Explainer: How will Elon Musk pay for Twitter?

Oct 6 (Reuters) – Elon Musk purchased himself at one level on Thursday after a decide granted the billionaire’s request to cease a Twitter lawsuit to permit him to shut the social media firm’s proposed $44 billion acquisition by Oct. 28.

Now comes the large query: How will he pay for it?

Musk stated earlier this week that he would purchase Twitter for $54.20 per share, the value agreed in April, however included a situation that closing the deal could be contingent on debt financing for the upcoming deal.

Register now to get free limitless entry to Reuters.com

Tesla shares fell greater than 6% on Friday, heading for his or her worst weekly decline since March 2020, as buyers worry Musk could dump extra shares after Tesla reported its quarterly earnings on Oct. 19.

What’s his financing plan?

Musk pledged $46.5 billion in fairness and debt financing for the acquisition, which covers the $44 billion worth and shutting prices. Banks, together with Morgan Stanley (MS.N) and Financial institution of America Corp (BAC.N), have dedicated $13 billion in debt financing to assist the deal.

Specialists say banks’ commitments to the deal are strict and tight, limiting their capacity to stroll away from the contract although they may incur vital losses.

On Thursday, Twitter quoted a financial institution as saying that Musk had not knowledgeable them that he meant to shut the deal. Musk stated the banks have been “working collaboratively to fund the shutdown” on or round October 28.

Musk’s $33.5 billion fairness dedication will embrace his 9.6% stake in Twitter, which is valued at $4 billion, and $7.1 billion he obtained from fairness buyers, together with Oracle (ORCL.N) co-founder Larry Ellison and Saudi Prince Alwaleed bin Talal.

That leaves Musk needing to safe an extra $22.4 billion in funds to cowl the fairness financing portion of the deal.

Reuters graphics

How a lot money does he have?

Musk, 51, is the world’s richest individual with a internet value of $219 billion in response to Forbes journal, however a good portion of his fortune is linked to his stakes in Tesla and House X.

In response to Reuters calculations, Musk has about $20 billion in money after promoting a part of his stake in Tesla via a number of transactions in November and December final yr and April and August this yr. Because of this he might want to elevate an extra $2 billion to $3 billion, even when his fairness and different debt obligations are met.

How can he fill the shortfall in capital?

He can both select to promote extra of his stake in Tesla, or his stake in SpaceX. Different choices embrace getting a financial institution mortgage in alternate for shares, or getting extra buyers to contribute fairness.

Specialists say that if he does not file a prearranged “Rule 10b5-1” gross sales plan, he will not have the ability to promote any Tesla inventory now for the weeks till October 19.

“It is sort of like a tie. It is sort of caught the place it’s now even after their earnings are introduced,” stated Eric Talley, a professor at Columbia Regulation Faculty.

In August, Musk stated he had no plans to promote his stake in Tesla after that, however Musk’s newest turnaround has revived issues about whether or not he’ll promote extra shares of the electrical automotive maker to fund the deal.

Musk owned 465 million Tesla shares value $111 billion after a 3-for-1 inventory break up, in response to Reuters calculations. He has already borrowed closely in alternate for a big portion of his stake in Tesla.

Does he have sufficient buyers?

Ellison is amongst a gaggle of buyers who collectively promised $7.1 billion in funding for the deal. Up to now, no investor has stated publicly that they are going to step again from their commitments.

Musk raised the chance that inventory companions may not have the ability to get assist in a tweet, when he defined why he wanted to promote Tesla shares in August.

Register now to get free limitless entry to Reuters.com

Extra reporting by Hyunjo Jin in San Francisco, Shibuki Ogo and Kirstal Ho in New York; Enhancing by Anirban Sen, Sam Holmes and Nick Szyminski

Our Requirements: Thomson Reuters Belief Rules.