February 7, 2023

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Elon Musk is trying to sell Twitter stock in search of new funds

The head of Elon Musk’s family office has reached out to investors who helped the billionaire launch Twitter for $44 billion in October.

Jared Birchall, a former Morgan Stanley banker, reached out to shareholders on Twitter Thursday afternoon, according to two people familiar with the matter. He offered new shares in the company for $54.20 – the same price Musk paid to take the company private.

In its note to investors, first reported by Semafor, a person who received it said that Twitter “is pleased to announce a follow-up offering for common shares at the original price and terms.”

The note didn’t specify how much Twitter expected to raise as part of the new fundraiser, but did indicate that the fundraiser is expected to be completed by the end of the year.

“Everything was done haphazardly and crudely,” said investment adviser Ross Gerber, who invested in the Twitter deal in October and confirmed he had received the latest offer. “They’re doing it because they’re running out of money. I do not think so [Musk] expected such a large drop in sales.”

A second person whose company received the offer said Musk indicated that the new capital would be used to fund an expansion of his business, including a “recruitment tour” of programmers to create a “super app” that among other things, could process payments.

Birchall and Musk plan to hold a series of talks with Twitter investors looking to increase their stake in the company, the person said.

Musk bought Twitter after a dramatic six-month legal battle, funding the acquisition with about $13 billion in debt and about $7 billion in debt.

But he’s since struggled to cut costs, including by laying off about half of Twitter’s employees after advertisers fled the platform over concerns about its content moderation strategy, killing Twitter’s $5 advertising business billions of dollars a year.

A number of high-profile investors wrote large checks to fund Musk’s Twitter buyout in exchange for equity stakes, including Sequoia Capital, Andreessen Horowitz, Oracle co-founder Larry Ellison, and cryptocurrency exchange Binance.

Banks like Morgan Stanley, Bank of America and Barclays are facing significant losses on the financing package they provide. Twitter, which made a loss of about $221 million in 2021, has to pay about $1 billion in annual interest on the loan.

Between Monday and Wednesday, Musk sold $3.6 billion to Tesla, the electric vehicle maker he founded and runs. It was his fourth sale of Tesla stock this year, bringing his total sales to nearly $40 billion.

The sales came despite Musk saying there would be “no further TSLA sales” to support the Twitter deal in April.

On Tuesday, Musk tweeted, “At the risk of becoming obvious, beware of debt in turbulent macroeconomic conditions, especially if the Fed continues to hike rates.”

The banks that underwrote the Twitter buyout debt are desperate to resell the risky loans to credit investors and take them off their balance sheets. But the significant rebates demanded by investors would result in losses that could easily exceed $1 billion, people familiar with the matter told the Financial Times.

Musk could not be reached for comment on Friday. Twitter did not respond to a request for comment.

Additional reporting by Hannah Murphy and Ortenca Aliaj