Elon Musk’s expensive toy

$46.50Bn finance secured for Elon's expensive toy

Well, that was quick. But if the world’s richest guy can’t do it, nobody can. I have seen deals done quicker. None of mine were in the region of $54Bn, as far as I can remember.

Musk is a rich guy, but he is cash-lean. He therefore would have to sell stuff or tender it as security for loans to be advanced to him. He wasted no time in proving he was good for the purchase price.

Yesterday Elon Musk told The SEC in a filing that Twitter had not responded to his suggestion that he take over the entire company for $54.20 per share. He added that he had not decided what to do “at this time”.

He then went on to produce two debt commitment letters from Morgan Stanley totalling $13Bn to Twitter, and another commitment letter for $12,5Bn to Musk. In addition, he provided a personal commitment letter to a vehicle which would be the ultimate buyer for $21Bn.

All three letters were dated 20 April 2022, or as the Americans so quaintly date documents: 4.20.2022. (Musk has a thing for 42 or any of its derivatives.)

The guarantees of funds removed the “contingent on funding” part of the original offer. He also appears to have waived any requirement for due diligence studies, investigations, or even browsing. There is no time, and it is a very public piddling competition of who can do what. I hate it when they don't want to do a due diligence.

His banks won’t be too worried about the due diligence because they are fully secured and receiving a good chunk of interest from him along the way. And hey, it’s Elon! Also 4/20.

Speaking of interest. The interest bill on all this lending will be in the region of about $1Bn per annum. Twitter does not make that sort of profit. Oh well, probably nothing.

Where to for Twitter?

This kind of very public hostile takeover activity could expect other bidders to come out from under the covers with other “suggestions”. The next few days will be interesting.

If there are no other offers then the board will have to take a serious stand, one way or the other.

None of the directors have any meaningful shareholding in the company, but they all have lucrative jobs, and probably some share options. I doubt Musk will keep any of them around for long, so they would be saving their jobs by persuading shareholders to not sell.

But how do you persuade someone to refuse a bid of $54 for something which is currently trading at $49? Well that sounds easy, doesn’t it? But actually Twitter shares were trending lower, as low as $32 before Musk started buying up the stock. If he dumps his stock it might just go back to those levels.

Aswath Damodaran has a well-reasoned valuation on his web-site where he calculates the share value at $45.93 per share. But value is not necessarily the same as price.

The Board has a duty to shareholders to maximise their return on investment. They will probably take the deal now.