty for the deal closing.
On Monday, the social media company said in a filing that false or spam accounts represented fewer than 5% of its monetizable daily active users during the first quarter.
The company had 229 million users who were served advertising in the first quarter.
The disclosure came days after Musk tweeted that one of his priorities would be to remove “spam bots” from the platform.
Twitter said in the filing it faced several risks until the deal with Musk is closed, such as whether advertisers would continue to spend on Twitter and “potential uncertainty regarding our future plans and strategy”.
Musk, who calls himself a free speech absolutist, has criticized Twitter’s moderation policies. He wants Twitter’s algorithm for prioritizing tweets to be public and objects to giving too much power on the service to corporations that advertise.
Reuters contributed to this report