A huge talking point emerged as the world’s richest man, according to Forbes magazine, Elon Musk finally made a concrete offer to purchase Social media giant Twitter. What started as a few tweets that captured a lot of attention may culminate in a US$44 billion acquisition. While there are still many issues and hurdles to overcome until the sale is finalised we can take a glimpse into the purchase transaction. One would think that US$44 billion to a man worth US$290 billion comes out of pocket but this is not the case. Thanks to the Securities and Exchange Commission filing for the acquisition offer we can look at how Elon Musk plans to pay for what will be the largest social media acquisition in history.
No easy road
Twitter or its owners have not exactly been acquiescent to the advances of Elon Musk. The most recent resistance move was what is commonly referred to as a poison pill. In this move, shareholders would be given a rights issue, an offer to buy additional shares at a discounted price. This increases the capital injected into the business by shareholders and thus makes the purchase more expensive and the additional frustration of dilution of shareholding and dealing with possibly more minority shareholders because these rights are transferrable (can be sold to other people). The move will be taken if any one shareholder acquires more than 15% of the company’s shares.
Other notable Twitter shareholders such as the Qatar State investment fund were initially opposed to Musk’s plan to acquire Twitter. The name may be familiar to football fans as these are the owners of Paris Saint Germain football club. The Qatari fund will add US$375 million in aid of Elon Musk’s Twitter takeover. With the 2022 FIFA World Cup set for Qatar in December and the way, Social Media like Twitter have revolutionised sports viewership and following you can surmise the reasons behind their initial resistance and finally hopping on board to invest even deeper in Twitter. Twitter have also placed a US$1 billion break up fee, which is exactly what it sounds like. If the deal fails Elon Musk and his consortium will part with US$1 billion for their troubles.
Breaking it down
The total offer to Twitter shareholders is US$44 billion. How is it being raised? Elon Musk has pledged US$21 billion in cash for the purchase. This was raised through liquidating part of his Tesla holdings while securing loans against the remaining 16% stake in Tesla. The loan against his Tesla shares was initially planned for US$13 billion leveraged against the future earnings of the acquired entity. The list of equity partners has some interesting and notable names in it. Binance, Fidelity Management, Larry Ellison, Sequoia Capital and the aforementioned Qatar Investment Fund. You can see the extract from the SEC filing for the acquisition below.
|Equity Investor||Aggregate Equity Commitment|
|A.M. Management & Consulting||$25,000,000|
|AH Capital Management, L.L.C. (a16z)||$400,000,000|
|Aliya Capital Partners LLC||$360,000,000|
|BAMCO, Inc. (Baron)||$100,000,000|
|DFJ Growth IV Partners, LLC||$100,000,000|
|Fidelity Management & Research Company LLC||$316,139,386|
|Honeycomb Asset Management LP||$5,000,000|
|Key Wealth Advisors LLC||$30,000,000|
|Lawrence J. Ellison Revocable Trust||$1,000,000,000|
|Qatar Holding LLC||$375,000,000|
|Sequoia Capital Fund, L.P.||$800,000,000|
|Strauss Capital LLC||$150,000,000|
|Tresser Blvd 402 LLC (Cartenna)||$8,500,000|
|Source: Securities & Exchange Commission|
This story is not over and moves like the Poison pill and new allegations from Musk over Twitter’s surge in user accounts since his bid will certainly keep the conversation going. Musk alleges that the inflation in user accounts may be a move to artificially inflate the value of the Social Media platform and mean existing shareholders will place a higher value on their shares, meaning he and his consortium would have to pay more for Twitter. The offer will give shareholders an estimated US$54 per share while the current market price is around US$35 per share, so this still represents good value to those shareholders. The deal is slated for later in the year so there is time to iron out the sticking points that exist.