Musk's Financial Plan For Twitter Baffles U.S. Bankers

It is the biggest acquisition financing ever put forward for one person. Elon Musk is doing it his way, Krystal Hu and Anirban Sen reported for Reuters.

Photo Insert: Twitter's global headquarters in San Francisco, California

More than two-thirds of the $46.5 billion financing package that Musk unveiled on Thursday in support of his bid for Twitter Inc. would come from his assets, with the remainder coming from bank loans secured against the social media platform's assets.

That is the reverse of how most investors structure buyouts, with debt secured against the assets of the target company typically comprising the majority of the financing.

The banks backing Musk's bid balked at providing more debt secured against Twitter, arguing that the San Francisco-based company did not produce enough cash flow to justify it. Some banks were also worried that financial regulators could reprimand them if they took on more risk, the sources added.

This will have an impact on Musk's returns, since debt secured against an acquired company can greatly amplify profits.

To double the $33.5 billion Musk is contributing out of his own fortune to the buyout, Twitter's value would have to go up by 1.4 times. Had he put in only a third of the deal consideration as equity, Twitter's value would have to go up by only 0.7 times for that money to double.

What is more, Musk has agreed to take out a risky $12.5 billion margin loan, secured against his stock of Tesla Inc., the electric-car maker that he leads, to pay for some of the $33.5 billion equity check.

Were Tesla's stock to drop by 40%, he would have to repay that loan, a regulatory filing reveals. Musk said last week that he did not care about the economics of the deal "at all" and that he was pursuing the acquisition because it was "extremely important to the future of civilization."

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