Twitter Spikes After Musk Boosts Equity Component To $33.5 Billion, Terminates Margin Loan

When news hit that Elon Musk had filed a new 13G pardon 13D in Twitter, many immediately expected some dramatic twist in this ongoing soap opera, like Musk was pulling the offer because he was shocked to learn that spambots make up 90% of the traffic (with liberal echo chamber bluechecks accounting for the remaining 10%)

That wasn’t the case, however, and instead Musk, who last month announced he would buy Twitter for $44 billion, a price he is feverishly trying to renegotiate lower, announced he was increasing the equity component of his bid to $33.5 billion.

To do that, Musk would provide an additional $6.25 billion in equity financing, which would effectively eliminate the need for a margin loan, thereby eliminating the risk that Musk could get a margin call on his loan if Tesla stock price dropped low enough, and eliminated the threat that his “enemies” could keep pressing TSLA stock sharply lower to unwind the Tesla deal.

Musk also said he is holding talks with Twitter shareholders including co-founder and former CEO Jack Dorsey.

From the filing:

As previously disclosed, on April 25, 2022, an affiliate of the Reporting Person (the “Margin Loan Borrower”) received a commitment letter (the “Margin Loan Commitment Letter”) from Morgan Stanley Senior Funding, Inc. and certain other financial institutions party thereto (collectively, the “Margin Loan Commitment Parties”) pursuant to which the Margin Loan Commitment Parties committed to provide the Margin Loan Borrower up to $12.5 billion in margin loans to fund a portion of the merger consideration contemplated by the Merger Agreement (the “Merger Consideration”).

On May 4, 2022, the Reporting Person allowed a portion of the margin loan commitments contemplated by the Margin Loan Commitment Letter to expire, and, after giving effect to such expiration, the Margin Loan Commitment Parties remained committed to provide the Margin Loan Borrower with up to $6.25 billion in margin loans to fund a portion of the Merger Consideration. Concurrently with the foregoing reduction in margin loan commitments, the Reporting Person committed to provide an additional $6.25 billion in equity financing to fund a portion of the Merger Consideration by amending and restating the Amended Equity Commitment Letter, dated as of April 25, 2022, to increase the aggregate principle amount of the equity commitment thereunder to $27.25 billion.

On May 24, 2022, the Reporting Person allowed the remainder of the margin loan commitments contemplated by the Margin Loan Commitment Letter to expire, at which time the Margin Loan Commitment Letter and the commitments thereunder terminated. Concurrently with the foregoing, the Reporting Person committed to provide an additional $6.25 billion in equity financing to fund a portion of the Merger Consideration by amending and restating the Amended Equity Commitment Letter, dated as of May 4, 2022, to increase the aggregate principle amount of the equity commitment thereunder to $33.5 billion (the “May 24 Equity Commitment Letter”).

And this:

The Reporting Person (on behalf of himself and Parent) is seeking and the Reporting Person (directly or indirectly through Parent) may receive additional financing commitments to fund portions of the total Merger Consideration, which commitments, subject to the terms of the Merger Agreement and the May 24 Equity Commitment Letter, may replace portions of the financing commitments previously reported by the Reporting Person in connection with the Merger Agreement and the Merger contemplated thereby, including portions of the Reporting Person’s May 24 Equity Commitment Letter described herein. In addition, the Reporting Person (on behalf of himself and Parent) is having, and will continue to have, discussions with certain existing holders of Common Stock (including Jack Dorsey) regarding the possibility of contributing such shares of Common Stock to Parent, at or immediately prior to the closing of the Merger, in order to retain an equity investment in Parent or Twitter following completion of the Merger in lieu of receiving Merger Consideration in the Merger. Subject to the terms of the Merger Agreement and the May 24 Equity Commitment Letter, any such contribution commitments may replace portions of the financing commitments previously reported by the Reporting Person in connection with the Merger Agreement and the Merger contemplated thereby, including portions of the Reporting Person’s May 24 Equity Commitment Letter described herein.

In response to the latest update that Musk is still serious enough about his Twitter purchase intentions, and is even negotiating away from a potential margin loan trap that, twitter stock rose sharply after hours (having tumbled initially), after yesterday hitting a record spread away from his purchase price.

In any case, a deal at $54.20 remains unlikely and the question is how much lower will Musk and the TWTR Board agree to settle on, unless both parties feel like spending the next 2 years in Delaware Chancery Court as they sue each other to oblivion over the failed deal.