Friday, May 27, 2022

Elon Musk Twitter coinvestors will be rare birds

Elon Musk Twitter coinvestors will be rare birds
May 3, 2022 Web Desk

NEW YORK (Reuters Breakingviews) – When there’s a $44 billion merger in the offing, it’s natural that lots of investors kick the tires. With Elon Musk’s personal buyout of Twitter (TWTR.N), however, it’s tough for managers of other people’s money – like private equity firms, for example – to justify investing alongside the Tesla (TSLA.O) chief executive.

Morgan Stanley (MS.N) has spearheaded a $13 billion debt package for the acquisition. It’s highly leveraged, at 7 times Twitter’s forecast cash flow for next year, using data compiled by Refinitiv. But it’s on top of $21 billion of equity, currently committed by Musk alone, and an additional loan of $12.5 billion backed by five times that value of Tesla stock, owned by Musk. With that cushion and direct access to Twitter’s cash flow, lenders can argue۔

That rationale does not, however, extend to anyone joining Musk in providing equity. Buying Twitter will stretch even his wealth, and buyout shops like Thoma Bravo and Apollo Global Management (APO.N) have eyed participating in the transaction. But they face a dilemma. Assuming Musk stays the course, it’s hard to see him ceding control. And if incoming investors write equity checks as minority partners, then what the Tesla boss says, goes.

He has touted possible cost savings and other measures to make Twitter more profitable read more . But cutting back on efforts to control what is said on the platform – as Musk has suggested – could hurt advertising revenue, for example, and reduce the company’s equity value. It’s a risk that is hard to take for investors responsible for clients’ cash.

Sovereign wealth funds have sometimes entrusted their money to others with only limited checks and balances, as Saudi Arabia’s Public Investment Fund did when it bankrolled Masayoshi Son’s SoftBank (9984.T) Vision Fund. But Musk isn’t necessarily offering coinvestment opportunities beyond Twitter, and his commitment to free speech on the platform could play badly read more with authoritarian governments.

If these objections could be overcome, any meaningful equity stake would still be a hefty single outlay even for a large investment institution, never mind for individuals and family offices. Musk’s potential coinvestors will be rare birds.

CONTEXT NEWS

- Elon Musk, who has agreed to buy Twitter for $44 billion, has been inundated with offers from potential equity partners to join him in the deal for the social media group, and he will decide in the coming weeks whether to team up with someone, Reuters reported on April 29 citing a source familiar with the matter.