Ep.62: Elon Musk's Twitter Takeover Explained

Hello and welcome to episode 62 of the Market Maker podcast. And in this episode, we are going to focus on Elon Musk and his attempt to take over Twitter. I've had lots of emails sent to me, uh, privately asking for us to do an update on this. And yeah, we, we gave it a miss last week during Easter, so we're raring to go. And as much as giving our take on the situation. It's obviously an evolving story, but hopefully we can deconstruct it, explain some of the kind of finance jargon around it as a subject matter. Hostile takeovers, LBOs, white knights, poison pills, you name it. This story's got everything. So before I begin, Piers, just how's it going? How's your week been? Before I give a quick summary of the week in general.

Yeah, going very well actually. I was, uh, something quite cool happened yesterday. I was at Credit Suisse, I was doing the running the, their spring week programs which we've been involved with this week. And actually yesterday I was like, I don't get to be on the front line much anymore, not like I used to be in terms of getting out there and running our simulations and, you know, being in, well, certainly being in front of people, right? Obviously COVID's pushed us all online. So yeah, it's quite nice to just get back on the front line. But what was quite cool, I was running— we were actually running our IPO simulation, um, focusing on the IBD side. But yeah, there were, there were a few people in the group, uh, so these are Credit Suisse kind of spring interns who were just coming up and saying, oh my God, I listened to the podcast. In fact, I would, you know, I've been— I listened to the podcast the night before my interviews, you know, just to make sure that I'm, uh, fully prepped and up to speed. And so yeah, it was quite—

No pressure then.

Right, yeah. It was nice to— I guess it's odd when you're doing recording these things because basically it's me and you in a Zoom meeting. And it's nice to know that there are actually people out there that listen to this and, well, by the looks of it, get some good value out of it. So, so yeah, it was, it was nice, nice to hear.

Well, look, we'll, um, we'll do our best to cover all investment banking divisions today because I can give you a quick, a quick overview on my side from the global markets perspective, uh, and then perhaps I can play a little naive and, and ask you the questions to go into this Twitter Elon Musk situation, which definitely encompasses a little bit more of the more investment banking side. Yeah. So look, let me, let me run through a couple of the highlights of the week. I'm sure everyone would have read and seen it by now, but Netflix shares got absolutely decimated after they reported a loss of 200,000 subscribers during Q1, the first such decline in a decade. Going one step further, they forecast a further drop of 2 million this quarter. The other kind of related stocks like Spotify were down 11% on the same day. Disney were down about 7% as well. But the infamous fund manager, Bill Ackman, if you thought those $50 I've got in Netflix shares got hammered, this guy got it hard on that day. He lost a cool $400 million in that one earnings release. He accumulated a stake of $1.1 billion just in the last couple of months. I can't remember the stat from the top of my head, but roughly, I think there were 54-odd Wall Street analysts covering the stock. So this is when you're talking about an equity research team specifically putting out notes when they talk about the financials and forecasting of these companies. And I think it was something like 48 of them had a buy recommendation and only 3 had a sell at that point. So there's a lot of people nursing some severe hangovers on Netflix this week.

Well, Ackman, he actually bought— Yes, as you say, he bought his stake in the last couple of months. Do you know what he was trying to do? He was buying the dip, not realizing there was another massive dip still to come. Because what happened on their last earnings call for Q4 earnings, which was in January of this year, they announced— they revised down their subscriber growth forecasts for Q1 of 2022, and they revised it down to a growth of 200,000 subscribers. Obviously now it materializes it's— they've lost subscribers, right? But that revision down of subscriber growth rates led to the stock dropping 30% in January. So that's where Ackman came in and waded in, got the bat out, bought a massive chunk. And obviously now it's just dropped another 30%, and, um, he— yeah, he's, he's wearing a $400 million—

