Dividends and Bank financing Musk’s Twitter deal unlikely to be able to help him walk away

If you were going to buy a house, before meeting with the buyer you would have gone to the bank to arrange financing or a pre approved mortgage. Then you would discuss with the buyer and their realtor how you were going to pay when the buyer agrees with your price. The same process happens at a much larger scale in business. Typically the company which wants to buy the other company goes to their investment bankers who determine how to finance the deal. Talks happen, the other side agrees and money moves around the table.

In an article by Anirban Sen and Greg Roumeliotis of Reuters, in the case of Twitter Elon Musk can not just walk away because he wants to. Mr. Musk by all accounts is one of the wealthiest people on the planet and he could afford to buy Twitter if he wanted to. However similar to many wealthy people, not all his money is in cash, much of it is in stock and some of that is pledged to his various companies.

Mr. Musk did go to the investment bankers at Morgan Stanley, Bank of America, Barclays, Mitsubishi UFJ Financial Group, BNP Paribas, Mizuho Financial Group and Societe General and arranged $13 billion in financing.

If Mr. Musk walks away from Twitter, he owes Twitter a billion dollars and Twitter is in court suing for it and the case is in the courts in Delaware Court of Chancery.

The banks have limited options if the court says the deal must go forward, and most of them are not good for the banks. If the court said the deal must go through, the banks would have to finance it but since Twitter does not make profits, they would have to write of bad debt. Another negative is Mr. Musk owns companies which need investment bankers on a regular basis would he stick with them or go to new bankers?

To get out of the deal, Mr. Musk would have to he used his best efforts, according to the terms of the Mr. Musk’s deal with Twitter but the banks refused to deliver. The perils is would the information in the emails and texts show any other information?

Linking to dividend paying stocks, profitable companies grow by mergers, they are part of the normal course of action. Mergers tend to have a normal playbook that has evolved and all parties tend to play by the same playbook. When people or companies deviate from the normal playbook, lawyers and courts are involved to settle the disputes. The settlement process takes time away from regular business activity and as shareholders, you might want to seek alternatives until the dispute is settled.

There are more questions than answers, till the next time – to raising questions.


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