Apollo Global Management and Sixth Street Partners have decided to indefinitely suspend negotiations with Elon Musk to finance the acquisition of Twitter.
Apollo and Sixth Street will no longer support Elon Musk in the Twitter acquisition
This was reported by Reuters, saying that the two funds were in talks to finance the project with more than $1 billion.
However, Elon Musk himself confirmed that neither Apollo Global nor Sixth Street were part of the original group of lenders to his $7.1 billion debt line to finance the $44 billion purchase.
— Elon Musk (@elonmusk) October 6, 2022
Thus, the defection of these two funds does not call into question Musk’s financial ability with regard to the purchase plan already long approved by Twitter’s shareholders. It is merely a matter of the failure to bring in new backers.
It is worth mentioning that in part Musk will finance the purchase with his own funds and guarantees, so the external financing covers only a portion of the 44 billion needed to acquire the virtually sole ownership of Twitter.
The deal with Apollo Global and Sixth Street would actually have blown up months ago, which is when Elon Musk had decided to put the purchase on hold indefinitely. Thus, this is nothing that would in any way cast doubt on the current willingness and readiness to finalize the acquisition.
However, the problems may not yet have been completely resolved.
In fact, Reuters reports also that this may not be a good time to proceed at all for the banks that decided to finance the acquisition, so much so that they “could face significant losses because of an unfavorable financing environment.”
Musk decided in April to start the process of acquiring the social network by proposing a takeover offer, which, to be fair, at first was not so positively received by the current shareholders.
In May, however, it seemed that an agreement had been reached, which later received the approval of the shareholders themselves.
Elon Musk’s second thoughts
As early as May, Musk had actually decided to temporarily suspend the acquisition process, attracting the displeasure of the company and major shareholders. When he then decided to stop it altogether, Twitter reacted by suing him, since the acquisition agreement had already been signed.
That lawsuit should have been settled these very days, i.e., theoretically by mid-October, but Musk eventually decided to avoid court proceedings by making himself available for the takeover again, as agreed.
So if in April the situation for those who decided to support Musk with their financing was certainly good, or at least with good prospects, it may not be so now. The situation in the financial markets has changed quite a bit since then, even though only a few months have passed, with even the Nasdaq 100 index, for example, losing another 15%, after a previous loss of 17% in the first months of the year.
At this point, it would seem difficult to explain why in May Musk decided to suspend the purchase, but there could be two explanations.
The first relates to the fact that between April and May, Tesla’s stock market value plummeted 45% partly due to the fact that Musk put up his shares as collateral for some of the financing required for the Twitter acquisition. It is possible that by suspending the purchase process he wanted to safeguard Tesla’s value to other shareholders, so much so that a few days after the announcement of the total halt to the Twitter purchase process the collapse ended.
Moreover, over the course of the following months, Tesla’s share price never fell back to those annual lows that were recorded on 24 May, not even in the last few days after the announcement of the resumed Twitter acquisition process. It is worth noting, that the stock has lost 23% since 21 September, even though in yesterday’s very session it gave some tentative signs of recovery.
Should the decline in Tesla’s share price continue, it is not unreasonable to imagine that the Twitter acquisition process may again slow down or stop.
The second reason is speculated by the New York Times, which reports that in the weeks leading up to the recent turnaround that reopened the game, some of Musk’s representatives reportedly tried to strike a new deal with Twitter at a lower purchase price.
The Times cites anonymous sources who would be familiar with this new negotiation as saying that Musk had asked for a 30% discount on the $54.20 price previously set, with a total outlay of $31 billion instead of $44 billion. Twitter reportedly rejected the proposal, forcing Musk to revert back to his previous offer of $54.20 a share.
So although the situation at this time would seem clear, in reality it is probably still evolving, so much so that the purchase cannot yet be considered final.