Elon Musk’s $44 billion takeover of Twitter was never going to be conventional. First, he persuaded Wall Street to back him up with enough debt to win the company board. Now he’s counting on his billionaire friends to raise the cash portion of his offer and convince shareholders to make him king of the world’s “digital town square.”
Musk revealed $7.14 billion new funding from 19 investors on Thursday for its bold bid, which would be one of the largest leveraged buyouts on record. The latest backers include figures from different corners of Wall Street, Silicon Valley and the decentralized crypto universe, who have either earned billions from the South African entrepreneur or are happy to proclaim their support for a man they consider a visionary.
co-founder of Oracle and Member of the Tesla Board of Directors Larry Ellison issued the biggest new check, worth $1 billion, while venture capital firm Sequoia committed $800 million and Dubai-based Vy Capital is providing $700 million. Among the large group of investors, many said they were happy to give Musk the money without going into too much detail about how he plans to transform Twitter.
The unusual list shows how Musk leveraged connections from Tesla and his other companies to attract investors, like the large private equity groups that typically fund leveraged buyouts have mostly avoided it so far.
Rich friends open their wallets
When Musk announced the offer in late April, Twitter said it would pay $21 billion in cash and fund the rest with $25.5 billion in debt, including a $12.5 billion margin loan against his Tesla shares.
At first, Musk tried to bring in big private equity investors. After several conversations with buyout titans, all major players except Brookfield Asset Management have moved on, according to people briefed on the matter.
The main problem, according to these people, was the lack of clarity around Musk’s plan to overhaul the San Francisco-based platform, as well as their inability to exert any real influence on the maverick businessman.
Musk then appealed to his longtime wealthy friends, people with knowledge of the matter said. The pitch was simple: Musk made them billions, and they could pay it back by supporting his latest venture.
1.5% Ellison stake in Tesla has earned him over $10 billion so far. Fund manager Ron Baron, whose Baron Capital Management has earned more than $7 billion since first backing Tesla in 2014, is now investing $100 million in Musk’s Twitter deal.
The new funds will be used to reduce the debt portion of the offer, particularly Musk’s margin loan, which has now been cut in half to $6.25 billion. Following the new capital injection from friends of Musk, the equity component of the transaction is $27.25 billion.
Reducing the size of the margin loan – which is secured by Musk’s Tesla shares – relieves some pressure on the billionaire. Since revealing its stake in Twitter, shares of the electric car maker have fallen 25%, compared to 10% for the benchmark S&P 500 index.
“He had the right to reduce the workforce [margin loan] and just pay commitment fees in the future on the reduced amount, so he took that opportunity,” said a person familiar with the funding.
“Anyone who has invested in Tesla should feel a little better than [fewer] Tesla shares are going to be seized because it reduced the margin loan,” the person added.
VC buys into Musk’s vision
Even after the new stake, Musk will still have to pay just over $20 billion to complete the deal.
Tesla CEO sold $8.5 billion worth of stock at the automaker last month that it could put to work on the Twitter deal. Its 9.6% stake in Twitter is worth about $3.7 billion during Thursday’s trading.
That leaves about an additional $8 billion to close the deal. It is unclear where Musk plans to collect this money from. But the latest round of endorsements, particularly from its tech friends, shows its ability to attract new investors.
Investments from venture capitalists including Sequoia, DFJ and Andreessen Horowitz have been driven in part by a belief in Musk the man and his successes at his other ventures, people briefed on the matter said.
Ben Horowitz, co-founder of Andreessen Horowitz, said the company invested because it believed in “the brilliance of Elon to finally make it what it was meant to be”. Sequoia said Musk has an “opportunity to drive meaningful product innovation that will help unlock Twitter’s full potential as a global platform that connects the world.”
Sequoia, Vy and DFJ Growth all participated in a $675 million fundraising round last month for Musk’s tunnel-building startup The Boring Company. They also backed Musk’s rocket company, SpaceX.
So far, the only private equity group funding Musk’s acquisition of Twitter is the venture capital arm of Brookfield, which has raised $250 million. Last year, the Canadian group announced plans to build a housing estate in Texas alongside Tesla Energy, the automaker’s clean energy division.
Josh Raffaelli, managing partner at Brookfield Growth, the asset manager’s venture capital arm, wrote on LinkedIn“We are delighted to be able to support Elon again. . . Financing assured.
Binance, the world’s largest cryptocurrency exchange, has committed $500 million to the Twitter deal. General Manager of Binance Changpeng Zhao said the investment was driven by faith in Musk as a visionary entrepreneur, alignment with his philosophical goals for Twitter, and a desire to integrate cryptographic technology into the social media platform.
“It’s more of a blank check,” Zhao told the Financial Times. “After the investment. . . Elon will figure out what he wants to do and we will support him. »
Musk was “probably one of the smartest guys on earth,” he added.
Additional reporting by Scott Chipolina and Joshua Oliver in London