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Elon Musk wants to change how he funds Twitter takeover so it's less risky

Business Insider US
Elon Musk.
Andrew Kelly/Reuters
  • Elon Musk is attempting to get preferred equity financing for his Twitter takeover, Bloomberg reported Thursday. 
  • The Tesla chief has secured investors to take up much of his margin loan already, and he's looking to get more backing. 
  • Prior to the refinancing, the Twitter deal hinged on the stability of Tesla's stock, which Musk had staked as collateral. 
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Elon Musk is attempting to restructure how he finances his $44 billion (R711 billion) Twitter takeover to eliminate the need for a margin loan backed by some of his Tesla stock, Bloomberg reported Thursday

According to the report, Musk's advisors, led by Morgan Stanley, are trying to get investors to put up $6 billion (R96 billion) in preferred equity financing. This would help reduce Musk's own exposure to the deal, and reduce the risk in the event that Tesla's stock — his collateral for the margin loan — drops. 

Initially, Musk had moved to prepare a $12.5 billion (R202 billion) margin loan for his takeover bid, but equity commitments from investors including Larry Ellison and Sequoia Capital helped slash that number in half to $6.25 billion (R101 billion). 

Now, sources tell Bloomberg that the Tesla chief has secured commitments for another $1 billion (R16 billion) in equity and could still pull in more funding. 

If he can draw enough new money to back his bid, Musk may be able to eliminate the margin loan altogether.

Investors and observers had grown worried that a potential decline in Tesla stock would force Musk to shelve the Twitter bid if he got hit with a margin call and was forced to put up more of his own cash. Musk had pledged some of his shares of the electric car company to secure billions of dollars in loans from various banks to get the deal done, as well as $20 billion (R323 billion) of his own money. 

Musk would have had to pull more money from his own coffers if Tesla's stock fell below $740 (R11,961), according to Bloomberg calculations. The more the stock fell, the more of his own money Musk would have to put up. 

Musk tweeted early Friday that his bid for the social media company was "on hold", before later reiterating that he's still committed to the acquisition. 

With shares of Twitter plunging as much as 25% Friday, Wedbush's Dan Ives called it a "circus show." 

Ives said it's possible the deal gets renegotiated at a lower price, or he could possibly decide to pay the $1 billion break up fee and simply walk away. 

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