The acquisition of Twitter by Elon Musk, for US$ 44 billion (R$ 220 billion), could not be conventional. First, he convinced Wall Street to back him with enough credit to win the company’s board. Now, he’s counting on his billionaire friends to raise the cash portion of his bid and convince shareholders to make him the king of the world’s “digital square.”
Musk on Thursday revealed new financing of US$7.14 billion (R$ 35.7 billion) by 19 investors in his audacious offer, which would be one of the largest leveraged buyouts on record. More recent supporters include figures from across Wall Street, Silicon Valley and the decentralized cryptocurrency universe, who have made billions thanks to the South African entrepreneur or are happy to proclaim their support for a man they consider a visionary.
Oracle co-founder and Tesla board member Larry Ellison signed the biggest new check, worth $1 billion, while venture capital firm Sequoia committed $800 million and Dubai-based Vy Capital is providing $700 million. Among the broad group of investors, many said they were happy to give the money to Musk without delving too deeply into how he intends to change Twitter.
The unusual list shows that Musk has leveraged connections from Tesla and his other ventures to attract investors, as most of the large private equity groups, which normally fund leveraged buyouts, have walked away so far.
Rich friends open wallets
When Musk announced the offer in late April, Twitter said he would pay $21 billion in cash and finance the rest with $25.5 billion in debt, including a $12.5 billion margin loan against his Tesla shares.
At first, Musk tried to attract big private equity investors. After several conversations with takeover titans, all major players except Brookfield Asset Management pulled back, according to people briefed on the matter.
The main problem, these people said, was the lack of clarity around Musk’s plan to overhaul the San Francisco-based platform, as well as his inability to exert real influence over the rebellious businessman.
Musk then called in his wealthy, longtime friends, people with knowledge of the matter said. The argument was simple: Musk had made them billions, and they could give back by supporting his latest venture.
Ellison’s 1.5% stake in Tesla earned him more than $10 billion. Fund manager Ron Baron, whose Baron Capital Management has made more than $7 billion since first supporting the automaker in 2014, is investing $100 million in Musk’s Twitter deal.
The new money will be used to reduce the debt portion of the offering, particularly Musk’s margin loan, which has now been halved to $6.25 billion. After the new capital injection from Musk’s friends, the equity component of the transaction is US$ 27.25 billion (R$ 136.25 billion).
Reducing the size of the margin loan — secured against Musk’s Tesla shares — relieves some of the pressure on the billionaire. Since he revealed his stake on Twitter, shares in his electric car maker have dropped 25% compared with a 10% drop in the S&P 500 benchmark.
“He had the right to reduce [o empréstimo de margem] and just pay the commitment fees going forward on the reduced amount, so he jumped at the opportunity,” said a person familiar with the funding.
“Anyone who invested in Tesla should feel a little better because [menos] Tesla’s shares will be forfeited because he has reduced the margin loan,” the person added.
Vy buys Musk’s idea
Even after the new equity, Musk will still be hanging on for just over $20 billion to complete the transaction.
The Tesla chief executive sold $8.5 billion in shares of the automaker last month, which he can put into the Twitter deal. Its 9.6% stake in Twitter is worth about $3.7 billion at Thursday’s trading price.
That leaves around US$8 billion (R$40 billion) extra to complete the deal. It’s unclear where Musk plans to raise this money. But the latest round of support, particularly from its tech friends, shows its ability to attract new investors.
Investments by venture capital firms, including Sequoia, DFJ and Andreessen Horowitz, were partly motivated by a belief in Musk and his successful track record in other ventures, people familiar with the matter said.
Ben Horowitz, co-founder of Andreessen Horowitz, said the company invested because it believed in “Elon’s brilliance to finally make him what he should be.” Sequoia said Musk had an “opportunity to drive significant innovations that will help unlock Twitter’s full potential as a global platform that connects the world.”
Sequoia, Vy Capital and DFJ Growth participated in a $675 million funding round for Musk’s tunnel startup The Boring Company last month. They also supported Musk’s rocket company, SpaceX.
The only private equity group funding Musk’s acquisition of Twitter is Brookfield’s venture arm, which raised $250 million. Last year, the Canadian group announced plans to build a housing project in Texas alongside Tesla Energy, the automaker’s clean energy division.
Josh Raffaelli, managing partner of Brookfield Growth, the asset manager’s risk arm, wrote on LinkedIn: “We are thrilled to be able to support Elon again… Funding guaranteed.”
Binance, the world’s largest cryptocurrency exchange, has committed $500 million to the Twitter deal. Binance Chief Executive Changpeng Zhao said the investment was motivated by faith in Musk as a visionary entrepreneur, alignment with his philosophical goals for Twitter, and a desire to integrate cryptographic technology into the social media platform.
“It’s more of a blank check,” Zhao told the Financial Times. “After the investment… Elon will figure out what he wants to do, and we’ll support him.”
Musk is “one of the smartest guys on Earth, probably,” he added.
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