Illustration: Shoshana Gordon/Axios
Funding is not yet secured. Elon Musk has promised to raise $20 billion of equity to pay for Twitter, but it's still difficult to see where that money is going to come from — even after $7 billion of new equity commitments on Thursday morning.
By the numbers: Twitter shares rallied by about a dollar in pre-market trading on the news, but they're still trading at a 7.5% discount to Musk's agreed takeover price, in large part because the market still doesn't entirely believe that this deal is going to happen.
The big picture: Musk owns hundreds of billions of dollars' worth of stock, but he can't pay for Twitter with Tesla stock, and he's said he's not going to sell any more Tesla shares.
How it works: The new equity commitments reduce the amount of money he needs to borrow to pay for Twitter, but don't meaningfully reduce the amount of cash he himself needs to contribute.
- He's now mortgaging Twitter itself to the tune of $6.25 billion, which will cost about $450 million per year to service.
- He's still borrowing $12.5 billion against his holdings of Tesla stock, which will cost him about $1.125 billion per year in interest and amortization costs.
On top of the more than $1.5 billion per year in debt servicing costs, Musk is also going to have to pay Twitter employees cash to make up for the stock-based compensation they're currently receiving. Business Insider's Linette Lopez reports that amount is likely to be more than $900 million this year.
- By the numbers: Add it all up and Musk is making roughly $2.5 billion of demands on Twitter's cashflow, while Twitter isn't throwing off anything like that much money. Its EBITDA over the last 12 months — its earnings before interest, taxes, depreciation and amortization — came to just $547 million.
- Musk is going to have to make Twitter vastly more profitable — and fast — if he wants to be able to cover his debt service costs and pay his employees.
After the $7 billion from outside investors, Musk has promised to pay the rest of the purchase price — some $20 billion — himself. But he stopped his Tesla share sales after $8.5 billion, and might need to pay capital gains tax on some of those proceeds.
The bottom line: Elon Musk might be the richest person in the world. Unless he finds a buyer for a massive chunk of his stock in SpaceX, however, it's far from clear how he's going to be able to fund this acquisition.
Editor’s note: This story has been updated throughout to reflect news of additional financing commitments for Musk’s Twitter purchase.