Elon Musk Seeks to Scrap Tesla Margin Loan With New Twitter Funding




 

(Bloomberg) -- Elon Musk is in talks to raise enough equity and preferred financing for his proposed buyout of Twitter Inc. to eliminate the need for any margin loan linked to his Tesla Inc. shares, according to people with knowledge of the matter.

Most Read from Bloomberg

  • Crypto Billionaires' Vast Fortunes Are Destroyed in Weeks

  • Nike Escalates StockX Feud, Says Site Is Selling Fake Shoes

  • More Than $200 Billion Wiped Off Cryptocurrency Market in a Day

  • Ukraine Latest: Germany Can Withstand Gas Halt; US Eyes Drones

  • Stocks Jolted by Recession Fears in Rush for Haven: Markets Wrap

The billionaire's advisers, led by Morgan Stanley, have begun soliciting interest from potential investors for as much as $6 billion in preferred equity financing, the people said, asking not to be named discussing a private transaction.

Musk, 50, had originally teed up a $12.5 billion margin loan as part of his $44 billion deal to buy Twitter. That was halved to $6.25 billion after he disclosed $7.1 billion in equity commitments from investors including Larry Ellison, Sequoia Capital, Qatar Holding and Saudi Prince Alwaleed bin Talal, with the latter rolling his Twitter stock into the deal.

Since then, Musk has received commitments for another $1 billion in equity, and is in talks for more, one of the people said.

That additional equity, on top of the preferred financing, would be enough to erase the margin loan, cutting the risk of the deal for both Musk and his lenders.

It would also alleviate pressure on Tesla's stock, which is the cornerstone of Musk's $216 billion fortune, the world's largest. The electric carmaker has tumbled more than 25% since he agreed to purchase Twitter, stoking concerns among investors that he may sell even more than the $8.5 billion he's already disposed of to fund the buyout.

Talking Terms

The preferred equity may have a 20-year maturity and include a feature allowing interest to be paid in kind at a rate of 14%, the people said. That interest rate would be increased by 75 basis points in the seventh, eight and ninth year, they added. The financing may alternatively be structured with a 10% interest rate and warrants, one of the people said.

Terms and size of the financing aren't finalized and could change. Musk can block any transfers of the preferred equity, some of the people said.

A representative for Musk did not respond to requests for comment. A Morgan Stanley representative declined to comment.

Firms including Apollo Global Management Inc. and Sixth Street are already discussing participating in the preferred financing, Bloomberg reported earlier this week.

Read more: Elon Musk Turns to Billionaire Backers for Twitter Equity

Investors, especially those who specialize in merger arbitrage, have been hyper-focused on Musk's margin loan since he made his offer for Twitter. That's because as of June 30, Tesla's chief executive had already pledged more than half of his shares toward other borrowings, leaving him with a limited amount he could put up for the social-media company and raising the risk that a slide in the stock could jeopardize the buyout.

At the initial $12.5 billion size and after his share sales last month, Musk wouldn't have had enough unpledged Tesla shares to cover the margin loan if the stock fell below $837. At the current $6.25 billion, Musk could withstand a drop to about $420.

Tesla fell to as low as $680 on Thursday, and traded at $735.61 at 12:33 p.m. in New York. Twitter, meanwhile, surged as much as 3% intraday, before paring its advance. At $45.40, it remains below Musk's $54.20 offer.

(Updates with details of margin loan in 11th paragraph.)

Most Read from Bloomberg Businessweek

  • Mexico's Hottest Resort Towns Struggle With Covid Travel Boom

  • What Happened When a Wall Street Investment Giant Moved to Nashville

  • The Investing Party May Be Over, But Markets Might Make Sense Again

  • Don't Expect Chinese Stimulus to Save the Global Economy

  • Starbucks Baristas Are Unionizing, and Even Howard Schultz Can't Make Them Stop

©2022 Bloomberg L.P.

COMMENTS

More Related News

Just How Rich Are Elon Musk, Donald Trump and These Other Big Names?
Just How Rich Are Elon Musk, Donald Trump and These Other Big Names?

What do Elon Musk, Donald Trump and Oprah Winfrey have in common? They're all really, really rich. But do you know their actual net worths? Find: 9 Bills You...

US Manufacturing Growth Weakens to Two-Year Low as Orders Slump
US Manufacturing Growth Weakens to Two-Year Low as Orders Slump

(Bloomberg) -- A measure of US manufacturing activity weakened in June to a two-year low as new orders contracted, restrained by lingering supply constraints...

Recession Fears Bolster Treasuries, Short-End Yields Plunge
Recession Fears Bolster Treasuries, Short-End Yields Plunge

(Bloomberg) -- Treasuries extended their surge Friday as new data on US manufacturing added fuel to concern that Federal Reserve rate hikes will lead to a...

Richest Billionaires Lose $1.4 Trillion in Worst Half Ever
Richest Billionaires Lose $1.4 Trillion in Worst Half Ever

(Bloomberg) -- Elon Musk's fortune plunged almost $62 billion. Jeff Bezos saw his wealth tumble by about $63 billion. Mark Zuckerberg's net worth was slashed...

War-Strained Wheat Market Faces Moment of Truth
War-Strained Wheat Market Faces Moment of Truth

(Bloomberg) -- The strained global wheat market is entering crunch time. Most Read from BloombergUS Will Face High Gas Prices 'as Long as It Takes,' Biden...

Leave a Comment

Your email address will not be published. Required fields are marked with *

Cancel reply

Comments

Top News: Economy