BEIJING, China, Jan 13 (Reuters) – China has acquired minority stakes with special rights in two domestic units of tech giant Alibaba Group Holding Ltd (9988.HK), business registration records showed, as Beijing extends a campaign to strengthen control over online content.
Beijing has been taking ‘golden shares’ in private online media and content companies for more than five years, and in recent years expanding such arrangements to companies with vast troves of data.
The stakes taken over the last four months in the Alibaba units are the first ones to come to light for the e-commerce firm. Alibaba has been one of the most prominent targets of China’s two-year-long regulatory crackdown on tech giants.
These golden shares, typically equal to about 1% of a firm, are bought by government-backed funds or companies which gain board representation and/or veto rights for key business decisions.
Public business registration records showed that in September last year an investment vehicle of state-owned Zhejiang Media Group took a 1% stake in Alibaba’s Youku Film and Television unit, which is based in Shanghai.
Zhejiang Media Group has also appointed Jin Jun, the general manager of one of its subsidiaries, to the board of the Alibaba unit, the records showed.
[1/3] The logo of Alibaba Group is seen at its office in Beijing, China Jan. 5, 2021. REUTERS/Thomas Peter
Separate business registration records showed that in December WangTouSuiCheng (Beijing), an entity under the China Internet Investment Fund (CIIF) set up by the Cyberspace Administration of China (CAC), acquired a 1% stake in Alibaba unit Guangzhou Lujiao, whose main focus is “research and experimentation”.
The Financial Times, which first reported the WangTouSuiCheng investment on Friday, said the goal of the investment is for Beijing to tighten control over content at the e-commerce giant’s streaming video unit Youku and web browser UCWeb.
Alibaba didn’t respond to a request to comment.
The FT also reported, citing unidentified sources, that discussions was under way for the government to take golden shares in gaming giant Tencent Holdings (0700.HK) which would involve a stake in one of the group’s main subsidiaries. Tencent declined to comment.
Other firms that have such golden share arrangements include Full Truck Alliance Co (YMM.N), as well as mainland subsidiaries of TikTok owner ByteDance, Kuaishou Technology (1024.HK) and Weibo , Reuters previously reported.
Having such golden shares can be helpful to firms when they try to secure licences to disseminate online news and to show online visual and audio programmes, sources have told Reuters.
Reporting by Yingzhi Yang, Brenda Goh and Josh Horwitz; Additional reporting by Rishabh Jaiswal and Mrinmay Dey; Editing by Uttaresh.V, Rashmi Aich and Kenneth Maxwell
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Dec 20 (Reuters) – Microsoft Corp (MSFT.O) was hit on Tuesday in U.S. court with a private consumer lawsuit claiming the technology company’s $69 billion bid to purchase “Call of Duty” maker Activision Blizzard Inc (ATVI.O) will unlawfully squelch competition in the video game industry.
The complaint filed in federal court in California comes about two weeks after the U.S. Federal Trade Commission filed a case with an administrative law judge seeking to stop Microsoft, owner of the Xbox console, from completing the largest-ever acquisition in the video-gaming market.
The private lawsuit also seeks an order blocking Microsoft from acquiring Activision. It was filed on behalf of 10 video game players in California, New Mexico and New Jersey.
The proposed acquisition would give Microsoft “far-outsized market power in the video game industry,” the complaint alleged, “with the ability to foreclose rivals, limit output, reduce consumer choice, raise prices, and further inhibit competition.”
Microsoft logo is seen on a smartphone placed on displayed Activision Blizzard logo in this illustration taken January 18, 2022. REUTERS/Dado Ruvic/Illustration
A Microsoft representative on Tuesday defended the deal, saying in a statement that it “will expand competition and create more opportunities for gamers and game developers.” After the FTC sued, Microsoft President Brad Smith said, “We have complete confidence in our case and welcome the opportunity to present our case in court.”
In a statement, plaintiffs’ attorney Joseph Saveri in San Francisco said, “As the video game industry continues to grow and evolve, it’s critical that we protect the market from monopolistic mergers that will harm consumers in the long run.”
Private plaintiffs can pursue antitrust claims in U.S. court, even while a related U.S. agency case is pending. The takeover, announced in January, also faces antitrust scrutiny in the European Union.
