Financial transaction

Banks miss out if Elon Musk doesn’t buy Twitter

Elon Musk’s “will-he-won’t-he” dance to buy Twitter took a turn on Friday after the billionaire said he intended to terminate his deal to acquire the social media company in due to the disclosure of “false and misleading” figures on fake user accounts.

Twitter has often stated that around 5% of users on its platforms are spam accounts. But Musk – through a letter filed by his lawyers to Skadden at the U.S. Securities and Exchange Commission on Friday — is convinced it is well over 5% and used that belief as a weapon to kill the $44 billion deal.

His decision could see a number of banks lose what promises to be one of Wall Street’s most lucrative paydays.

Morgan Stanley – Musk’s trusted financial adviser – alongside Goldman Sachs, JPMorgan, Bank of America, Barclays and Allen & Co could pocket nearly $192 million in fees, the biggest profit for an M&A deal this year, and the third since 2020, according to Refinitiv data cited by the FinancialTimes.

While investment banks will charge money for their advisory services, much of the fee will only be collected if the deal closes. Bankers are therefore eager to see Musk and Twitter kiss and reconcile, Insider has learned.

Morgan Stanley, BofA, Barclays, MUFG, BNP Paribas, Mizuho and Societe Generale also took out around $13 billion in loans to support the Musk acquisition. Much of this debt was to be taken off banks’ balance sheets and syndicated to third-party investors in the form of high-yield bonds or leveraged loans.

If the deal is officially canceled by both parties, it could sabotage a collective “nine-figure” salary for all the banks involved, a banker whose firm is involved in the funding told Insider.

Another banker whose firm also participated in the debt financing said “it’s not over yet,” regarding the acquisition. He expects a drawn-out legal process to follow and believes this is the one Musk could lose.

The billionaire faces a legal nightmare. Twitter promises to sue Musk and force the deal through. Musk has to argue that there was a material adverse effect on the transaction to undo the Twitter purchase, but courts rarely rule in favor worried buyers.

Musk owes Twitter $1 billion in termination compensation for calling off the deal. If the court finds that other conditions relevant to closing the deal — including having the financing in place — are met, Twitter may push Musk to close the deal.

“When you’re the richest man in the world, you can mess with anyone”

It took just six days – including a long weekend – for Morgan Stanley to rally the banking syndicate for Musk’s $44 billion takeover of Twitter.

Musk agreed to a deal without looking at Twitter’s finances and ignored the company’s lack of cash, moves that forced some lenders to back out of funding, bankers told Insider.

But when a man with Musk’s money comes along, the investment banks will move mountains to give him what he wants, especially when there’s a chance that job could lead to those Musk banks’ next big deal. .

He’s a billionaire. He effectively controls the $780 billion electric vehicle maker Tesla, which actively participates in capital markets. And he owns SpaceX. If the space company ever goes public, it’s a deal every bank on Wall Street will want to participate in.

“Here’s the thing, when you’re the richest man in the world, you can mess with anybody and people will come back to you,” the first senior banker said. I’m sure the banks will complain about it, but they’ll probably be there for the next transaction. That’s the nature of business.”

Now, with Musk and Twitter likely set for a court date, bankers are hoping the deal crosses the finish line. These will be attractive charges in an otherwise poor year for mergers and acquisitions and capital markets transactions.