How investment banks helped Elon Musk buy Twitter…

So Elon Musk recently bought Twitter for $44bn. In this video I cover the financing route that he decided to embark on in order to fund the acquisition of Twitter. Half of the financing was in cash and the other half in debt via the usage of loans offered by a consortium of investment banks. The two main banks involved were Morgan Stanley and Goldman Sachs. Thanks for passing by and I hope you learn something new from this topical video!

Yo what’s going on people all right so earlier last week last week yeah last week elon musk goes and buys twitter for 44 billion dollars and obviously elon musk’s net worth is over i think 200 billion dollars however much it is but that doesn’t necessarily mean that he bought twitter for 44 billion dollars with cash out of his own pocket important to understand

The intricacies of this deal which we’re going to talk about but the main bank that kind of led the transaction or the acquisition was morgan stanley american investment bank i’m sure all of you or most of you have heard of them goldman’s was involved as well as a few other banks now just as you and i might go to a bank to get a mortgage if we want to buy a house

Or we might take out a high interest loan if we want to finance a car for example elon decided to go to the investment bank morgan stanley as well as others in order to raise around half of the 44 billion dollars and we’ll talk about why in a second this video is kind of a different type of video it’s a bit more topical it’s a bit more focused on like current

Affairs and news let me know if you want me to do more videos like this on the channel if this isn’t your thing just skip this video and then watch a different video on the channel initially elon musk bought around nine percent of twitter and then he reached out to bankers at morgan stanley and then later on goldman sachs and kind of said to them or express some

Interest that he might be interested in taking over or buying twitter and obviously investment bankers at morgan stanley and goldman sachs the minute they hear someone like elon musk the world’s richest person interested in buying a technology behemoth that is twitter immediately they’re going to see dollar signs right they think this is going to be a huge deal

We can make a killing get lots of fees off of this you know this is a massive transaction so there’s a lot of money to be made and so obviously they’re not going to shy away from it one of the reasons that they might shy away from it though was that the way elon musk was approaching it was kind of like it had the vibe or the feel of it being a hostile takeover and

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Oftentimes so a hostile takeover for those of you that don’t know is when a company or an individual wants to take over a company where that company is not interested in being taken over and so it’s going to be a hostile takeover right not in the interest of the company being acquired and so some banks some companies don’t want to be involved in hostile takeoffers

Because it might be unethical it might disrupt existing relationships with other clients so for example if morgan stanley or goldman were involved in a hostile takeover of twitter that might you know impact negatively existing relationships between goldman and twitter’s board or other clients that might be related to twitter or other social or tech companies that

Are similar to twitter they might be like why are you guys helping this hostile takeover take place when it’s kind of against the interest of our company what have you so there’s lots of different reasons that you don’t want to be involved in a hostile takeover and so the investment banks had to be careful on how they went about going ahead with elon’s proposal

To take over twitter morgan stanley already had an existing relationship with elon musk they were probably serving him on the private banking side managing his wealth assets portfolio whatever it might be all right so there’s 12 banks involved in the loan they’re gonna give elon musk 12.5 billion dollars and the largest portion of that comes from morgan stanley

Now it’s uncommon for them to give such a huge loan or you know do a transaction of such size but this is elon musk’s richest person in the world and they’ve already had an existing relationship with him and i think the terms are probably in their favor obviously they’re gonna make big bucks from it these people are smart they know what they’re doing and so if

Anything elon musk is probably taking the most risk here if he defaults or if the whole thing goes bad he’s probably got a lot more to lose he’s put up a lot of tesla stock as collateral meaning if he can’t pay back the loan to morgan stanley and the other investment banks they get a shed load of tesla stock from him investment banks have different divisions right

If you’re working in the private bank you might have a relationship with a high net worth individual who might be an entrepreneur or the ceo or the founder of a very big company and so you might chat to them and be like yo you should get in touch with our investment banking division they can help you acquire this company or they can help you merge blah blah blah

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And so the different divisions of investment banks oftentimes might work together in order to generate revenues across the different divisions all right so important distinction he’s taking out two types of loans the first of which is around the 12.5 billion dollar margin loan so what that means is he’s taking out he’s getting 12 assault banks to compile together

12 or so billion dollars 2 billion from morgan sandy and then smaller sums from the other banks they’re putting that together and giving that to him however that’s backed by or that’s kind of collateralized by tesla stock so you know if he struggles to pay that back they get the tesla stock so that’s the collateral there and then he’s also financing 13 billion

Dollars in debt financing that’s also led by morgan stanley and that’s like a traditional loan where he needs to pay interest on it and then the remaining 21 billion or so is going to be paid through elon’s own personal cash and net worth a week or two ago he sold 8.5 billion dollars in tesla stock uh so he got that cash and that’s going towards that 21 billion

Dollars so in total it’s around 12 and a half billion dollars in the syndicated loan that’s collateralized by tesla stock it’s about 13 billion dollars in debt financing so that’s about 25 billion and then 21 or so billion dollars in cash so around 44 billion dollars in total one of the most interesting things about this deal was the fact that it was super quick it

Happened very fast oftentimes big acquisitions or mergers can take three months six months a year plus and so this one they moved quick because money talks right end of the day this was a 44 billion dollar deal it was elon musk there’s lots of future business to be won there and so everyone kind of wanted a piece of the pie lots of fees lots of earning potential to

Make on the back of this deal and so the investment banks kind of prioritized it and yeah it’s like front page news it’s a big deal it’s something if you work in the m a division it’s something you can shout about people kind of recognize you for it i’m guessing people got into investment banking to work on these types of deals front page news etc personally doesn’t

Really appeal to me it’s like okay cool you worked on this i’d rather be on i’d rather be elon musk right um but end of the day yeah interesting stuff if that’s kind of up your street more than anything is a good example of how relationships can span across the business spectrum or the divisional spectrum of an investment bank so you might have a relationship in the

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Private bank or in asset management and then you can put them in touch with the investment bankers and then make things happen but it does get heated don’t get me wrong people when there’s large sums of money involved lots of bonuses involved lots of you know potential promotions or whatever it might be involved people can backstab each other people want a bigger

Cut of the pie people get greedy and so often times if you recommend big business to someone you want to be paid back right if you aren’t paid back that’s going to lead to politics and all that stuff but when you enter the world of work you will see that for yourself so i won’t say much about that here also don’t forget elon musk isn’t just about twitter and tesla

This guy has spacex he’s got the boring company this guy is you know the founder of lots of big companies doing big things and so you would love to be an investment bank or an investment banker at the forefront of that relationship because essentially working on future deals with elon musk is going to make you rich wealthy is going to do a lot for your career and

So and also for an investment bank that works on these deals and so you know it’s a very lucrative or interesting position to be in that a lot of banks and bankers will want to be in and so that’s why they kind of morgan stanley for example are you not going all guns out offering him everything arm and a leg big loans that they haven’t done before because there’s

Big business to be made and there’s lots of money to be made from elon and his business ventures and if you’re a banker working on these deals you’re going to work your socks off as a junior but you know that’s why they get huge bonuses a lot of business a lot of money a lot of revenue to be made and that’s why you know junior bankers work super long hours because

These things don’t happen easily they take a lot of time hence they paid a huge bonus at the end of the year however they do get burnt out nine times out of ten if you enjoyed this let’s call it a topical video news video i don’t know different style of video on current affairs let me know in the comments down below leave a like and let me know if these videos are

Useful for you and i will see you in the next one peace

Transcribed from video
How investment banks helped Elon Musk buy Twitter… By Afzal Hussein