So, it looks like the Twitter deal is done and dusted for Musk. I previously suggested that the 38% premium Musk offered for Twitter was too little and he was going to be squeezed for an increase. How wrong I was. The Twitter board appears to have accepted what amounted to Musk’s first and only offer! That mut be a first for a hostile takeover of such a high-profile company! Surely it demanded a much higher control premium? What’s even more intriguing is that there appears to have been no serious attempt to squeeze for a higher price even though the Board went through the trouble of putting in place an 11th hour Poison Pill defence. Why did they bother with the Poison Pill at all? Weird.
Now for Musk’s headache in waiting. In order to fund the deal, Musk has already put some $21bln in equity and will be raising just over $25bln in debt facilities.
As in all LBOs, this debt will eventually be pushed on to the Twitter Balance Sheet which means that Twitter’s debt will balloon from around $5bln currently to over $30bln. Leverage (Net Debt/EBITDA) is expected to be at least 9x and I have estimated the annual interest bill to be around $1bln.
That is a heavy debt burden and one that will mean, given Twitter’s current performance, that Musk will have to pump in additional cash of around $1bln – $2bln a year just to square the cash book
Which ever way you look at it, that does represent a headache-in-waiting. I know that he said that he is not buying Twitter to make money – well, that’s just as well because seems like it’s definitely going to be a very expensive hobby.