Elon Turns the Tables on Twitter, Tenderly

Elon Musk assembles war chest for Twitter takeover, ‘tender offer’ coming next.

Covered:

  • Musk Responds With SEC Filing
  • Raises Billions From Morgan Stanley, Margin Loans
  • How a Tender Offer Works

Musk Responds With SEC Filing

Twitter has yet to respond to Elon Musk’s offer for a buyout in order to turn Twitter into a private company. In an SEC filing today, Musk addressed this, saying he is now exploring “whether to commence a tender offer to acquire all of the outstanding shares.” It was widely reported Twitter was introducing the “poison pill” strategy to thwart Musk, which, by way of flooding the market with shares, would dilute his stake significantly.

Another strategy dovetailed to that would allow another entity to purchase a 15% stake, which would mean all dealings would have to go through the board rather than shareholders. Despite all this, Musk is moving forward with another strategy, turning the tables on Twitter with the aforementioned “tender offer.” To make this happen, Musk needed to secure financing to make this happen.

It was confirmed today he did just that, to the tune of $ 46.5 billion dollars. As noted above, this will allow him to deal directly with the shareholders of Twitter rather than the board. The offer will stay “open” statutorily for at least twenty business days. Elon had hinted he was taking the tender offer route days ago in a cryptic Twitter post. The tender offer route would speed things up much more than his original offer and maybe his last stand to snatch the company.

Raises Billions From Morgan Stanley, Margin Loans

Musk is raising the money in three tranches. The first comes from Morgan Stanley and “certain other financial institutions.” This tranche is worth $ 13 billion in financing. The second also comes from Morgan Stanley in the form of “$ 12.5 billion in margin loans.” This is likely leveraged by Tesla stock. The third is an “equity commitment letter” from Musk. The total value of this equity commitment is “expected to be approximately $ 21 billion.”

In summary, he is borrowing $ 13 billion, borrowing another $ 12.5 against his own equity holdings, and paying around $ 21 billion from his own holdings. Amassing this war chest was a massive step toward unleashing the tender offer, but the SEC filing states “that Musk has” not commenced, or determined to commence, any tender offer for Shares of Twitter “quite yet.”

Still, this cash makes things much more ‘real’. Now, if he launches the tender offer, Elon would need a “coalition of shareholders” to accept it. The board can either deal with his original offer and elongate the process to buy them time, or accept the tender offer with the hope that the shareholders will not go along with Elon. The board is now really on the ropes, and the momentum is back in favor of Musk.

How a Tender Offer Works

It requires a coalition of shareholders because this offer simply bypasses the board and structure of the original offer and offers the money directly to the shareholders, which means they could then sell the stock directly to him. The board collectively does not hold much Twitter equity, a total of 0.5%. So their potential sway in a tender offer is basically nullified.

The tender offer works as follows: through proper filings, “incumbent shareholders decide whether to participate in the tender offer or remain with the firm.” If at least 50% of the outstanding shares are ‘tendered’ to the ‘raider’ (Musk), “the takeover is completed, and the raider gets in control of the firm.” At that point, even if Musk just tenders 50% of the shares, he can replace the board. Usually, however, the boards capitulate at that point and cut a deal.

So with the bare-bones approach and Musk already owning 9% of the shares, he needs only 41% of the outstanding shares to be sold to him. Simply put, if Musk can get 41% of the outstanding shares, he can replace the board and execute his mission. We will soon see if Musk uses this strong hand in a tender way.



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