(Bloomberg) — Apollo Global Management Inc. is in talks to lead a preferred financing for Elon Musk’s proposed buyout of Twitter Inc., according to people with knowledge of the deal.
The funding, arranged by Morgan Stanley, will exceed $1 billion and may include Sixth Street Partners, among other firms, the people said.
Apollo, Sixth Street and Morgan Stanley declined to comment.
Twitter stock rose 0.3% to $47.38 at 11:40 a.m. in New York. The stock in prior days had slumped as traders grew more skeptical that Musk, the chief executive officer of Tesla Inc., will complete the purchase at the $54.20 offer price.
Read more: Musk-Twitter Deal Spread Hits Widest as Traders Doubt Takeover
That’s despite Musk revealing last week he’s getting $7.1 billion in equity commitments from investors including Larry Ellison, Sequoia Capital and Qatar. He persuaded Saudi Prince Alwaleed bin Talal to roll his $1.9 billion of Twitter stock into the privatized company and is seeking to do the same with Twitter co-founder Jack Dorsey.
It’s not clear how the preferred equity might change the existing financing proposal, which requires Musk and his partners to contribute $27.25 billion in equity to fund the $44 billion purchase, with the rest coming from junk-rated debt and a margin loan tied to Musk’s Tesla stock.
Preferred equity is a hybrid of debt and equity capital that sits above common equity in the capital structure. Some preferred equity is convertible into common shares at a pre-agreed price, but the proposed funding isn’t. This type typically offers a fixed dividend that can accrue if payments aren’t made.
Marc Rowan, Apollo’s chief executive officer, touted the attractiveness of hybrid investments in a recent interview with David Rubenstein, saying it offers the best risk versus reward in markets.
“You are stepping back from the publicly traded markets, so are getting the benefit of illiquidity and getting downside protection because the world is uncertain from a geopolitical and an economic point of view,” he told Rubenstein’s Bloomberg Wealth.
Read more: Apollo’s Rowan Warns Rivals to Ignore Blockchain at Their Peril
Musk recently boosted his cash position by selling Tesla stock — about $8.5 billion in the latest round — and he’s already amassed 9.6% of Twitter’s outstanding shares.
Musk is the world’s richest person with a net worth of $231.8 billion, according to the Bloomberg Billionaires Index, but much of that fortune is illiquid. Tesla’s stock has tumbled 26% since Musk announced his desire to buy Twitter, stoking concerns among investors that he may need to sell or pledge considerable amounts of stock to fund the bid.
(Updates with type of preferred in seventh paragraph.)
More stories like this are available on bloomberg.com
©2022 Bloomberg L.P.
