Twitter announced yesterday that it had reached a definitive agreement to be acquired by an entity wholly owned by Elon Musk, for $54.20 per share in cash at a transaction valued at approximately 44,000 million. After the transaction is complete, Twitter will become a private company.
Under the terms of the agreement, the purchase price represents a 38% premium regarding the closing price of Twitter stock on April 1, 2022, which was the last trading day before Musk revealed his roughly 9% stake in Twitter.
Even though Elon Musk is the richest man in the world, with a net worth well over $250 billion, his wealth is heavily dependent on Tesla, so the purchase of Twitter carries certain ties to take into account.
The axes in the financing of the purchase of Twitter
The chosen formula would be, on the one hand, 25,500 million of financing in the form of margin loans (12,500 million) and debt (13,000 million) and a capital commitment of approximately $21 billion from Musk.
To begin to understand the financing of the operation, the first point to take into account is that Elon Musk has partially put on the table his participation in Tesla that serves as collateral for the margin loan in which up to twelve financial entities have participated. A decision that has had a direct consequence for the price of the car company, with a capitalization loss of 125,000 million euros after falling by 12.18%.
This type of loan serves so that, in a possible crisis in which Musk defaults, lenders can sell enough Tesla shares on the open market without problems due to the high liquidity of its titles.
Continuing with the assumed debt, they have promised to provide $13 billion in financing which are distributed as follows:
- Senior Secured Term Line of Credit for a total principal amount of $6.5 billion.
- Revolving secured main line of credit in a total committed amount of 500 million.
- Senior secured bridge line of credit for an aggregate capital amount of up to 3,000 million.
- Senior unsecured bridge line of credit for an aggregate principal amount of up to 3,000 million.
The matter of the 21,000 million that Musk has to put is not very clear. He could sell part of his shares in Tesla or other shares, which would also incur a hefty tax bill. You may be able to finance part of it using the margin loan formula at SpaceX and Boring.