The FTC previously said it sued to stop “Microsoft from gaining control over a leading independent game studio.” The agency said the merger would harm competition among rival gaming platforms from Nintendo Co Ltd (7974.T) and Sony Group Corp (6758.T).
Reporting by Mike Scarcella; editing by Leigh Jones, Cynthia Osterman and Jonathan Oatis
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SAN JOSE, Calif./ WASHINGTON, Dec 8 (Reuters) – The Biden administration on Thursday accused Meta Platforms Inc (META.O) of trying to buy its way to dominance in the metaverse, kicking off a high-profile trial to try to prevent the Facebook parent from buying virtual reality app developer Within Inc.
The FTC sued in July to stop the deal, saying Meta’s acquisition of Within would “tend to create a monopoly” in the market for virtual reality (VR) fitness apps. It has asked the judge to order a preliminary injunction that would halt the proposed transaction.
In an opening statement, FTC lawyer Abby Dennis said the Within acquisition was part of Meta’s bid to acquire new and more diverse virtual reality users, including customers of Within’s popular subscription-based virtual reality workout app Supernatural.
That would complement Meta’s existing virtual reality users, who tend to skew young and male, and be more focused on gaming, Dennis added.
“Meta could have chosen to use all its vast resources and capabilities to build its own dedicated VR fitness app, and it was planning on doing that before it acquired Within,” Dennis said, pointing to a plan from early 2021.
The plan, Operation Twinkie, involved expanding a rhythm game app called Beat Saber that the company acquired in 2019 into the fitness space via a proposed partnership with digital fitness company Peloton (PTON.O), Dennis said.
She cited an email from Chief Executive Mark Zuckerberg saying he was “bullish” on fitness and calling the proposed partnership with Peloton “awesome.”
Lawyers for Meta and Within argued that the FTC did a poor job of defining the relevant market and said the companies compete with a range of fitness content, not just VR-dedicated fitness apps.
Meta’s lawyers also disputed that plans for a Meta-owned VR fitness app had proceeded beyond low-level “brainstorming” and argued that the FTC underestimated the competition in the market it had defined, citing the potential for fellow tech giants Apple Inc (AAPL.O), Alphabet Inc’s (GOOGL.O) Google and Bytedance to join the fray.
Rade Stojsavljevic, who manages Meta’s in-house VR app developer studios, testified that he had proposed the tie-up between Beat Saber and Peloton but did not develop a formal plan and never discussed the idea with either party.
Internal documents from early 2021 that were displayed in court showed Stojsavljevic proposing acquisitions of VR developers before they could be “cannibalized” by competitors and discussing pressure from Zuckerberg to “get aggressive” in response to reports of a prospective Apple headset.
The trial, scheduled through Dec. 20, will serve as a test of the FTC’s bid to head off what it sees as a repeat of the company acquiring small upcoming would-be rivals and effectively buying its way to dominance, this time in the nascent virtual and augmented reality markets.
The FTC is separately trying to force Meta to unwind two previous acquisitions, Instagram and WhatsApp, in a lawsuit filed in 2020. Both were in relatively new markets at the time the companies were purchased.
PRESSURE TO PRODUCE HIT APPS
A government victory could crimp Meta’s ability to maneuver in an area of emerging technology – virtual and augmented reality – that Zuckerberg has identified as the “next generation of computing.”
If blocked from making acquisitions in the space, Meta would face greater pressure to produce its own hit apps and would give up the gains – in terms of revenue, talent, data and control – associated with bringing innovative developers in-house.
Within developed Supernatural, which it advertises as a “complete fitness service” with “expert coaches,” “beautiful destinations” and “workouts choreographed to the best music available.”
It is available only on Meta’s Quest devices, which are headsets offering immersive digital visuals and audio that market research firm IDC estimates capture 90% of global shipments in the virtual reality hardware market.
The majority of the more than 400 apps available in the Quest app store are produced by external developers. Meta owns the most popular virtual reality app in the Quest app store, Beat Saber, the app it was considering expanding with the Peloton partnership.
The social media company agreed to buy Within in October 2021, a day after changing its name from Facebook to Meta, signalling its ambition to build an immersive virtual environment known as the metaverse.
Zuckerberg will be a witness in the trial. Other potential witnesses are Within CEO Chris Milk and Meta Chief Technology Officer Andrew Bosworth, who runs the company’s metaverse-oriented Reality Labs unit.