I did read though that his fund, um, Pershing Square, isn't it? That's exactly— yeah, that he had record-breaking 2019, 2020. So I'm not going to cry over Bill's $400 million just yet. Yeah, but let's pivot over to kind of broader economic view, I guess, that's impacting central bank thinking. And the Federal Reserve Chair Jerome Powell outlined his most aggressive approach to taming inflation to date yesterday, so on Thursday of this week, potentially endorsing 2 or more half percentage point interest rate increases. He described the labor market as overheated. I read this morning, came out overnight, latest report out of the Japanese bank Nomura They're now expecting the Fed to go in two 75 clips now in June and July, following up on the 50. So their strategy is they think they're going to go 50, 75, 75. Now, well, I can tell by your face, the listeners can't see it, but yeah, we've been here before. It feels like—

so what world, what world are these analysts living on? They're all—

well, do you know, well, this is, I guess, one thing that definitely students should be aware of. These are sell-side institutions, and so Nomura is the one that I've seen mentioned everywhere this morning, like everywhere. Doesn't, doesn't, you know, go amiss when you put out a bold call, right? Financial media love it. Now, I mean, how often are any of these calls correct? I mean, you could only go to like most big bank forecasting, and they're woefully off the mark a majority of the time. But Nomura's name's been out there, dominated the news sphere for the last 24 hours on that front.

But if Nomura are right, we will have a very large recession in the United States in the second half of this year. A large recession. They're talking about raising rates by 2% in over the course of what, 3 months? That would be catastrophic, I would suggest. It's not going to happen.

And then looking in Europe, the theme continues because the Vice President, Luis de Guindos, said the bank should be able to phase out asset purchases in July. That will pave the way for interest rate increases early as that month. That hawkish turn comes as several ECB officials have kind of said similar types of hawkish things. Money markets now betting on 3 quarter-point rate hikes by December for the ECB. And then sterling is lower quite a bit this morning, actually. It's just dropped through, at least in the futures market, the 1.29 handle against the dollar. It was trading around 1.31 24 hours ago. So seeing significant weakness, it's a dual force effect here. There's dollar strength apparent with a lot of the yield move and rate expectations on the US side. But equally, we've had retail sales coming out of the UK this morning, dropped more than expected. UK consumer confidence sank for a fifth straight month. Economists in a regular Bloomberg survey say they now put the chance of a UK recession in the coming year at 30%. That's the highest it's been since early 2021. So that's the kind of the overall theme here is that rates are rising and the markets, certainly from yesterday's reaction to Powell getting a little bit more serious and hardening that kind of rhetoric, uh, we saw tech stocks get hit quite aggressively yesterday, uh, in particular stocks in general came under pressure as the dollar surged. And then taking this to the the political and geopolitical space. France, Macron— I'm going to say this— Macron looks set to win the election on Sunday. That follows the live TV debate we had midweek. The general snap poll outcome was that, again, much like he did in 2017, came out slightly stronger. Um, the overall volatility, bonds, credit markets aren't showing particularly high degrees of stress at the moment. One thing I would say then is, although this looks like it should be fairly smooth, by function of what I've just said means if there is a shock, it's going to be pretty forceful in the initial reopening of markets on Sunday night. So that would be at least a knee-jerk reaction, euro weakness, European equity weakness, particularly in the French market, but also the peripheral bond market people would look at, namely things like the Italian yields and the subsequent spreads and so on.

But the only way it's going to happen, the only way Le Pen can win is if the complacency amongst the Macron supporters is so extreme that just a whole big portion of them just don't bother turning out, which isn't the case. France are pretty good in terms of turnouts and getting out there and actually voting. So it's just— Macron's a shoo-in, isn't he? It's done, I think.

Well, we weren't going to leave the EU either, so I'm going to reserve judgment.

