Elon Musk’s bid for Twitter became less virtual with the disclosure that he’s lined up financing. If all goes well, he makes a private equity-style return. Twitter’s poor cash flow means lots could go wrong, writes rob_cyran:
The entrepreneur is mulling a tender offer for the social network at $54.20 a share, valuing its equity at about $44 billion. Add in Twitter’s $5 billion of debt and about $1 billion of fees, and the total is about $50 billion, excluding cash on the company’s balance sheet. Musk already owns Twitter stock worth roughly $4 billion, but that leaves a big hole to fill.
Almost half that amount - around $21 billion - is apparently coming from Musk himself. And he’s planning to raise another $12.5 billion by borrowing against his 17% stake in the $1 trillion Tesla. Meanwhile, banks led by Morgan StanleyRegister now for FREE unlimited access to Reuters.comThe numbers could stack up. Analysts reckon Twitter will make about $6 billion in revenue next year, with an EBITDA margin of 24%, according to Refinitiv data.
Such juicy returns could lure private equity buyers to join Musk. However, Twitter’s cash flow has been erratic. Last year the company earned only $633 million of cash from operations, but splashed out over $1 billion on capital expenditure. Perhaps Musk could manage the firm better, but if he follows through on his thoughts of, advertisers might flee. A recession or stock market sell-off would also lower Twitter’s value.
Musk may still not win Twitter, or even make a tender offer. For one, his funding documents were signed on April 20 - an apparent cannabis joke that echoes his disappearing “offer” for Tesla at $420 a share. Twitter’s board has yet to offer an opinion, and the company’s stock price is 14% below Musk’s mooted bid. Still, he can say “funding secured”.
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