Twitter tender is coming?
As I wrote in my first article, Elon Musk is looking to take Twitter private at $54.20 per share and the implied probability of 50% at the time of writing seemed low, especially considering potential interest from competitive bidders.
Clearly, the market was not taking Musk seriously, partly because the offer was non-binding and did not include any financing plan for the deal. This issue was solved in the latest amendment to Musk’s 13D filing released yesterday, which clarifies the financing of the deal that includes multiple commitment letters.
It was all very well summarized by Compound248 on Twitter, so we can refer directly to his tweets:
Elon has not yet countersigned the commitments, which expire on April 25th and May 4th, so if something happens, we should know relatively soon:
Besides, the New York Post reported yesterday that Elon Musk is allegedly in talks with buyout firm Thoma Bravo to partner on a Twitter bid. Despite these positive developments that significantly increase the likelihood of a deal, Twitter shares barely budged and are still sitting at a 13% discount to Musk’s proposed take-out price.
One reason might be that, as mentioned by Matt Levine yesterday, Musk would be looking at about $1B of debt service cost each year:
So Musk will be paying his banks, personally, about $1 billion a year for the privilege of owning Twitter. It is possible that Twitter will be paying him $1 billion a year of dividends, after its own debt servicing costs, but it is, uh, unlikely in the near future. It is more likely that running Twitter will be a continuing expense for him. But, again, he has said that he’s not in it for the money. Spending $33 billion to buy Twitter, and then another $1 billion a year to own it, is I suppose in a way a kind of philanthropy for Musk?
Maybe this is why he is still not taken seriously? But then, as I mentioned in my initial article, how could you not slash costs at Twitter to help service this debt? Thoma Bravo seems to agree, as per the New York Post article:
Meanwhile, executives at Thoma Bravo “see an opportunity to take out a ton of costs,” a source said, explaining why the firm remains interested in Twitter.
What exactly is “a ton of costs”? Just looking at operating expenses versus some tech comps, it’s easy to see some fat to be cut. “Some” being an understatement here - my guess is you could easily cut $500m and likely $1B. To be fair, this peer group might not be perfect. It’s not all apple to apple, but it helps get the point on the scale of Twitter’s cost base, and left you wondering how on earth can the bird app spend so much more than these other companies at the exception of Snapchat? Slashing those costs could essentially cover Musk’s debt servicing.
Anyway, we now have confirmation that Musk his serious about his Twitter offer. Maybe some are still not taking it seriously due to the amount of debt. At the same time, there surely are massive cost cutting opportunities at Twitter to help servicing it. I hope you all have your popcorn ready for the next couple of weeks, which surely will be interesting.