So one thing, just before you move on, on Europe and rates, because that's quite a big— well, I guess it's a hawkish pivot from the ECB. And obviously we're quite used to central bank hawkish pivots these days, given what's happened with the Fed and the Bank of England and all the rest of them. But I think the timing of it's interesting because if you look at— we don't often talk about currencies. Excuse me. We don't talk about FX and exchange rates much. But if you look at the euro against the dollar, then I mean, that thing's down over 10%. It's down 10.7% this year. So that's the euro weakening against the dollar in the world's biggest currency pair. That's a massive move in a pretty short space of time. Driven by this monetary policy divergence where you've got a super hawkish US Central Bank leading to dollar strength and the ECB remaining a bit more— well, not a bit, remaining neutral and on the fence until now. And so you've seen this euro weakness, dollar strength. But one thing to note is the 2020 low for euro-dollar is at 1.0650 roughly. And more than that, the low— the big lows we had in the eurozone debt crisis is down around 1.05. So the currency exchange rate's 108 on the nail right now as I speak, 108. 106.50 and 105 are very, very key, really key, very long-term kind of technical levels. And I think the ECB are a bit mindful that these are approaching because if you get a move below, certainly below the sort of 2014, 2015, 2016 kind of triple bottom, you may well see an acceleration to parity. Then this is where the currency— then the euro weakness is so accelerated that it's just going to exacerbate the inflation problem that obviously everyone's so panicked about. So I think the exchange rate is one of the reasons the ECB have just decided, you know what, let's probably just tweak up the dial on the hawkish front.

And for those not aware of it, that's not uncommon, right? The ECB comparative to other central banks, specifically when it comes to currency, are quite vocal and have been as a historical precedent. So why would that be?

Well, they have been vocal, although their official stance is that their mandate is not to control the exchange rate, of course, although clearly that's what they're doing. They're a bit more sensitive to it just because Well, certainly Germany, who's obviously the biggest and the powerhouse economy in the eurozone, is unusual as an economy in that it's quite geared towards exports. Unusual for a large developed economy, right? If you think about the US or the UK, about— I think it's roughly, very roughly, about 15% of GDP is exports. Okay. For Germany, it's more like 40%. Of GDP is exports. So for Germany, actually a cheap currency can work in their favor. But flip it onto the other side. Look, if you are a developed nation, you're importing— like all the other countries in the eurozone, you're importing huge amount of your goods that consumers pay for, buy in shops. And if your currency devalues, then these goods that you're buying from abroad become more expensive. And so that price rise then feeds into inflation. Um, and obviously we've already got a big inflation problem, so I guess the ECB are worried that if this continued accelerated devaluation of the euro continues, then it's just going to have a negative feedback loop into what is already a big problem on the inflation front.

Well, talking of currencies, there is one specific currency which is heading for its worst weekly drop since the pandemic began.

Yes, I think the yuan—

no, yeah, the Chinese renminbi is, is actually heading for its worst weekly drop, uh, going all the way back to when the pandemic took hold. Deterioration of economic outlook. There's obviously the COVID situation they're still tackling at the moment, and of course, as we mentioned, rising US yields, um, and the dollar strength that we're seeing imparting further pressure on the currency. So yeah, as we've kind of always had simmering in the background, it feels on this channel, China continues to just be a little bit of a going concern. Yeah, I feel.

Well, not— yeah, and that little bit, I think that's a big understatement. I think it's a concern that is not getting priced properly into markets at this point. Again, I was just talking to Xiao, who runs our China office. I was talking to him this morning, and he's still stuck in— our office in China is in Shanghai, which is obviously one of the key big cities that's in full total lockdown at the moment. And he's actually in Beijing at the moment. He, he wasn't in Shanghai when the lockdown happened, and now he's just hanging out in Beijing because Apparently, the kind of morale in Shanghai is just— has been destroyed. People are— they're so— like, to the point where expats are just leaving now, like, permanently looking to now leave Shanghai. They're worried that— I was just talking to him about stuff that we've got on in China in the summer, like June and July, and people in Shanghai are just thinking, well, maybe we'll still be in lockdown. By then, there's no visibility on when this ends. And they're locked out. China lockdown is proper lockdown, right? Not allowed out of the building lockdown. It's not like the lockdowns we have in Europe where, oh yeah, it's fine, go for a walk in the park once a day, whatever. You're not allowed out. So I think the medium to long-term damage being done is huge. And economically, I just— yeah, well, we've been pretty vocal about our opinions on China's handling of this. But yeah, I think the COVID situation in China right now is the worst it's ever been. Not necessarily— I'm not talking, let's say, cases and deaths, more in terms of the nation and their mood around what's happening and how the government's clamping down on everything. And it's the— yes, the way the lockdown has been implemented and the way it's been policed, um, that morale's at a record low, basically.

