In an SEC filing today, Elon Musk indicated that Twitter has yet to respond to his offer to buy the company, and that he is “exploring whether to commence a tender offer to acquire all of the outstanding shares.” Recall that Twitter has itself adopted a poison-pill defense of its equity in light of Musk’s unsolicited bid.
The filing also details how Musk intends to pay for Twitter. Recall that his offer is worth $54.20 per share in cash, valuing the company at around $43.4 billion. The serial entrepreneur’s bid represents a premium to Twitter’ value today, but lands far beneath the company’s 52-week stock market high of $73.34 per share; shares of Twitter traded even higher in early 2021, leaving some room for Musk’s bid to be considered modest, despite its present-day premium.
So where will all that money come from? Three major buckets, it turns out:
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The first tranche, per the filing, comes from Morgan Stanley and “certain other financial institutions” that have “committed to provide $13 billion in financing” to Musk in the form of a $6.5 billion “senior secured term loan facility,” a $500 million “senior secured revolving facility,” a $3 billion “senior secured bridge loan facility” and a $3 billion “senior unsecured bridge loan facility.”
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The second bucket of cash comes from, once again, Morgan Stanley and others that have “committed to provide $12.5 billion in margin loans” to Musk, against what we presume are his shares in Tesla and other companies.
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And, third, an “equity commitment letter” from Musk to “provide equity financing for the Proposed Transaction or the Potential Offer sufficient to pay all amounts payable in connection with the Offer and the Merger” net of the above funding sources. The total value of this equity commitment from Musk is “expected to be approximately $21 billion,” the filing states.
To summarize: Musk intends to borrow around $13 billion in various fashions; borrow $12.5 billion against his own equity holdings; and pay around $21 billion from his own holdings. It’s a somewhat complicated collection of funding sources, but Musk’s bid is hardly small, so the path to collecting the needed cash in one pile is understandably convoluted.
Do not consider the above “funding secured” notes as indication that the deal is a slam-dunk. Twitter has its back up over the bid, and Musk’s filing states plainly that “there can be no assurance that a definitive agreement with respect to the Proposed Transaction will be executed or, if executed, whether the Proposed Transaction will be consummated,” and that Musk has “not commenced, or determined to commence, any tender offer for Shares of Twitter” quite yet.
More to come, in other words, but Musk does appear to have a way to the cash he needs to make his bid more than just words.