Musk is the world's richest person, with Forbes estimating
his net worth at about $245 billion. Yet most of his wealth is tied up in the
shares of Tesla, the electric car maker he leads. Last week, Musk disclosed he
sold $8.5 billion worth of Tesla stock following his agreement to buy Twitter.
The new financing, which could come in the form of preferred
or common equity, could reduce the $21 billion cash contribution that Musk has
committed to the deal as well as a margin loan he secured against his Tesla
shares, the sources said.
The banks that agreed last month to provide $13 billion in
loans based on Twitter's business balked at offering more debt for Musk's
acquisition given the San Francisco-based company's limited cash flow, Reuters
reported last month.
Musk has also pledged some of his Tesla shares to banks to
arrange a $12.5 billion margin loan to help fund the deal. He may seek to trim
the size of the margin loan based on the new investor interest in the deal
financing, one of the sources said.
Major investors such as private equity firms, hedge funds
and high net-worth individuals are in talks with Musk about providing preferred
equity financing for the acquisition, the sources said. Preferred equity would
pay a fixed dividend from Twitter, in the same way that a bond or a loan pays
regular interest but would appreciate in line with the equity value of the company.
Apollo Global Management Inc and Ares Management Corp are
among the private equity firms that have been in talks about providing the
financing, the sources added.
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.
The sources requested anonymity because the matter is
confidential. Musk, Dorsey, Fidelity, Apollo and Ares did not respond to
requests for comment.
Tesla shares rally
Tesla shares ended trading on Monday in New York up 3.7
percent at $902.94. Wedbush Securities managing director Dan Ives said the news
helped ease investors' concerns that Musk was relying too much on his Tesla
shares for the Twitter deal financing.
"This is big if it materializes as we believe the
Twitter deal has been a $100+ per share overhang on Tesla's stock due to the
Musk financing concerns," Ives tweeted.
Investors have been fretting over whether Musk will complete
the Twitter deal given that he has backtracked in the past. In April, he
decided at the last minute not to take up a seat on Twitter's board. In 2018,
Musk tweeted that there was "funding secured" for a $72 billion deal
to take Tesla private but did not move ahead with an offer.
Twitter shares ended trading up 0.2 percent at $49.14 in New
York on Monday, closer to the $54.20 per share acquisition price, as investors
interpreted the news on the new financing discussions as making it slightly
more likely that the deal will close.
Musk would have to pay a $1 billion termination fee to
Twitter if he walked away, and the social media company could also sue him to
complete the deal.
Musk, who calls himself a free speech absolutist, has
criticized Twitter's moderation policies. He wants Twitter's algorithm for
prioritizing tweets to be public and objects to giving too much power on the
service to corporations that advertise. © Reuters