And then linking to China, Russia test-fired a new intercontinental ballistic missile, as you do, in what Putin said It will give the US and allies a little something to chew over, which is pretty much a verbatim quote from Putin. Um, not, not unusual, I guess, the flexing of military muscle, but obviously the context is right in the middle of this ongoing Ukraine situation. But the connection to China, which I thought was interesting, that no one really talks about, um, is the fact that it comes as China has said also this week will continue strengthening strategic ties with Russia, which I know we've talked about many times, but just given what's going on and the type of maneuvers Russia's been pulling, um, because China kind of moved a little more to the west, I'd say, uh, a few months ago, but now kind of reverting back to type to a certain extent. So then the final thing to lead us into Twitter is Tesla putting a record profit, um, just to throw it in our faces again. Uh, revenue growth was driven in part by an increase in the number of cars Tesla delivered, an increase in average sales prices. Shares spiked 10% on the recommencement of trade on Thursday. However, they did pretty much reverse most, if not all, of that gain by the close. So When we start talking about a trillion-dollar company popping 10%, that's pretty normal standard business day for Tesla shares. But then of course, that leads us into Elon Musk. And so Twitter, I was kind of thinking, prepping up for this, where do you even begin with this? It's just so messy to a certain extent. So I thought going at it from a chronological order makes the most sense. So he started accumulating his stake 9.2% stake in Twitter to become the platform's biggest shareholder. He was offered a board seat. He originally agreed to abide by several rules set out by Twitter when he joined the board, including not increasing his stake in the company past 14.9% of shares. Internally at Twitter, I don't think it was particularly popular when, when the news emerged, to put it lightly. He then flipped declined the board seat, and then has made a hostile bid for Twitter with the valuation of the company at around $43.4 billion. So I guess let's start at going hostile before we then talk about self-defense if you're Twitter and poison pills, and then we'll take it from there.

Yeah, I mean, it's such— I love these stories. It's such a great saga. We haven't had one for a while like this. In fact, have we had one like this? It feels like quite a unique kind of situation. But yeah, going hostile, I mean, it's just simply trying to buy a company without the permission, if you like, or without having the board of directors who manage and run that company without having their backing to do so. So you're just going hostile against those that control and run the company.

So several months ago, Twitter's not looking to sell itself. It's not looking for a new stakeholder. He starts accumulating on the sly. It then emerges when he does it— was it a 13D or one of these filings comes out, comes to light, bang, he's got 10% of the company pretty much. Then what happens next then? So Twitter now goes into defensive mode.

Well, yeah. I mean, it's a bit odd, isn't it? Because he filed that 13D, which is you only file if— well, A, we talked about this, I think, last time, but he filed it late. It was like 11 days late or whatever. But you file that if you don't have an intention to take over the company. Right? And so then it was like filing that and then, right, yeah, there's a board seat. I'm large shareholder now. And then I think, I don't know what happened behind closed doors on that discussion on, right, here's a board seat, Elon, do you want it? And I think probably what happened was, well, look, here are the restrictions that you need to agree to if you want that seat. And Musk went, actually, you know what? I want to buy this whole thing. So I can't sit on the board because I'll have to agree to not purchase more than a 15% stake. So I think then he stepped back, then he filed this 13G, I think it is, which is a separate filing, which then expresses your intention to look to acquire the whole company. Then it's like the board are obviously clear now that what Musk's intentions are, to buy the whole lot, and then they go into emergency defense mode and they trigger the poison pill. Um, she's got to be one of the best named, um, corporate actions, uh, out there, I think.

So what is this? You know, I just think of like Rambo and Arnie when I hear that type of thing. So what's this got to do with like a corporation?