The trial is at the U.S. District Court for the Northern District of California.
Reporting by Diane Bartz in Washington and Katie Paul in San Jose, Calif.; Editing by Alexandra Alper, Matthew Lewis and Cynthia Osterman
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Diane Bartz
Thomson Reuters
Focused on U.S. antitrust as well as corporate regulation and legislation, with experience involving covering war in Bosnia, elections in Mexico and Nicaragua, as well as stories from Brazil, Chile, Cuba, El Salvador, Nigeria and Peru.
Musk says the “bird is freed” after $44 billion deal
Musk fires Twitter CEO, CFO, policy chief
Some Twitter users flag willingness to walk away
Poll shows employee job concerns
EU warns: “This bird will fly by our rules”
Oct 28 (Reuters) – Elon Musk has taken ownership of Twitter Inc (TWTR.N) with brutal efficiency, firing top executives but providing little clarity over how he will achieve the ambitions he has outlined for the influential social media platform.
“The bird is freed,” he tweeted after he completed his $44 billion acquisition on Thursday, referencing Twitter’s bird logo in an apparent nod to his desire to see the company have fewer limits on content that can be posted.
The CEO of electric car maker Tesla Inc (TSLA.O) and self-described free speech absolutist has, however, also said he wants to prevent the platform from becoming an echo chamber for hate and division.
Other goals include wanting to “defeat” spam bots on Twitter and make the algorithms that determine how content is presented to its users publicly available.
Yet Musk has not offered details on how he will achieve all this and who will run the company. He has said he plans to cut jobs, leaving Twitter’s 7,500 employees fretting about their future. He also said on Thursday he did not buy Twitter to make more money but “to try to help humanity, whom I love.”
In a running poll on messaging app Blind about whether Twitter employees will be employed in the company in three months, less that 10% voted “yes.” Of the 266 participants, 38% said “No” and over 55% chose the “popcorn” option. Blind allows anonymous messaging by employees to air their grievances where people can sign up with their corporate emails.
Musk fired Twitter Chief Executive Parag Agrawal, Chief Financial Officer Ned Segal and legal affairs and policy chief Vijaya Gadde, according to people familiar with the matter. He had accused them of misleading him and Twitter investors over the number of fake accounts on the platform.
Agrawal and Segal were in Twitter’s San Francisco headquarters when the deal closed and were escorted out, the sources added.
Musk, who also runs rocket company SpaceX, plans to become Twitter’s CEO after completing the acquisition and also plans to scrap permanent bans on users, Bloomberg reported, citing a person familiar with the matter.
Twitter, Musk and the executives did not immediately respond to requests for comment.
‘CHIEF TWIT’
Before closing the deal, Musk walked into Twitter’s headquarters on Wednesday with a big grin and a porcelain sink, subsequently tweeting “let that sink in.” He changed his Twitter profile description to “Chief Twit.”
He also tried to calm employee fears that major layoffs are coming and assured advertisers that his past criticism of Twitter’s content moderation rules would not harm its appeal.
“Twitter obviously cannot become a free-for-all hellscape, where anything can be said with no consequences!” Musk said in an open letter to advertisers on Thursday.
As news of the deal spread, some Twitter users were quick to flag their willingness to walk away.
“I will be happy to leave in a heartbeat if Musk, well, acts as we all expect him to,” said a user with the @mustlovedogsxo account.
European regulators also reiterated past warnings that, under Musk’s leadership, Twitter must still abide by the region’s Digital Services Act, which levies hefty fines on companies if they do not control illegal content.
[1/2] Twitter logo and a photo of Elon Musk are displayed through magnifier in this illustration taken October 27, 2022. REUTERS/Dado Ruvic/Illustration
“In Europe, the bird will fly by our EU rules,” EU industry chief Thierry Breton twitted on Friday morning, posting in a self-reply a short video of Breton and Musk after their meeting last May.
In an indication of the challenges ahead, Bollywood actress Kangana Ranaut, who was banned from Twitter last year for violating its rules on hateful and abusive conduct, applauded Musk’s takeover on Instagram and shared requests from fans to have her account restored.
Musk also said in May he would reverse the ban on Donald Trump, who was removed after the attack on the U.S. Capitol. The former U.S. president has said he won’t return to the platform and has instead launched his own social media app, Truth Social.
