Wall Street lenders bankrolling Elon Musk’s $44bn acquisition of Twitter could quickly discover themselves in a clumsy place: ought to they assist the world’s richest particular person scupper the deal and thereby lose out on one of many business’s greatest paydays?
Musk prompt this week that $13bn in debt financing essential for the Twitter deal might be in danger if the social media firm doesn’t fulfill his said considerations about faux accounts on the platform. This, Musk mentioned, may give him grounds to stroll away from a deal, which has change into much less engaging since tech valuations plummeted.
For the banks engaged on the deal, an enormous payday is on the road. Morgan Stanley, Goldman Sachs, JPMorgan Chase, Bank of America, Barclays and Allen & Co stand to earn $191.5mn in charges, the most important charge pool this yr and the third-biggest since 2020, in line with Refinitiv information.
However, the majority of that sum is contingent on the acquisition closing. If the deal is named off, Goldman would earn $15mn, solely 18.75 per cent of the $80mn it will make if Musk completes the buyout, in line with regulatory filings. JPMorgan stands to make $53mn however will solely pocket $5mn if Musk walks away.
Goldman declined to remark whereas JPMorgan, Twitter and Musk didn’t reply to requests for remark.
This doesn’t embrace the charges a syndicate of banks — Morgan Stanley, Bank of America, Barclays, MUFG, BNP Paribas, Mizuho and Société Générale — stand to earn in the event that they find yourself underwriting the $13bn in debt financing. The banks declined to touch upon whether or not they have been nonetheless dedicated to the transaction.
Musk’s Twitter deal was a shiny spot in a yr that has been disappointing for Wall Street banks. Bankers had anticipated a slowdown in charges after a file haul in 2021 however have been nonetheless optimistic for an above-average yr, telling traders in January that deal pipelines have been very wholesome.
But with firm leaders fretting a couple of potential recession and the uncertainty stoked by Russia’s warfare with Ukraine, world funding banking charges have plummeted to about $46bn this yr. This is down from $70.5bn in the identical interval final yr and is the bottom charge haul for this level within the yr since 2016, in line with Refinitiv information.
The banks’ returns on the Twitter deal have already been diminished by Musk deciding in opposition to utilizing a margin mortgage to assist finance it. He had initially secured commitments from banks for $12.5bn in loans in opposition to a portion of his Tesla inventory, thrashing out phrases over Easter weekend.
Weeks after asserting the phrases, Musk reduce it in half to $6.25bn earlier than in the end scrapping the margin mortgage altogether.
Musk had agreed to curiosity funds on the three-year margin mortgage of 300 foundation factors over the three-month Secured Overnight Financing Rate or zero, whichever is increased. Bankers considered the phrases as beneficial on condition that the mortgage was capped at 20 per cent of the worth of the Tesla shares and the inventory is closely traded.
At a minimal rate of interest of three per cent, Musk would have paid lenders no less than $375mn annually had the unique $12.5bn been totally utilised. He would have owed no less than half of that for the diminished margin mortgage.
In the top, the 12 lenders on the mortgage pocketed a nominal charge for committing to the mortgage for one month, in line with one particular person accustomed to the matter.
“We spent Easter on it,” mentioned one banker on the Twitter deal. “That’s the life of a banker.”
Additional reporting by Sujeet Indap and Ortenca Aliaj in New York