Behind the Scenes of Elon Musk’s Twitter Purchase

Just 12 days ago, some of the most experienced traders on Wall Street and Silicon Valley privately rejected Elon Musk’s offer to buy Twitter for $44 billion as nothing more than a move.

But on Monday, the world’s richest man scored a stunning victory, winning unanimous support from Twitter’s board for his proposed takeover of the company, after putting his personal fortune on the line to sustain $33 billion. (R$ 166.32 billion) from the financing of the business.

A banker who has spearheaded several hostile takeovers in Silicon Valley said the transaction turned out to be “a very prosaic process” as Twitter directors succumbed to an offer that some of the company’s biggest shareholders encouraged them to accept. But the sheer speed of the deal, as well as Musk’s use of his personal wealth and his enormous ability to attract attention — including on Twitter itself — made it unlike any previous business of its size.

The Financial Times spoke to several insiders about how Musk, in a tumultuous lawsuit that lasted less than two weeks, convinced Twitter’s board that his “best and last” offer, as he called it from the start, was a deal that it was worth.

Doubts about Musk’s intentions were widespread after the surprising disclosure of his takeover plan on April 14, just days after he said he wanted to be nothing more than a passive investor in the company.

“I don’t think he was serious at first,” said investor Roger McNamee, a Silicon Valley veteran. With no funding or a clear plan for what he would do once he owned the company, plus vague promises about free speech, Musk’s approach seemed characteristically rash, McNamee said.

Adding to this mistrust was the memory of Musk’s infamous “funding guaranteed” tweet in 2018, when he said he had a deal to take his electric vehicle company Tesla private, but was accused by the United States of fraud. securities for tricking the market soon after.

In principle, a search by Musk’s advisers for private equity investors to provide financial firepower threatened to dampen his momentum as some of the biggest groups walked away, according to people involved in the negotiations.

The Twitter board’s adoption of a “poison pill” also appeared to set up a protracted cat-and-mouse game that often takes months to complete.

People close to Twitter’s board said the directors never intended to bar Musk from a negotiated deal to acquire the social network, but wanted to prevent the Tesla boss from buying it cheap.

Late last week, Musk went public with the financial commitments needed to take Twitter private, largely supported by his personal fortune. In addition to promising to invest US$21 billion (R$105.84 billion) in equities, he also sought to use part of his Tesla stake in a financial margin loan (released by banks or brokers to guarantee margin coverage of a certain amount). investment) of US$ 12.5 billion (R$ 63 billion) for which it will be responsible, resulting in a payment of personal interest of more than US$ 400 million (R$ 2 billion) per year.

Wall Street investment bank Morgan Stanley was instrumental in helping Musk get funding at breakneck speed, according to people close to Musk and the Twitter board. The lender contacted rivals on Easter Sunday, when some bankers were on vacation with their families, and said they would need to commit by Wednesday, the sources added.

Chief executives of some creditors were quickly briefed on the discussions so they could decide whether their banks would participate in funding the Musk deal, people involved in the negotiations said. Morgan Stanley’s leveraged finance team, led by banker Andrew Earls, carried out a series of appraisal calls about the acquisition, codenamed Project X, according to people informed.

“The whole street was running like crazy,” said one banker involved in the deal.

In the end, seven banks agreed to finance US$13 billion (R$65.5 billion) in traditional loans, with another five joining forces to finalize the loan with a margin of US$12.5 billion (R$63 billion). For many, the secured loan against Musk’s Tesla stock was the easiest part of the transaction, given Musk’s fortune and the fact that Tesla stock trades at a furious pace.

The value of Tesla shares traded on any given day generally outperforms the most traded stocks in the United States, including Apple, chipmaker Nvidia and Amazon. That liquidity reassured bankers: in a potential crisis in which Musk defaulted, lenders believed they could sell enough Tesla shares on the open market — even if they were going down in value — to fully cover the loan.

More importantly, it was the $21 billion worth of shares that Musk promised to personally commit that turned the tide and led to the banks vying for a share of the deal. “Everyone has done a careful analysis around it, but at the end of the day it’s the equity check. There’s never been an equity check like this,” said one person involved in the sale negotiations.

By the end of the week, Musk’s determination was changing opinions. The 38% premium his offering represented began to look especially attractive as a stock market selloff hit other tech stocks. A hurried round of personal offers from Musk to some of Twitter’s big investors on Friday helped to get things moving.

“The board’s funding concerns were alleviated and shareholders decided it was in their best interest to defend this transaction,” said a person with direct knowledge of the matter.

Several major shareholders called Twitter board members Friday and Saturday to pressure them to take Musk’s offer seriously, people familiar with the talks said. While Twitter’s share price hit an all-time high of nearly $80 during the pandemic as consumers spent more hours on the platform, many big investors bought the shares when they were trading at around $100. $20 (R$100).

On Sunday, Musk communicated directly with Twitter president Bret Taylor, allowing them to set the tone and guidelines for reaching an amicable deal, with safeguards and guarantees to protect shareholders.

In an all-Sunday board meeting, Twitter directors instructed their advisers at JPMorgan Chase and Goldman Sachs to put the finishing touches on the deal with Musk. In addition to Morgan Stanley, Tesla’s chief executive was advised by Barclays and Bank of America.

Musk still has a number of issues to resolve, the main one being how he will finance the $21 billion cash component of the offer. People close to the billionaire said he has yet to make a final decision, but is fully aware that he is in a risky situation and willing to sell Tesla shares if necessary.

In the meantime, he is talking to other potential investors to get them into the business, these sources added. Whatever the outcome, it will be Musk who will call the shots if he finishes what he started and, at age 50, becomes the mayor of what he called “the world’s true public square.”