A representative for Trump did not immediately respond to a Reuters request for comment.
Musk has indicated he sees Twitter as a foundation for creating a “super app” that offers everything from money transfers to shopping and ride-hailing.
But Twitter is struggling to engage its most active users who are vital to the business. These “heavy tweeters” account for less than 10% of monthly overall users but generate 90% of all tweets and half of global revenue.
A SAGA
The deal’s road to fruition was full of twists and turns that sowed doubt over whether it would happen at all. It began on April 4, when Musk disclosed a 9.2% Twitter stake, becoming the company’s largest shareholder.
The world’s richest person then agreed to join Twitter’s board, only to balk at the last minute and offer to buy the company instead for $54.20 per share, an offer that Twitter thought might be another of Musk’s cannabis jokes.
Musk’s offer was real, and over the course of just one weekend later in April, the two sides reached a deal at the suggested price. This happened without Musk carrying out any due diligence on the company’s confidential information.
In the weeks that followed, Musk had second thoughts. He complained publicly about Twitter’s spam accounts and his lawyers then accused Twitter of not complying with his requests for information on the subject.
The acrimony resulted in Musk telling Twitter on July 8 he was terminating the deal. Four days later, Twitter sued Musk to force him to complete the acquisition.
By then, the stock market had plunged on concerns about a potential recession. Twitter accused Musk of buyer’s remorse, arguing he wanted out of the deal because he thought he overpaid.
Most legal analysts said Twitter had the strongest arguments and would likely prevail in court.
On Oct. 4, just as Musk was set to be deposed by Twitter’s lawyers, he performed another U-turn, offering to complete the deal as promised. He managed to do that, just one day ahead of a deadline given by a judge to avoid going to trial.
Twitter shares ended trade on Thursday up 0.3% at $53.86, just under the agreed price. The stock will be delisted from the New York Stock Exchange on Friday.
Reuters Graphics Reuters Graphics
Reporting by Sheila Dang and Greg Roumeliotis in New York; Additional reporting by Tanvi Mehta in New Delhi and Miyoung Kim in Singapore; Editing by Nick Zieminski, Edwina Gibbs and Matt Scuffham
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NEW YORK, Oct 21 (Reuters) – The banks providing $13 billion in financing for Tesla CEO Elon Musk’s acquisition of Twitter Inc (TWTR.N) have abandoned plans to sell the debt to investors because of uncertainty around the social media company’s fortunes and losses, people familiar with the matter said.
The banks are not planning to syndicate the debt as is typical with such acquisitions, and are instead planning to keep it on their balance sheets until there is more investor appetite, the sources said.
The banks, which include Morgan Stanley , Bank of America , and Barclays Plc (BARC.L), declined to comment. Representatives for Musk and Twitter did not immediately respond to requests for comment.
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Musk agreed to pay $44 billion for Twitter in April, before the Federal Reserve started raising interest rates in a bid to fight inflation. This made the acquisition financing look too cheap in the eyes of credit investors, so the banks would have to take a financial hit totaling hundreds of millions of dollars to get it off their books.
Also preventing the banks from marketing the debt was uncertainty around the deal’s completion. Musk has tried to get out of the deal, arguing Twitter misled him over the number of spam accounts on the platform, and only agreed to comply with a Delaware court judge’s Oct. 28 deadline to close the transaction earlier this month. He has not revealed details on Twitter’s new leadership and business plan, and many debt investors are holding back until they get more details on that front, the sources said.
The debt package for the Twitter deal is comprised of junk-rated loans, which are risky because of the amount of debt the company is taking on, as well as secured and unsecured bonds.
Rising interest rates and broader market volatility has pushed investors to stay away from some junk-rated debt. For example, Wall Street banks led by Bank of America suffered a $700 million loss in September on the sale of about $4.55 billion in debt backing the leveraged buyout of business software company Citrix Systems Inc.
In September, a group of banks canceled efforts to sell about $4 billion of debt that financed Apollo Global Management Inc’s deal to buy telecom and broadband assets from Lumen Technologies after failing to find buyers.
