Elon Musk is looking at ways to raise funds that include equity and financing for the buyout of Twitter Inc. According to people with information on the matter, this will eliminate the need for him to take margin financing against Tesla Inc. shares.
Morgan Stanley, the lead advisor to Musk, is soliciting interest for preferred financing in equity from potential investors to the tune of around $6 billion.
As per Bloomberg News, Musk had initially been teed a $12.5 billion margin loan for the $44 billion Twitter buyout deal. This has been halved to $6.25 billion after he disclosed equity commitments of $7.1 billion from investors, including Qatar Holding, Sequoia Capital, Larry Ellison, and Alwaleed bin Talal thesauri prince, who is rolling his stock in twitter in the new deal.
Musk has also received a commitment for an additional $1 billion in equity and wants to get more. The additional equity mop-up will help reduce margin financing exposure and cut the risk for both lenders and Musk. It will also reduce pressure on Tesla’s stock which is the bulk of Musk’s $216 billion fortune. The stock price of the EV maker has tumbled by 25% plus after Musk agreed to buy Twitter, causing concern among the investors that he might sell more than the $8.5 billion already sold off to fund the purchase.
Terms of funding
The preferred equity might be of 20-year maturity and include an interest option paid with a probable rate of 14%. The interest rate will be increased by 75 basis points between the seventh and ninth years. The financing may be structured at a 10% interest rate.
The size and terms of financing are not yet finalized and could change. According to people, Musk can block the transfer of some preferred equity.
Representatives of Musk and Morgan Stanley did not respond or declined to comment.
Several firms are in talks to participate in preferred financing—investors who have been focused on Musk’s margin loan since the twitter offer. As of June 30, Musk had pledged more than half of his shares to other borrowings, leaving him with a limited amount he could use for the Twitter buyout.
After selling his shares last month by Musk, there would not be enough unpledged shares to cover the margin loan at the initial $12.5 billion had the stock price fall below $837. At the present $6.25 billion financings, the stock price can manage up to a $420 drop.
Tesla fell to an intra-day low of $680 before trading at $735.61 a 12.33 pm in New York Thursday.
