EXCLUSIVE: Musk’s deal threats on Twitter put new funding on ice sources

(Reuters) – Elon Musk’s efforts to arrange new funding would limit his cash contribution to his $44 billion acquisition of Twitter. (TWTR.N) People familiar with the matter said it was put on hold due to uncertainty surrounding the deal.

Musk was threatening to walk away from the deal unless the social media company provided him with data to support its estimate that fake or spam accounts make up less than 5% of its user base. This culminated in a letter from Musk’s lawyer to Twitter on Monday warning that he may walk away unless more information is provided. Read more

Musk is in trouble to pay $33.5 billion in cash to fund the deal after arranging debt financing to cover the rest. His liquidity is limited given that his fortune, which Forbes has pegged at $218 billion, is largely tied to shares of Tesla Inc. (TSLA.O)the electric car maker that drives.

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Musk has held discussions to arrange $2 billion to $3 billion in preferred stock financing from a group of private equity firms led by Apollo Global Management Inc. (APO.N) This would reduce his monetary contribution, according to the sources. One of the sources said those talks are now on hold until the future of the acquisition is clear.

The pause in financing activities provides the first clear indication that Musk’s threats are interfering with the steps that would help close the deal. Twitter has so far insisted that Musk was performing his obligations under their contract, including helping to obtain regulatory approval for the deal.

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Musk and Twitter spokespeople did not respond to requests for comment. Apollo declined to comment.

Musk sold $8.5 billion worth of Tesla stock in April after he signed his deal to buy Twitter, and it’s not clear how much cash he has available to meet his obligations. He raised $7.1 billion from a group of co-investors to reduce his contribution. Musk also sought to reduce that exposure further by arranging a risky $12.5 billion marginal loan tied to Tesla shares, but canceled it last month.

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.

Buyer’s remorse

Uncertainty about the deal also affected the banks’ plans to take $13 billion in debt that they have committed to buying off their books through syndications. The sources said the banks, while still preparing to accumulate debt, plan to wait until the deal becomes clear to start the process.

The sources said banks do not believe credit investors will buy debt as long as the uncertainty persists. The sources added that the banks also found Musk’s derogatory comments about the company unhelpful, and were hoping he would now help them with investor offers to standardize the deal.

The halting of these activities certainly does not affect the commitments made by Musk and the banks to finance the deal. Twitter could take them to court to force them to comply with their financing obligations under the deal contract if they fail.

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Debt rationing could emerge as a major issue for banks, as Musk’s dispute with Twitter escalated into litigation and a judge forced them to finance the deal. In this scenario, they may have difficulty getting investors to buy debt if Musk is unwilling to own the company.

However, this possibility is viewed as remote. Most investors are trading Twitter stocks on the assumption that the company is much more likely to reach a settlement with Musk or let him walk away, rather than wading through lengthy litigation. Read more

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Additional reporting by Kristal Hu and Greg Romelutis in New York Additional reporting by Shibuike Ugo in New York; Editing by Matthew Lewis

Our criteria: Thomson Reuters Trust Principles.

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