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Reporting by Anirban Sen and Shankar Ramakrishnan in New York; Additional reporting by Sheila Dang, Abigail Summerville and Matt Tracy; Editing by Josie Kao
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WILMINGTON, Del., Oct 13 (Reuters) – Elon Musk is being investigated by federal authorities over his conduct in his $44 billion takeover deal for Twitter Inc (TWTR.N), the social media company said in a court filing released on Thursday.
While the filing said he was under investigations, it did not say what the exact focus of the probes were and which federal authorities are conducting them.
Twitter, which sued Musk in July to force him to close the deal, said attorneys for the Tesla Inc (TSLA.O) CEO had claimed “investigative privilege” when refusing to hand over documents it had sought.
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In late September, Musk’s attorneys had provided a “privilege log” identifying documents to be withheld, Twitter said. The log referenced drafts of a May 13 email to the U.S. Securities and Exchange Commission (SEC) and a slide presentation to the Federal Trade Commission (FTC).
The court filing, which asked a Delaware judge to order the Musk’s attorneys to provide the documents, was made on Oct. 6 – the same day that the judge that paused litigation between the two sides after Musk reversed course and said he would proceed with the deal.
“This game of ‘hide the ball’ must end,” the company said in the court filing.
Alex Spiro, an attorney for Musk, told Reuters that Twitter’s court filing was a “misdirection.” Twitter declined to comment on Spiro’s response and to Reuters queries about its understanding of any investigation into Musk.
The SEC did not immediately respond to request for comment and the FTC declined to comment.
The SEC has questioned Musk’s comments about the Twitter acquisition. In April, the SEC asked Musk whether the disclosure of his 9% Twitter stake was late and why it indicated that he intended to be a passive shareholder. Musk later refiled the disclosure to indicate he was an active investor.
In June, the SEC asked Musk in a letter whether he should have amended his public filing to reflect his intention to suspend or abandon the deal.
The Information, a tech news site, reported in April that the FTC was scrutinizing whether Musk failed to comply with an antitrust reporting requirement as he amassed his stake in Twitter.
Twitter said in June that the takeover deal with Musk had cleared an antitrust waiting period for review by the FTC and U.S. Justice Department. read more
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Reporting by Tom Hals in Wilmington, Delaware, Sheila Dang in Dallas and Hyunjoo Jin in San Francisco; Editing by Chris Reese and Edwina Gibbs
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Thomson Reuters
Award-winning reporter with more than two decades of experience in international news, focusing on high-stakes legal battles over everything from government policy to corporate dealmaking.
Oct 13 (Reuters) – U.S. grocery company Kroger Co (KR.N) is in talks to merge with smaller rival Albertsons Companies Inc (ACI.N) in a tie-up that would create a supermarket titan, people familiar with the matter said.
The merger of the nation’s No. 1 and 2 standalone grocers, if reached, could provide the retailers with a leg up in negotiations with consumer-product makers such as Procter & Gamble (PG.N) and Unilever (ULVR.L) at a time of steep price hikes.
A deal could be announced as soon as this week if the talks do not fall apart, said the sources, who requested anonymity as the discussions are confidential.
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Major consumer products companies across the world have announced plans to boost prices at a faster pace as they seek to curb the impact of soaring raw materials costs on their margins.
Some critics noted that a supermarket merger would lessen competition among U.S. grocery chains and potentially lead to higher prices for American shoppers. A deal would create a combined company with a market valuation of about $47 billion, representing one of the biggest mergers in recent years in the retail space.
Neither Kroger nor Albertsons immediately responded to requests for comment. The news was first reported by Bloomberg.
Consultant Burt Flickinger, who holds shares of both Kroger and Albertsons, said a merger would give the two supermarket operators more buying power, making it easier for them to compete with Walmart Inc (WMT.N).
Groceries constitute roughly 55% of Walmart’s annual sales. Walmart traditionally has used its clout to demand the lowest possible prices from packaged-food and beverage companies, leaving rivals at a disadvantage in their own negotiations with suppliers.
Roughly 25% of all dollars spent on groceries in the United States are spent at Walmart, according to data provided by Euromonitor. Kroger and Albertsons have roughly 8% and 5% of the U.S. grocery market, respectively, according to Euromonitor.
COMPETING POWER
The specter of Amazon may have contributed to the merger talks as well. Michael Pachter, an analyst at Wedbush Securities, estimated the online retailer has taken about $4 billion in market share from Kroger and Albertsons in the past two years — small relative to an $800 billion grocery market but a threat nonetheless. “Amazon scares the bejeezus out of the conventional retailers,” he said.
