Banks Want to Be In the Musk Business

                                                           

We are getting a clearer picture of why the board of Twitter agreed to the takeover offer of $54.20 a share from Elon Musk.      April 26, 2022 advertisement The One Meat You Should Never Feed Your Dog   Today's Top Stories From the Breitbart News Desk We are getting a clearer picture of why the board of Twitter agreed to the takeover offer of $54.20 a share from Elon Musk. The short version is that the social media company's bankers told them that this was as good as it was going to get. Musk's bid was treated as a joke when it was first made in part because it was a joke. The last three digits of the offer are a reference to a numerical signal for marijuana. Twitter's board responded with a poison pill that continued the joke, creating a right for shareholders to acquire shares for $210 that were worth twice that much. It was also highly unusual for Musk's offer to be presented as his "best and final" offer. That's the kind of language a more traditional unsolicited bidder might use toward the end of a prolonged negotiation, not an opening offer. It almost invites rejection by signaling that there's no room for dealmaking, nothing for the existing board to do to try to increase the return to shareholders. That's kind of humiliating for the existing board members, and starting a negotiation by humiliating the other side is not typically thought of as the most prudent opening move. There is, however, some precedent for this sort of thing. Back in April of 2007, Rupert Murdoch's News Corp made an unsolicited bid of $60 for Dow Jones, the owner of the Wall Street Journal. Although Murdoch did not publicly declare that this was his best and final offer, it was. Despite months of back-and-forth, Murdoch never increased the offer. To be fair, it was a 67 percent premium over where the shares had been trading. Nonetheless, it does stand as a precedent for an unsolicited and unchangeable bid for a media company, albeit a much smaller one. Dow Jones cost News Corp just $5.6 billion. What made Musk's bid a lot less jokey was the fact that he lined up $25.5 billion in committed bank financing for the deal. While we predicted Musk would have no problem financing the deal, the speed and apparent ease with which this came together surprised some analysts and commentators. So on Tuesday, many are still asking how on earth could these 11 or so Wall Street banks really trust Musk with that kind of money for a deal that he had said he was interested in for reasons that are not primarily economic? There are really two things to know about how Musk got the "funding secured" here. The first is that the debt package is not very risky. Only $13 billion is a traditional leveraged buyout loan package secured by the assets of Twitter. Six billion dollars of that debt is designed to eventually be taken out by an even amount of secured bonds and unsecured bonds. So unless you think Twitter was massively overvalued prior to Musk's involvement, that part of the debt is massively over-collateralized. The rest of the debt is in the form of margin loans against Musk's Tesla's stock. By most calculations, Musk's Tesla stock and vest stock options are worth more than $200 billion. Under the bylaws of Tesla, Musk is allowed to borrow up to 25 percent of the value of his stock or around $40 billion. Lending Musk $12.5 billion against his Tesla stock is an easy call. Which brings us to our second point: banks want to be in the business of doing business with Elon Musk. He's the wealthiest man in the world and reportedly finances much of his personal expenses with margin loans against his Tesla stock. So he is personally a font of fees for bankers. What's more, Tesla is a huge issuer of debt and equity securities, all of which generate fees for bankers. In the first half of 2021, for example, Tesla issued $2.3 billion in stock through secondary offerings, generating around $28 million in fees for Wall Street. He controls SpaceX, the third most valuable privately held company in the world, and bankers dream of the fees its IPO would generate. When Musk calls up Morgan Stanley to see about raising money for something he wants to do, you can be sure they are going to move heaven and earth to get it done. A good relationship banker could build a dynastic personal fortune doing nothing but answering Musk's phone calls and making sure checks get written. The main reason the board capitulated to Musk's humiliating offer, however, is that the company's own bankers told them that they should take the deal. The board would have turned to its advisers—in this case, Goldman Sachs and J.P. Morgan Chase—and asked them to do a valuation analysis to assess the fairness of the offer. Normally, bankers can be counted on to tell the board what they want to hear. If the board wants to sell, the bankers will say an offer is fair. If the board wants to resist, the bankers will say that the company has a path to a much higher value so refusing to sell is in the interest of shareholders. That did not happen here. We do not know the details, but the assessment from the bankers must have been pretty bleak because it resulted in the board very quickly accepting Musk's offer. We'll learn more in the weeks ahead when the company files its proxy statement describing the background of the deal. But it's safe to say that Musk won Twitter because he is willing to pay more than what it is credibly worth. $54.20 might have been a pot joke, but it was also an offer the board could not afford to turn down. – Alex Marlow & John Carney Breitbart News Network     TOP STORY   Consumer Confidence Disappoints as Bidenflation Ravages U.S. Economy U.S. consumer confidence unexpectedly fell in April as views on current conditions turned a bit grimmer amid signs that inflation continues to surge. The Conference Board's index of consumer confidence declined to 107.3 from an upwardly revised 107.6 reading in March. The median forecast in a Dow Jones survey of economists called for the reading to rebound to 108.5. "Consumer confidence fell slightly in April, after a modest increase in March," said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. "The Present Situation Index declined, but remains quite high, suggesting the economy continued to expand in early Q2. Expectations, while still weak, did not deteriorate further amid high prices, especially at the gas pump, and the war in Ukraine. Vacation intentions cooled but intentions to buy big-ticket items like automobiles and many appliances rose somewhat." The present situation index jumped higher a month ago and gave back only a portion of that gain in April. By contrast the expectations index–based on consumers' short-term outlook for income, business, and labor market conditions—declined in March and stayed low, showing no signs of a recovery of hope. [Click here for more]   IN OTHER STORIES... 'Fire Me Daddy El*n:' Twitter Employees React to Musk Takeover Following news of Tesla CEO Elon Musk's upcoming buyout of Twitter for $44 billion, employees at the firm have reacted with a mix of excitement, fear, and humor. The Wall Street Journal reports that reactions to Tesla CEO Elon Musk's purchase of Twitter have been mixed among company employees as many begin to question the future of the company. Twitter accepted Musk's $44 billion bid on Monday with Musk stating his plans to take the company private, allowing him to implement a number of changes including, he claims, a new dedication to free speech. [Click here for more]   Free Speech Failure Jack Dorsey: 'Elon Is the Singular Solution I Trust' for Future of Twitter Former Twitter CEO and free speech failure Jack Dorsey has praised Tesla CEO Elon Musk's purchase of the platform, calling him the "singular solution I trust" for the future of the company. The Verge reports that former Twitter CEO Jack Dorsey has begun discussing his opinion on Tesla CEO Elon Musk's takeover of the firm, expressing his approval for the deal. Dorsey tweeted a link to the Radiohead song Everything in its Right Place seemingly in reference to Musk's takeover. [Click here for more]   Richmond Fed Factory Survey Shows Cost Inflation Grew Worse in April Manufacturing businesses in the U.S. central Atlantic region reported worsening local business conditions and rising cost inflation as the sector's expansion continued in April, results from a survey by the Federal Reserve Bank of Richmond released Tuesday showed. The Fifth District Survey of Manufacturing Activity showed that businesses say the prices paid for materials rose 11.83 percent over the preceding 12-months, up from 11.05 percent in March. But manufacturers do expect easing of price pressure in the future, likely reflecting the Federal Reserve's recent hawkishness. Expected cost inflation over the next 12-months fell to 6.09 percent from 6.56 percent. [Click here for more]

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