It's a pretty extreme— one of the most extreme sort of defense mechanisms that a board of directors can put in place to block someone buying a majority stake or buying, you know, the whole company. So what happens here with this particular one with, with, um, Twitter, basically what happens is they've geared it so that if Musk buys shares in excess of 15% ownership, then for every share that Musk buys, a new share gets issued. And that new share is then purchasable at a discount by other shareholders other than Musk. So Musk is the only shareholder— would be the only shareholder that's not allowed to buy the newly issued shares. All the other shareholders can purchase this newly issued discounted value share, only unless they themselves— another shareholder then accumulates ownership above 15%. So it's basically anybody above 15% can't buy these newly issued shares. The point about these newly issued shares is it's then diluting the value and indeed then the actual proportional ownership of existing shareholders, right? So it just makes the— I don't know, let's simplify it. Let's say there's let's say there's 100 Twitter shares, and let's say, let's say Musk buys— owns 15 of them, right? So he's got 15%. If he buys the 16th, right, then a new share is issued. So there's that, then, then Musk owns 16 shares out of 101 shares in issuance, right? If he buys another one, he'll own 17 shares when there's 102 in issuance. And so it dilutes his value and prevents him from basically— or prevents him or makes the— well, yeah, prevents him in this case, but in other cases where there isn't a mechanism that prevents the person from buying the newly issued shares, it makes it way more expensive because you have to— and not only you're buying the existing shares, you're having to hoover up and buy all these newly issued ones as well. And it, you know, makes the actual in the end, the price that you have to pay, you know.

Is there a— is there a set marker for the discount that the existing shareholders would get? I mean, how severe is the discount? Is it like 99% or is it— I, I have not been able to find that information because they're going to make it as easy as possible, right, as to that they can buy as the biggest discount.

Yes. But the more the discount, this is a dangerous strategy from the board's point of view, because it dilutes the share ownership of all shareholders, including Musk. And obviously their intention is to dilute Musk, but they're diluting themselves as well. Although they can buy these newly issued shares, but not everyone's going to be able to buy. —or would want to buy, right? So you are going to negatively impact existing shareholders outside of just Musk. By the way, this is called— there are different variations of a poison pill. This is what's called a flip-in poison pill, which is the most common, which is where the hostile— the person who's leading the hostile takeover that one entity is not able to buy the newly issued shares, but all other shareholders can. That's a flip-in version of a poison pill. So what would be other—

is there any precedence for a poison pill being successful as a strategy?

Yeah, there are. I mean, the poison pill thing, it kind of first— it came to— the first example of it was in the 1980s. Actually. But— and it's not common, but it has happened, and actually happened with companies that you'll all have heard of. So actually, a really good example is Netflix. So Netflix used the poison pill strategy in 2012. Carl Icahn, who's a very famous activist investor, started building up a stake in Netflix in 2012. He got to a 9.98% stake. 10% stake. And then the Netflix board said, look, we need to block this. And so they went ahead with the poison pill strategy, which triggered if Icahn bought shares in excess of 10% of the company. It worked. Icahn backed off. And actually, because he bought— I think he bought a $320 million stake for his 10%. And he wanted to buy the company. He thought Netflix was ripe to be taken over by one of the big tech giants. So he thought, right, I'm going to buy it and I'll flip it to one of the tech giants. Anyway, the board was successful in their poison pill strategy. In 2013— sorry, in 2015, Icahn then sold his 10% stake. He did pretty well because he bought it for $320 million and he sold it for $1.9 billion. So he did all right in the end, even though his attempt to buy and acquire the whole company failed because of a successful poison pill defense strategy. So, and it has, you know, Papa John's, the pizza lot, they did it to block one of their founders from trying to take over the whole company. So look, it happens and it can be successful, but it's quite high risk.

Okay, so then moving the story along, we've now got to the point where, uh, Musk has put out a whole series of, you know, very classic Elon cryptic tweets, kind of inferring that he's going to make a tender offer. So let's talk about a tender offer and the financing side of what he's been doing.

