Twitter / Elon Musk: Is the funding guaranteed this time?

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Let’s see if Elon Musk learned anything. Four years ago, Tesla’s chief executive vaguely offered to take his electric vehicle company private, at one point misleadingly posting a tweet that he had “secured funding” for such a deal.

That post flouted US securities law enough that US regulators required that Musk’s social media activity be pre-cleared by lawyers.

Musk is once again making proclamations of successful mergers and acquisitions. On Thursday, he offered to buy the 91% of Twitter he doesn’t own at an implied aggregate stock valuation of $43.4 billion.

This time, he aptly communicated his intentions through legal filings.

Social issues far beyond the remit of the Securities and Exchange Commission would arise if this mercurial business titan acquires one of the world’s most important media properties.

Musk is a remarkable entrepreneur. But its hostility to vigorous moderation could lead to even greater use of the site by fringe groups. That could be bad for civilized debate — and Twitter’s fragile business model.

The most pressing issue for Twitter’s board is to assess whether Musk’s proposed price is reasonable.

Musk says his $54.20 per share cash offer is his best and final. That’s a 54% premium to where Twitter shares traded in January when Musk quietly started buying shares in the market. However, just 14 months ago, Twitter shares peaked at $77.

Don’t expect Twitter shareholders to sell for a price so far off its recently reached all-time high.

Another intriguing question is where Musk is going to find the money. He spent $2.6 billion to buy his tenth of the company, at an average price of about $36 per share. Musk’s personal wealth is estimated at more than $200 billion, but is largely tied to Tesla stock as well as ownership of privately held SpaceX. Musk, according to Tesla’s own disclosures, has already borrowed heavily against his Tesla stock.

Wall Street analysts predict that Twitter will have about $1.5 billion in Ebitda in 2022. Even pulling that six times doesn’t even hit $10 billion in cash. Twitter already has $6 billion in existing debt in the form of junk and convertible bonds. His cash balance is roughly equal to his gross debt at present.

Investment bankers have argued that in a world awash with liquidity, sovereign wealth funds and alternative asset managers of nearly $1 trillion can raise the equity needed for a mega buyout. These types of buttoned bands teaming up with a loose cannon like Musk seem over the top.

Musk himself is hedging his bets. His securities filing indicates that his offer is non-binding and requires the usual due diligence and document negotiation. The entrepreneur also cryptically announced that if his offer was not accepted, “I would have to reconsider my position as a shareholder”.

The likelihood of Musk soon owning zero percent of Twitter is as high as he eventually owns the entire company.

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