Elon Musk is in talks with major investment firms and wealthy individuals to secure more funding for his $44 billion acquisition of Twitter Inc and tie up less of his wealth in the deal, people familiar with the matter have said. .
Musk is the richest person in the world, with Forbes estimating his net worth at around $245 billion. Yet most of his wealth is tied to shares of Tesla Inc, the electric car maker he heads. Last week, Musk revealed he had sold $8.5 billion worth of Tesla stock following his deal to buy Twitter.
The new funding, which could be in the form of preferred or common stock, could reduce the $21 billion cash contribution Musk committed to the deal as well as a margin loan he secured on its Tesla shares, the sources said.
Banks that agreed last month to provide $13 billion in loans based on Twitter’s business have been reluctant to offer more debt for Musk’s acquisition given the San Francisco-based company’s tight cash flow. Reuters reported last month.
Musk also pledged some of his Tesla shares to banks to arrange a $12.5 billion margin loan to help fund the deal. It could seek to reduce the amount of the margin loan depending on whether new investors are interested in funding the deal, one of the sources said.
Major investors such as private equity firms, hedge funds and high net worth individuals are in talks with Musk to provide preferred equity financing for the acquisition, the sources said. Preferred stock would pay a fixed dividend from Twitter, similar to how a bond or loan pays regular interest, but would appreciate based on the value of the company’s shares.
Apollo Global Management Inc (APO.N) and Ares Management Corp (ARES.N) are among the private equity firms that have discussed providing the funding, the sources added.
Musk is still deciding whether he will team up with partners to write the equity check needed for the deal, the sources said. Musk is not looking to take on more debt for the Twitter deal currently, the sources added.
Musk has also been in talks with some of Twitter’s largest shareholders about the possibility of them incorporating their stake into the deal rather than cashing out, one of the sources said. Former Twitter CEO and current board member Jack Dorsey is considering whether to launch his take, a source added.
Large institutional investors, such as Fidelity, are also in talks about renewing their stake, the source said.
Musk tweeted that he would try to keep as many investors on Twitter as possible as he takes the company private.
The sources requested anonymity as the matter is confidential. Musk, Dorsey, Fidelity, Apollo and Ares did not respond to requests for comment.
Tesla shares traded in New York on Monday up 3.7% at $902.94. Wedbush Securities managing director Dan Ives said the news helped ease investor concerns that Musk was relying too much on his Tesla shares to fund the deal on Twitter.
“Major if it materializes as we believe the Twitter deal represented an excess of over $100 per share over Tesla stock due to Musk’s funding issues,” Ives tweeted.
Investors are wondering if Musk will complete the Twitter deal given he has backtracked in the past. In April, he decided at the last minute not to serve on Twitter’s board. In 2018, Musk tweeted that there was “secured funding” for a $72 billion deal to take Tesla private, but didn’t offer a bid.
Shares of Twitter ended up 0.2% at $49.14 in New York on Monday, closer to the acquisition price of $54.20 per share as investors interpreted the news on new funding talks as making the conclusion of the agreement slightly more likely.
Musk would have to pay Twitter a $1 billion termination fee if he walks away, and the social media company could also sue him to complete the deal.
Musk, who calls himself a free speech absolutist, criticized Twitter’s moderation policies. He wants Twitter’s algorithm for prioritizing tweets to be public and opposes giving too much power over the service to companies that advertise.