A tender offer is you just go to the shareholders. I mean, ultimately, who owns the company? It's the shareholders that own the company, right? Who, who controls the day-to-day running of it? Well, fine, it's the board of directors, okay? Now sometimes you'll have this standoff where the board of directors don't want Musk wheeling in here and taking over, but it could be that the shareholders think differently. I mean, are Twitter shareholders happy with their Management, are they happy with their board of directors?

Tell me that then. I mean, what's the kind of general view on Twitter and how it has performed as a company? Well, yeah.

I mean, I would say it's— well, I would say, and lots of people might say that it's performed really badly and it hasn't ever got anywhere near to fulfilling its potential. One of the co-founders, Jack Dorsey, who's on the board and still actively running the business. He runs other stuff. You know, it's not the only company he's got. And I think a lot of people think that he's just been distracted by his other stuff and he's not really invested. And the other, the other big criticism of the board, Twitter's board right now, hardly any of them use Twitter and hardly any of them own Twitter shares. Um, you could argue that Musk obviously is the opposite. He is a prolific user of Twitter. He's got 80 million followers and now owns 10%. So who's a better representation on the board and to run this company? You could argue it's someone who uses the product all the time and is invested in the business and its success. So that's one thing. But a really good— has Twitter performed well, yes or no, from an investor's point of view? Probably the best measure I could give you is that Twitter was founded in 2006, 2 years after Facebook. Facebook was founded in 2004. Since 2006 to today, Twitter's share price has gone up 77%. Facebook's share price, bearing in mind that Facebook's share price has also been hammered over the last 6 months, even with that, the Facebook share price is up 4 times more than Twitter's share price. So that right there shows you that Twitter never really delivered. And look, there's so many, I guess, revenue streams that have been untapped perhaps, you know, with regards to maybe looking at subscription kind of based things. I mean, look, perhaps we need to talk about the whole To talk about can Twitter fulfill its potential or not, I think you've got to talk about, well, what is it and what is it for? And really, this perhaps plays into why Musk wants to do what he looks like he wants to do, to take it over. And that kind of comes back down to this— it comes down to free speech. OK? Musk is a huge proponent of free speech. He went as far— and I'm going to quote, he said something yesterday— civilization risk— that's a new risk, by the way, I love it— but literally a risk to the whole of civilization. He said civilization risk is decreased the more we can increase the trust in Twitter as a public platform. He's a big freedom of speech, and the problem we've got at the moment is the freedom of speech is progressively being more controlled by a handful of people who run big tech. This is the fundamental issue here. You've got a handful of people, unelected, that don't represent the people, yet they control the narrative. And the narrative then controls how people think, and how they behave, and how economies function, and XYZ, right? We're talking about big, big things here. And Musk is fed up with people getting canceled. And I guess it comes back to people like Trump.

Yep. I was going to say, when's he getting his reinstatement of his Twitter account then?

Right. And I guess the point is about people who believe in free speech. It's like, everyone should be able to say what they want to say and put forward their view. If you don't like it, don't follow them. Don't listen. It shouldn't be, hang on, if you don't like it, cancel them so that no one anywhere can hear them. So it's about that free speech thing. But the problem with Twitter, I guess, there's so much content from every— and it's a lot— it's a platform people just use to go on and rant about stuff. And there's, there's so much crap on Twitter, let's be honest, right? So you need some kind of filter. And something that Twitter— a revenue stream they've never explored is maybe going a bit more open source. And this is something that, in terms of the algorithms that are used to kind of control content. And I think one thing Musk wants to do is go a bit more open source on developing of these algorithms. And then to the point where you, as a user, can maybe subscribe to a certain filter. I don't know. Maybe— I don't know. Let's say you're interested in tech stocks. —right?—and you want to use Twitter to, you know, be knowledgeable about stuff that's going on in the tech industry. So you could perhaps subscribe to one particular algorithm that kind of filters for news on that front, and you pay a small subscription for it, right? I'm sure people would pay to get rid of all the crap that they're not interested in. But when I say crap, I mean, one man's crap is another man's, you know, golden nugget content, right? So, and this is the point, it's freedom of speech. Say what you want, and it's up to you, the people, if you want to listen to it or not. So I think that's the kind of cornerstone of Musk's motivation here, I believe. But then we talked about, uh, I'm kind of jumping to different things here, but we talked about what do gazillionaires do to get their kicks. And we saw Bezos moving into media by buying Washington Post. Is this the kind of Musk equivalent? So what is this? What is his intention? Is it for getting kicks and he's got nothing better to do? Or is it, you know, a genuine push to, um, you know, influence free speech globally? Or finally, is it actually he believes this company is undervalued Does he believe there's some huge, great, extra additional revenue potential? And can he take this company and 10x it in the next decade?

