Elon Musk’s Twitter deal rewards risk-taking at Morgan Stanley

When Twitter’s board agreed to promote the corporate to Elon Musk final week, one Wall Avenue financial institution was on the centre of the deal: Morgan Stanley.

Its position within the $44bn bid caps a years-long effort to domesticate ties with the world’s richest individual. The phrases of the financing underscore the dangers funding bankers are keen to shoulder in an effort to win profitable purchasers within the know-how sector.

Morgan Stanley, together with Goldman Sachs, is certainly one of two dominant funding banks working in Silicon Valley. Backing Musk’s bid and recruiting nearly a dozen different banks to affix signalled to Twitter buyers the seriousness of Musk’s efforts to purchase the corporate. To carry the deal collectively Morgan Stanley is extending monetary firepower to Musk that goes past something offered to different non-public purchasers.

Morgan Stanley will take the most important position in a consortium of 12 banks giving Musk $12.5bn in margin loans secured by shares in Tesla, the electrical car firm he leads. Morgan Stanley agreed to lend $2bn of the sum.

The mortgage is way bigger than what Morgan Stanley has provided rich people up to now. The largest margin loans it has provided to purchasers by its non-public financial institution have usually been beneath $1bn, based on one individual acquainted with Morgan Stanley’s lending operations.

As collateral, Musk has additionally solely provided a portion of his shares in Tesla. Margin loans are usually made in opposition to a extra numerous portfolio of investments.

“Clearly, it’s a better danger than your commonplace enterprise transaction,” mentioned Jill Fisch, a professor of enterprise legislation on the College of Pennsylvania. “However I believe there’s a possible upside to being related to these sorts of transactions and with that type of imaginative and prescient.”

Musk is additional financing his Twitter bid with $13bn in debt financing led by Morgan Stanley, a lot of which is able to most likely be syndicated out to different buyers. The billionaire final week additionally bought $8.5bn in Tesla inventory as he appears to fund the $21bn in money that he has agreed to make use of within the deal.

In one other signal of their willingness to plough cash into Musk’s bid, Morgan Stanley and Japanese lender MUFG, which owns a 21 per cent stake within the Wall Avenue financial institution, had leeway from their credit score committees to offer as much as $14bn of the overall debt bundle for Musk’s bid if required, mentioned one individual acquainted with the matter.

In the end the 2 banks have dedicated about $9.7bn in financing out of the overall $25.5bn in debt and margin loans for use for the deal, based on Monetary Occasions calculations of public filings.

The deal was sophisticated by the truth that Musk’s preliminary bid for Twitter was unsolicited. Giant banks resembling Morgan Stanley are cautious about working with hostile bidders for concern of angering different company purchasers. One former senior Morgan Stanley govt mentioned bankers usually must obtain approval from chief govt James Gorman to work on such offers.

Morgan Stanley and MUFG declined to remark. Jared Birchall, the pinnacle of Musk’s household workplace and a former Morgan Stanley banker, didn’t reply to a request for remark.

Regardless of the monetary dangers and returns from the deal, such beneficiant credit score phrases additionally replicate the attract for banks of cementing the connection with Musk, who has a internet value of greater than $200bn.

Transactions involving tech firms and their founders generate massive banking charges. Musk has additionally based three non-public firms — the rocket start-up SpaceX, tunnel-digging enterprise The Boring Firm and neuroscience start-up Neuralink — that would ship new enterprise in the event that they go public.

“I might estimate a dozen banks would love to do that,” mentioned a former senior danger govt at a rival Wall Avenue financial institution. “They’re taking a look at this as a solution to get right into a super-important relationship.”

Including to Morgan Stanley’s capability to make commitments the scale of the Musk mortgage have been deposits which have doubled up to now three years to about $380bn, largely reflecting Gorman’s push to handle extra money for rich purchasers. The deposits present entry to an inexpensive supply of cash to lend.

Morgan Stanley and Goldman have been among the many first New York-based funding banks to construct massive operations in northern California, catering to tech purchasers in the course of the dotcom increase of the 1990s. The arch-rivals have since led the taking part in discipline for decent preliminary public choices and takeover mandates, taking house roughly 1 / 4 of the $2.9bn in complete charges from tech M&A this 12 months, based on knowledge compiled by Dealogic.

Musk has had a banking relationship with Morgan Stanley since no less than Could 2011, based on regulatory filings, however the $2bn margin mortgage provided for the Twitter bid far exceeds something it has lent Musk up to now. Between 2016 and 2020, Morgan Stanley had loans excellent to Musk of between $208.9mn and $344mn.

Morgan Stanley tech funding bankers together with Michael Grimes and Colin Stewart have maintained shut ties to Musk going again no less than to Tesla’s IPO in 2010, based on one individual acquainted with the connection.

Goldman led that IPO and has additionally been a lender to Musk since no less than 2010. The financial institution beforehand suggested Twitter in its battle with the activist investor Elliott Administration in 2020, and once more labored for the social media firm as Musk started constructing his stake.

When Musk in 2018 was trying to take Tesla non-public at $420 per share, he first tapped Goldman to assist information his bid. He later added Morgan Stanley as an adviser after it grew to become clear he would wish to solid a wider internet to safe financing for the potential transaction.

As Morgan Stanley pressed its case to be concerned within the proposed deal, the financial institution sought recognition for “being a powerful useful resource for Tesla” and Musk over time, Birchall wrote in a textual content message to the entrepreneur.

Morgan Stanley had financed Musk up to now and “come by” every time Musk’s crew pressed for extra credit score or decrease charges, Birchall wrote within the message, which emerged as proof this month in a lawsuit rising from the failed transaction.

Birchall advised Musk the financial institution has additionally “completed plenty of work for TBC at no cost”, seemingly in reference to The Boring Firm. The attraction got here at some point after Musk introduced he was working with Goldman and the non-public fairness group Silver Lake on the deal.

“That appears truthful,” Musk had responded.

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