Elon’s Razor

Welcome back to Dry Powder. I hope you’re enjoying your Memorial Day weekend festivities, and that this email provides an enjoyable diversion in between tending the grill.
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Happy Sunday from Dry Powder.

I hope you’re enjoying your Memorial Day weekend festivities, and that this email provides an enjoyable diversion in between tending the grill and the Indy 500.

First, a few thoughts on Elon’s new financing plan for Twitter—how it could protect Tesla and why it will require more friends. Then, below the fold, don’t miss my conversation with Puck’s veteran media reporter, Dylan Byers, about Brian Roberts’ next targets, Buffett’s $2.6 billion merger arbitrage, Zaslav’s latest chess move, and more.

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Elon’s Razor

The simplest explanation for Elon’s recent moves is that he still intends to buy Twitter. But his new financing plan, restructured to protect Tesla, will require friends to share the risk. And with a purchase price this high, and leverage so low, who else would want it, anyway?

WILLIAM D. COHAN

The most important thing to understand about Elon Musk’s public dickering over whether he will buy Twitter at $54.20 a share is that Elon has already signed a merger agreement committing him to buy Twitter for $54.20 a share. It’s a legally binding agreement and the Twitter board has said it intends to enforce it—M&A code for don’t mess with the deal unless you want a legal fight. Elon has a few ways to renege, of course, but not many. He can find “something” during his due diligence of Twitter that constitutes a reason for him to abandon the deal. But I don’t see what that could be, and it’s certainly not an abundance of “bots.” Obviously, if he can’t come up with the money he has committed to the $44 billion deal, then he would have an out, and then he could presumably pay his $1 billion break-up fee and walk away.

But from all appearances, Elon is indeed still working hard to get his financing in order. Earlier this week, he revised his plan in a regulatory filing, eliminating his $6.5 billion of margin loans (secured by Tesla stock, down from what was once a $12.5 billion margin loan) and thus raising his equity commitment to an astounding $33.5 billion. That should be a relief for Tesla shareholders, who would have been exposed to a potential share price death spiral, were Elon called upon by his bankers to unload his Tesla stock. The big question now is whether he can actually raise that much equity. If he can, then Elon will own Twitter. If he can’t or decides he doesn’t want to, he won’t own Twitter.

So here’s where things stand. Of the $33.5 billion he needs, Elon has announced that he has commitments for $7.1 billion from an eclectic group of 18 friends and investors—Larry Ellison, Alexander Tamas, Changpeng Zhao, the Witkoff family, and so on. He’s also announced that Prince Alwaleed, in Saudi Arabia, has agreed to roll over his stake in Twitter into Elon’s Twitter, a total of $2 billion (at $54.20). Elon also won’t have to buy the $4 billion of Twitter shares that he already owns (at $54.20). Taken together then, Elon can account for $13.1 billion of the $33.5 billion of equity he has pledged to raise. That leaves him with an equity hole of $20.4 billion...

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