The Seattle-based technology company is betting that the cashierless and contactless payment systems it is adding to stores, including at its subsidiary Whole Foods Market, will win it customers in the long run.
Shares of Albertsons were up 11% on Thursday afternoon, while Kroger’s stock slipped 1.4%. Shares of British online supermarket and technology group Ocado Group Plc (OCDO.L) were up over 10% in late London trade. Kroger is Ocado’s biggest client.
Kroger houses supermarket chains such as Fred Meyer, Ralphs and King Soopers. Boise, Idaho-based Albertsons includes the Safeway banner.
The razor-thin margins of standalone U.S. supermarket chains have been squeezed from soaring costs and supply-chain disruptions after a boom at the height of the pandemic.
Sarah Miller, executive director of the American Economic Liberties Project, an anti-monopoly nonprofit, said the deal would “squeeze consumers already struggling to afford food.”
“This merger is a cut and dried case of monopoly power, and enforcers should block it,” Miller said.
A deal could be reached as soon as this week, Bloomberg reported, adding that no final decision has been taken and talks could still be delayed or falter.
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Reporting by Anirban Sen and Abigail Summerville in New York; Additional reporting by Siddarth Cavale, Jessica DiNapoli and Arriana McLymore in New York, Jeffrey Dastin in San Francisco and Aishwarya Venugopal in Bengaluru; Editing by Sriraj Kalluvila, Matthew Lewis and Nick Zieminski
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NEW YORK, Oct 10 (Reuters) – The blank-check acquisition firm that agreed to merge with former U.S. President Donald Trump’s social media company postponed on Monday its shareholder vote to Nov. 3 after failing to garner enough support to win a 12-month extension.
At least 65% of the shareholders of Digital World Acquisition Corp (DWAC.O) needed to agree to the extension. The special purpose acquisition company (SPAC) opted to push back the deadline to try to find more votes.
Digital World, which had already pushed back the deadline for its shareholders to vote on the 12-month extension several times over the past month, fell short of that threshold on Monday.
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At stake is an over $1 billion private investment in public equity (PIPE) financing that Trump Media & Technology Group (TMTG) stands to receive from Digital World, which inked a go-public deal with the social media company in October 2021.
Digital World last month said it had received termination notices from PIPE investors who were pulling out about $139 million of the total financing commitment.
The transaction with TMTG has been on hold amid civil and criminal investigations into the circumstances around the deal. Digital World has not yet received approval from the U.S. Securities and Exchange Commission (SEC), which is reviewing its disclosures on the deal.
Digital World is set to liquidate on Dec. 8, after managing to extend its life by three months in September.
Reuters reported last month that executives behind Digital World had failed to pay Saratoga Proxy Consulting, their proxy solicitors, for its work rallying shareholders for the vote.
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Reporting by Echo Wang in New York, additional reporting by Svea Herbst-Bayliss; Editing by Will Dunham
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WILMINGTON, Del., Oct 5 (Reuters) – Elon Musk and Twitter Inc (TWTR.N) may reach an agreement to end their litigation in coming days, clearing the way for the world’s richest person to close his $44 billion deal for the social media firm, a source familiar with the matter told Reuters.
Musk, who is also chief executive officer of electric car maker Tesla Inc (TSLA.O), proposed to Twitter late on Monday he would change course and abide by his April agreement to buy the company for $54.20 per share, if Twitter dropped its litigation against him.
The two sides had been expected to reach a deal as early as Wednesday, but negotiations are continuing with a resolution expected to take more time, the source said.
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Twitter’s legal team, however, has yet to accept the agreement and Chancellor Kathaleen McCormick, the judge on Delaware’s Court of Chancery, said she was preparing for the looming trial.
“The parties have not filed a stipulation to stay this action, nor has any party moved for a stay. I, therefore, continue to press on toward our trial set to begin on Oct. 17, 2022,” McCormick wrote in a Wednesday court filing.
Musk’s proposal on Monday included a condition that the deal closing was pending the receipt of debt financing. The potential agreement would likely remove that condition, said the source, who requested anonymity as the discussions are confidential.
Twitter’s legal team and lawyers for Musk updated the judge on Tuesday with their attempts to overcome mutual distrust and find a process for closing the deal.