So, or fourth angle, is this all just completely curated narrative so that he can engineer an exit of his setup with Tesla And so he needs to follow this chain of thought and all of this. He's a smart guy, so he's probably thinking at least several chess moves ahead. So he's well beyond this deal success, no success. Is there another element here where I, for one, do not understand or know deep enough how he's structuring his exit out of companies like Tesla and whether this is playing into that somehow in order to, you know, tax and all the rest of it, options, expirations, or exercising, and trying to facilitate that. And actually, he's just— he's a guy who just wants to make a lot of money, and this is just the narrative to execute. Yeah, I think you're definitely right.

I think there's an angle. I mean, we've been talking about Musk's big problem with his wealth as a person? Well, it's locked up in Tesla. That problem. Yeah. How do you liquidate that wealth? Right. And we've been talking about this for months and months and months and months about how, well, hang on, if Elon starts selling Tesla shares, well, isn't that the signal that this is the top? So everyone else sells and the share price collapses and obviously his wealth collapses with it. But I think this is probably another strategy along the lines of engineering an exit from Twitter, because we've got to talk about financing, right? Because this deal with Twitter has taken another step towards potentially happening on the Musk side, because he's now come up with the financing. So it's all very well and good saying, here's my tender offer. I want to buy all you shareholders out there. I want to buy your shares. For what was it, $54.20, isn't it, I think, per share, adding up to then a $46.5 billion valuation. But that's all very well and good saying that, but $46.5 billion is a lot of money, and where are you going to get it from? So the next exercise Musk has been working on over the last week is structuring the financing of this potential deal. And part, you know, part, I mean, the financing is going to involve, so we believe, term loans, credit facilities, secured bridge loans, unsecured bridge loans, margin loans, and then something you probably will understand better, cash. Cash making up about 40% of the kind of deal here. But in terms of the kind of numbers— hang on a minute, I've got the kind of breakdown here if I can just find it. So yeah, so he's been talking to lenders, Musk has. And so Bank of America, Barclays, and the like apparently are now going to structure some of this. And so he's— so a $6.5 billion term loan a $3 billion secured bridge loan, a $3 billion unsecured bridge loan, $500 million revolving facility, margin loan. Yeah, the biggest portion, or one of the biggest portions, is a $12.5 billion margin loan secured by Musk's Tesla shares. So obviously with loans, you need collateral usually to kind of underpin that loan. If you think about a house and a mortgage is probably the best example, right? Your collateral's the house, the building, and then you're borrowing money against that. So Musk is going to put up some of his Twitter— sorry, Tesla shares as collateral. But he's already used a big chunk of his Tesla shares for collateral for loans in the past. So there's a bit of— I've read a few different figures as to how many shares he's actually putting up here. As a loan. And then there's cash. And so we're talking $21 billion maybe in cash. And there, we believe he's going to have to generate that by selling some of his Tesla shares. So here's a great excuse. Guys, I'm not selling my Tesla shares because I don't believe in Tesla and its growth story anymore. I'm selling Tesla shares purely because I need to buy Twitter for the greater good of mankind and civilization.

Now you're talking my turkey now, right?

If you step back and just say it is genius, uh, now, and to think how long has he been towing the freedom of speech line?

A long time. Yeah. So he's been engineering this. This is my view, that for a long— but he's, again, he's an incredibly smart guy, and to think that this is all randomness, I think, yeah, yeah, you're buying into that.

It's just his exit strategy.

That he started a decade ago because he knows, he knows, yeah, the big giants in the automotive world are coming. And so it's time to move this up a gear or two.

