after a week Elon Musk Finalizing a $44 billion deal to buy Twitter, the billionaire is working to secure outside funding for the acquisition that would tie in less of his personal fortune.
The world’s richest person has been in talks with big investment firms and high net worth individuals for more funding, Reuters reported on Monday. Although Musk has an estimated net worth of around $245 billion, much of his wealth is tied up in stocks.
Tesla CEO revealed last week that he sold $8.5 billion worth of stock after agreeing to buy Twitter. Insiders told Reuters that the additional funding, which could come in the form of preferred or common stock, could reduce the $21 billion cash contribution that Musk committed to the deal as well as the margin loan he took for his Tesla shares.
Reuters reported last month that banks that agreed last month to provide $13 billion in loans based on Twitter’s business were reluctant to provide more debt for Musk’s acquisition due to the San Francisco-based company’s limited cash flow.
Musk also pledged some of his Tesla shares to banks to arrange a $12.5 billion marginal loan to help fund the deal. One of the sources said he might seek to reduce the size of the margin loan based on the new investor’s interest in financing the deal.
Major investors such as private equity firms, hedge funds and high net worth individuals are in talks with Musk about providing preferred equity financing for the acquisition, the sources said. Preferred stock will pay a fixed return from Twitter, in the same way that a bond or loan pays regular interest but will rise in line with the company’s equity value.
The sources added that Apollo Global Management and Ares Management are among the private equity firms in talks about providing financing.
The sources said that Musk is still deciding whether to bring together partners with him in writing to verify the equity required for the deal. The sources added that Musk is not currently seeking to take on more debt to the Twitter deal.
One of the sources said that Musk has also been in talks with some of Twitter’s major shareholders about the possibility that they could put their stake in the deal rather than cash it. A rolling stock involves selling a majority of the shares in a company while retaining minority ownership rights. One of the sources added that former Twitter CEO and current board member, Jack Dorsey, is considering whether he will have to do so.
According to the source, large institutional investors such as Fidelity are also in talks about extending their stake. Musk wrote on Twitter that he would try to keep as many investors on Twitter as possible as he made the company private.
The sources asked not to be identified as it is a matter of confidentiality. Musk, Dorsey, Fidelity, Apollo and Ares did not immediately respond to requests for comment.
Investors have been concerned about whether Musk will complete the Twitter deal given that he has backed off in the past. In April, he decided at the last minute not to take a seat on Twitter’s board of directors. In 2018, Musk wrote on Twitter that there was “secured funding” for a $72 billion deal to take Tesla private, but it did not go ahead with an offer.
Musk will have to pay Twitter a $1 billion termination fee if he withdraws, and the social media company can also sue him to complete the deal.
Twitter shares rose 1.2% to $49.63 in the New York afternoon on Monday, closer to the $54.20 buyout price, as investors interpreted news about the new funding as more certainty to close the deal.
On Monday, the social media company said in a filing that fake or spam accounts accounted for less than 5% of monetized daily active users during the first quarter.
The company had 229 million users served ads in the first quarter.
The revelation came days after Musk tweeted that one of his priorities would be to remove “spam bots” from the platform.
Twitter said in the filing that it faced several risks until the deal with Musk closed, such as whether advertisers would continue to spend on Twitter and “potential uncertainty regarding our future plans and strategy.”
Musk, who calls himself an absolute freedom of speech, criticized Twitter’s moderation policies. He wants the Twitter algorithm to prioritize tweets to be public and objects to giving too much power over the service to companies that advertise.
Reuters contributed to this report.
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