What Wall Boulevard Is Whispering About Elon Musk and Twitter

Elon Musk in March 2022.
Photograph: Patrick Pleul/POOL/AFP by means of Getty Pictures

For years amongst tech dealmakers on Wall Boulevard, as they surveyed the burgeoning social-media panorama for M&A goals, one query had them stumped: How do you clear up an issue like Twitter?

Twitter had grown too massive and dear to be taken over by way of a larger tech corporate, which — even supposing one may just come up with the money for it — would most definitely by no means get the purchase previous the antitrust law enforcement officials in Washington. Previous-media consumers, like Disney, discovered the carrier and its copious neo-Nazis too odious for his or her family-friendly manufacturers. Bankers and private-equity corporations ran leveraged-buyout analyses on Twitter umpteen occasions, at all times attaining the similar conclusion: It merely didn’t make sufficient cash to pay again the debt they must tackle. “It wouldn’t ever make sense. The numbers don’t paintings,” stated a banker who works on tech and media offers. “I’ve in my view now not noticed Twitter pitched to any consumer as an excellent chance.”

However then, after all, alongside got here Elon Musk. When Twitter’s board all of a sudden modified its song on his be offering to shop for the corporate — from poison tablet to LFG!! — bankers surmised what had took place. Goldman Sachs, on behalf of Twitter, had long gone out and requested each and every different possible purchaser it might call to mind to swoop in and make a greater deal — and gotten a troublesome move. “They weren’t in a position to search out someone else who used to be remotely ,” the banker instructed me. Goldman must signal what’s referred to as a “equity opinion” that Twitter used to be getting the most productive deal it might. “You don’t wish to have shareholders say, ‘You didn’t even ask Google,’” the banker added. “In order that’s the one imaginable means — if actually no person sought after this.”

The general public believe Musk’s acquire of Twitter a fait accompli. However the deal hasn’t closed, and on Wall Boulevard, many are nonetheless questioning why the CEO of Tesla would even need Twitter, an albatross whose prices are rising two times as speedy as its gross sales. The bankers and operators I spoke to don’t put numerous inventory in experiences that Thoma Bravo, an elite private-equity company identified for taking tech firms deepest, used to be taking into consideration hanging in combination a competing bid for Twitter and that Apollo, the private-equity massive, could be too. Most likely, some advised, they have been merely serious about coming into mattress with Musk, the richest guy on the earth, in hopes of successful a work of a few different, extra rational deal sooner or later. Different private-equity heavyweights didn’t give Twitter a 2nd look. Blackstone and Vista Fairness Companions reportedly swore off any involvement.

“I’m now not rather certain why he’s finished it,” stated Euan Rellie, the co-founder and managing spouse of BDA Companions, an M&A advisory company (who himself tweets extra often than the common banker). “We’ve been scratching our heads as to how the banks can justify lending the cash for a industry proposition that’s now not nice.”

In providing to pay $44 billion for Twitter, Musk has passed over more or less one-third of his Tesla inventory to banks as collateral for financing the deal; he’ll additionally owe $21 billion in money to hide the remainder. Simply this week, Musk off-loaded greater than $8 billion price of his Tesla stake — most probably contributing to the double-digit plunge within the corporate’s proportion value prior to now few days. In overall, Musk is paying greater than 15 p.c of his wealth for Twitter.

If there’s something bankers perceive higher than avarice, it’s ego, and on Wall Boulevard that continues to be essentially the most believable reason behind Musk’s strikes. “It’s without equal self-importance funding. It’s a trophy asset,” Rellie stated. “If it have been as much as me, I wouldn’t have finished the deal.”

One of the advisers and buyers I spoke to suppose anyone may just — and most likely must — persuade Musk to stroll away. The bankers conserving Musk’s Tesla inventory, for one, are going through the awkward prospect of getting to stay a margin name on their moody and frequently short-tempered billionaire consumer, or start dumping stocks, must Tesla’s inventory fall a lot additional. That has created a casual recreation of odds on Wall Boulevard, with as regards to everybody believing there’s a greater-than-zero likelihood Musk adjustments his thoughts. It’s why Twitter’s stocks are nonetheless buying and selling nearly $5 beneath the cost Musk has agreed to pay. “Elon can get up day after today and say, ‘I determined to not.’ Carried out. He’ll tweet it, and finished, the deal is finished,” a 2nd tech M&A banker stated.

The about-face would value Musk $1 billion in breakup charges he would owe to Twitter, however the ensuing swell in Tesla’s proportion value may just make up for that repeatedly over. And Twitter would return to being anyone else’s downside to resolve.