So yeah, I mean, well, I certainly agree on the, uh, the Tesla. Yeah, I think this is very toppy for Tesla in terms of share price. So if he can exit now, I think it'd be genius. And this would be a really interesting, a genius way of finding the excuse to engineer a major exit. The other thing then, of course, is because he's kind of structured the financing now, this obviously makes his bid much more serious, tangible. And that's good from the shareholders' point of view. So can he now say to the shareholders, look, this poison pill thing from the board, essentially, No one ever really then goes ahead and tries to buy the company and absorbs this huge extra cost that all these newly issued shares take. So what tends to happen with the poison pill deal is that it forces the hostile takeover person to start to have a dialogue with the board about how, how we can make a deal work here. If the hostile person has the backing of the shareholders Well, this puts the board in an incredibly difficult situation. And at the annual general meeting, which is actually in May, I think it's towards the end of May, if there's a shareholder revolt, then you don't allow the board to get— I think there's 2 people on the board that are up for reelection and they won't be reelected. And then you might get new people that are pro-Musk deal on the board. So you could play this game of really essentially forcing the board via the shareholders' support via these votes at the annual general meeting. And the second thing is, once the financing structure's in place, he can then start to talk about maybe bringing on board some partners. Right.

So explain to me this part. Where does the private equity angle start to come into this?

Yeah. So essentially, he needs to come up with $45 billion, right? And he's proven, I guess, on paper that he can do it himself. But that's huge risk, even for a man of his wealth. That's a lot of money, right? So what I'm sure he'll prefer to do is bring other people into this so that he doesn't have to stump up this cash all by himself. And so you're starting to get some private equity interest. There's a software buyout group called Thoma Bravo, who are thought to be kind of at the front of the queue here. They've got about $100 billion in assets, and they've begun conversations with Musk. So they might take on some of— a portion of this money, a portion of the $46 billion. They might kind of come in on some of it. It might be on the debt side of it, maybe it's on the cash side of the deal. So I think that would make sense. I would say. And again, that might be a positive from the shareholders' point of view as well, if it's not just Musk, the dictator, coming in and just doing what the hell he wants. So I think that'll probably be the next move as well.

And then the other kind of, I guess, alternative would be finding a white knight. So perhaps we could explain what that is. And why in this instance is probably unlikely.

Yeah, so a white knight is something the board should be working on right now, which is finding an alternative buyer at a favorable price. Now, why this might be difficult— because you could say, well, surely the likes of, I don't know, Apple or Amazon, you know, or Google, surely surely a massive social media platform like this could be a great bolt-on to their businesses. But the problem is the regulator won't allow it. So the regulator would definitely not allow one of the big tech giants to buy Twitter. So cut right there. And because it's such a huge deal, you're going to need north of $45 billion, right, to have a better offer than Musk's. This is a lot of money. So yeah, the big tech giants can afford that, but they won't be able to do it because they're regulated. So I think this is a situation where finding a white knight that can come up with that kind of capital, and who would want to, by the way, I think it's going to be difficult.

Cool. Well, look, let's end it there. I think we could go on and on with this particular topic. But hopefully that addresses a number of the questions I think came into my inbox over the last 2 weeks. Yeah, thanks for buzzing me over the Easter holiday. But look, as Piers was saying, it's— just wanted to conclude with that. I think it's amazing that people are listening to this podcast still after 62 episodes, I think we're on now. So a lot of hours of content. But as Piers said, I actually spoke to a student who runs the MAME Society at Oxford University. Which he's kindly invited me to go and speak at in the coming weeks. And he said everyone listens to the podcast and follows the Market Maker newsletter that accompanies the podcast as well. So yeah, don't forget to check out that newsletter for any student interested in just building out your commercial awareness, but equipping yourself is staying on top of the news, what you need to know with career tips and and hacks and so forth as well. We share lots of stuff on a daily basis. I'll drop the link into the bio of this episode. But that's it for this week. Piers, thanks as ever. And yeah, take care everyone.

Have a great weekend. Cheers, guys. Bye.