It is unclear if Musk's efforts will be successful, but they go toward addressing a key question about his Twitter bid. Last week, Musk, the world's wealthiest man, made an unsolicited offer for the social media company, saying that he wanted to take it private and that he wanted people to be able to speak more freely on the service. But his offer was regarded sceptically by Wall Street because he did not include details about how he would come up with the money for the deal.
While Twitter's board has not rejected Musk's offer, it responded days later with a "poison pill," a defensive tactic that would effectively prevent Musk from owning more than 15 per cent of Twitter's shares. Musk had been building up a stake in the company and owns more than 9 per cent of Twitter, making him its single-biggest individual shareholder.
Musk, whose net worth has been reported at UUS$255 billion ($378 billion), did not respond to a request for comment. On Tuesday, in what appeared to be a veiled allusion to Twitter, he tweeted his thoughts about social networks and their policies: "A social media platform's policies are good if the most extreme 10 per cent on left and right are equally unhappy".
Morgan Stanley declined to comment. Twitter, which also declined to comment, is expected to provide an update on its deal-making prospects when it reports quarterly earnings April 28.
Tesla did not respond to a request for comment. It is unclear how Tesla's shareholders will regard Musk's move to potentially take out a loan against shares of the company; some of its largest shareholders declined to comment. The automaker will report quarterly earnings Wednesday. Musk often speaks during Tesla's earnings call with investors.
A deal for Twitter, if structured as a traditional leveraged buyout, would potentially be the largest such deal in at least the last two decades and would be difficult to finance for any buyer. That is because Twitter does not have the financial profile that is typical of debt-fuelled acquisitions.
In most leveraged buyout deals, companies have large and steady cash flows. But Twitter's business has been inconsistent, with revenue growth slowing. Its earnings excluding costs such as interest total only about US$1 billion ($1.4 billion) a year, and financiers are generally loath to pile on too much debt with companies that generate earnings of that size.
There are also obstacles particular to Musk. In 2018, Musk tried to take Tesla private and tweeted "funding secured," propelling Tesla shares higher. He did not have financing prepared for such a deal. The Securities and Exchange Commission later filed a securities fraud lawsuit against him, accusing him of misleading investors. Musk paid a US$20 million ($29.6 million) fine and agreed to step aside as Tesla's chair for three years.
Some investors are wary of getting involved in financing Musk's Twitter bid, concerned about the risks of teaming up with the mercurial billionaire and a company as politically contentious as Twitter, one person with knowledge of the situation said. For banks, offering a loan against Tesla stock is also risky, given the stock's volatility.
Musk has not publicly articulated his business plan for Twitter, although he has spoken about reversing Twitter's moderation policies and providing additional transparency about how its algorithms work. He has made clear that profit is not his focus, potentially complicating efforts to invest with traditional Wall Street financiers.
"This is not a way to sort of make money," Musk said in an interview at a TED conference last week. "My strong intuitive sense is that having a public platform that is maximally trusted and broadly inclusive is extremely important."
Musk's offer for Twitter stands at US$54.20 a share. Several analysts have said the company's board is likely to accept only an offer of US$60 a share or more. Twitter's stock rose above US$70 a share last year when the company announced goals to double its revenue, although its stock has since fallen to around US$45 as investors have questioned its ability to meet those targets.
Musk, who began accumulating Twitter shares in January, was invited this month to join the company's board. At the time, Twitter CEO Parag Agrawal and other board members said they welcomed Musk as a director given his use of the platform. Musk, who tweets frequently, has more than 82.5 million Twitter followers.
Musk and Agrawal also share similar perspectives about how to decentralise Twitter so that users can gain more control over their social media feeds, a tactic that both men see as a way of promoting more free speech. That move would also reduce the burden on Twitter, which has faced questions about toxic content and misinformation, to decide what posts can stay up and what should be taken down.
But then Musk rejected the board seat and began the effort to take over the company.
Twitter, which has brought on advisers from Goldman Sachs and JPMorgan Chase, has also been weighing whether to invite bids from other potential buyers, two people close to the company said. At least one interested party, private equity firm Thoma Bravo, has emerged, although it is unclear whether it will ultimately submit an offer.
This article originally appeared in The New York Times.
Written by: Lauren Hirsch
© 2022 THE NEW YORK TIMES
