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Elon Musk's proposed bid for Twitter got a lot more serious on Thursday, and if successful the deal could cost Musk about $1 billion in annual interest payments.
In a filing made with the SEC on Thursday, Musk revealed that he has received several commitment letters from banks to fund his proposed takeover of Twitter. As it turns out, taking on billions of dollars in debt costs a lot in annual interest payments.
While Musk plans to fund nearly half of the deal with his own cash, he also plans to utilize a mix of debt and lines of credit to raise the funds necessary to buy every outstanding Twitter share he doesn't own for $54.20 per share.
According to the filing, Musk has received a letter of commitment from banks that have offered to lend him $13 billion to Twitter if he buys the company, with a mix of secured bank loans and junk bonds. Additionally, Musk has received a letter from his banks offering to lend him an additional $12.5 billion for the takeover effort, which would be secured by $62.5 billion worth of his Tesla stock, or about one-third of his stake.
Finally, the filing said that Musk has made the commitment to fund the takeover with $21 billion of his own cash.
But with those letters of commitment, it's going to cost Musk a lot of money to ultimately fund the transaction and hold onto ownership of Twitter. Potential interest rates detailed in the letters of commitment vary from close to 6% to as high as about 11%.
Based on the various debt amounts that would be raised by Musk to fund the transaction, Bloomberg's Matt Levine calculates that the world's richest person would be on the hook for about $1 billion in annual interest payments. Additionally, there's the risk that if Tesla's stock price falls, Musk would be forced to put more of his stake up for collateral.
Given Musk is less concerned about Twitter's underlying profits and more concerned about free-speech issues and censorship on the platform, it's unclear how well the company will perform financially under Musk's ownership. Any decline in Twitter's profits would likely mean that Musk has to reach into his personal pockets to service the annual debt interest payments.
Based on past comments he's made, he might not mind.
"This is not a way to sort of make money," Musk said in a recent TED interview. "My strong intuitive sense is that having a public platform that is maximally trusted and broadly inclusive is extremely important. So the future of civilization, but you don't care about the economics at all."
