Elon Musk is in negotiations with huge financial groups and high-net-worth people about taking on more funding for his $44 billion acquisition of Twitter Inc and tying up less of his money in the deal.
Musk is the world's richest individual, according to Forbes, with a net worth of over $245 billion. Nonetheless, the majority of his fortune is invested in Tesla Inc, the electric vehicle company he heads. Musk said last week that he sold $8.5 billion in Tesla stock following his deal to acquire Twitter.
Reuters reported that the banks who agreed to lend $13 billion in loans based on Twitter's operations last month balked at issuing extra financing for Musk's acquisition due to the San Francisco-based company's minimal cash flow.
Musk has reportedly pledged part of his Tesla stock to banks in order to secure a $12.5 billion margin loan to help fund the transaction. According to one of the sources, he may try to reduce the size of the margin loan depending on the new investor interest in the project financing.
According to the sources, major investors such as private equity companies, hedge funds, and high-net-worth people are in discussions with Musk about providing preferred equity funding for the acquisition. Preferred equity would pay a predetermined dividend from Twitter, similar to how a bond or loan pays monthly interest, but would increase in pace with the company's equity value.
The sources also claimed Apollo Global Management Inc and Ares Management Corp are among the private equity companies in discussions to provide the funding.
Musk is still deciding whether he will have partners team up with him in writing the equity check needed for the deal, the sources said. Musk is not seeking to take on more debt for the Twitter deal currently, the sources added.
Musk has also been in talks with some of Twitter’s major shareholders about the possibility of them rolling their stake into the deal rather than cashing out, one of the sources said. Former Twitter Chief Executive and current board member Jack Dorsey is examining whether he will roll his take, one source added.
Large institutional investors, such as Fidelity, are also in talks about rolling over their stake, according to the source.
Musk has tweeted that he would try to keep as many investors in Twitter as possible as he takes the company private.
Because the issue is private, the sources requested anonymity. Requests for comment from Musk, Dorsey, Fidelity, Apollo, and Ares were not immediately returned.
Investors have been concerned about Musk's ability to complete the Twitter transaction, given his history of backtracking. In April, he opted at the last minute not to join Twitter's board of directors. Musk tweeted in 2018 that "financing has been secured" for a $72 billion plan to take Tesla private, but did not proceed with an offer.
Twitter shares jumped 1.2 percent to $49.63 in Fresh York afternoon trading on Monday, bringing them closer to the purchase price of $54.20 per share, as investors took the announcement of the new funding as more confidence for the transaction completion.
If Musk walked away, he would have to pay a $1 billion termination fee to Twitter, and the social media firm could potentially sue him to finish the transaction.