Two firms that were interested in partly financing the deal, Apollo Global Management Inc (APO.N) and Sixth Street Partners, had ended talks to provide up to a combined $1 billion, two sources told Reuters.
An attorney representing a proposed class action against Musk on behalf of Twitter shareholders said in a letter to McCormick that Musk should be required to make a “substantial deposit” in case he again reneges on his commitment to close. He should also be liable for interest delaying the closing of the deal, said the letter from attorney Michael Hanrahan.
It is not clear what led the Musk legal team to offer to settle, but Musk is scheduled to be deposed on Thursday in Austin, Texas. Questioning is expected to be tough, which provides Twitter leverage in talks to close the deal.
Shares of Twitter closed 1.3% lower at $51.30 on Wednesday. The stock on Tuesday hit its highest level since Musk and Twitter agreed in April that he would buy the company for $54.20 per share.
A DISTRACTION
Tesla stock ended down 3.5% on Wednesday as investors worry that Musk may have to sell more shares in the electric carmaker to fund the Twitter deal and that Twitter could be a distraction for the entrepreneur.
Musk sold $15.4 billion worth of Tesla stock this year, but analysts said he may have to raise an additional $2 billion to $3 billion provided that the rest of his financing remains unchanged.
Musk said in July he was walking away from the takeover agreement because he discovered Twitter had allegedly misled him about the amount of fake accounts, among other claims.
Part of Musk’s case was based on allegations by Twitter whistleblower Peiter “Mudge” Zatko that became public in August, and Musk’s legal team on Wednesday rejected the idea that they had inappropriate talks with Zatko or spoken with him before his concerns became public.
Twitter’s, legal team has wanted to investigate if Alex Spiro, a lawyer from legal firm Quinn Emanuel, who has led the case for Musk, communicated with the whistleblower as early as May.
Twitter lawyers were suspicious that Zatko sent an anonymous May 6 email to Spiro. The sender claimed to be a former Twitter employee, offered information about the company and suggested communicating by alternate means.
Spiro said in a filing with the court on Wednesday he never read the email until Twitter brought it to his attention and it appeared to be someone seeking a job. Spiro also said he was unaware of the existence of Zatko’s allegations before they became public on Aug. 23.
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Reporting by Tom Hals in Wilmington, Del., and Anirban Sen in New York; Additional reporting by Hyunjoo Jin in San Fransico
Editing by Nick Zieminski, Matthew Lewis and Sam Holmes
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Thomson Reuters
Award-winning reporter with more than two decades of experience in international news, focusing on high-stakes legal battles over everything from government policy to corporate dealmaking.
Oct 5 (Reuters) – Elon Musk’s U-turn on buying Twitter Inc (TWTR.N) could not have come at a worse time for the banks funding a large portion of the $44 billion deal and they could be facing significant losses.
As in any large acquisition, banks would look to sell the debt to get it off their books. But investors have lost their appetite for riskier debt such as leveraged loans, spooked by rapid interest rate hikes around the world, fears of recession and market volatility driven by Russia’s invasion of Ukraine.
While Musk will provide much of $44 billion by selling down his stake in electric vehicle maker Tesla Inc (TSLA.O) and by leaning on equity financing from large investors, major banks have committed to provide $12.5 billion.
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They include Morgan Stanley , Bank of America Corp and Barclays Plc (BARC.L).
Mitsubishi UFJ Financial Group Inc (8306.T), BNP Paribas SA (BNPP.PA), Mizuho Financial Group Inc (8411.T) and Societe Generale SA are also part of the syndicate.
Noting other recent high-profile losses for banks in leveraged financing, more than 10 bankers and industry analysts told Reuters the outlook was poor for the banks trying to sell the debt.
The Twitter debt package is comprised of $6.5 billion in leveraged loans, $3 billion in secured bonds, and another $3 billion in unsecured bonds.
Twitter logo and stock graph are seen through a magnifier displayed in this illustration taken September 4, 2022. REUTERS/Dado Ruvic/Illustration
“From the banks’ perspective, this is less than ideal,” said Wedbush Securities analyst Dan Ives. “The banks have their backs to the wall – they have no choice but to finance the deal.”
Leveraged financing sources have also previously told Reuters that potential losses for Wall Street banks involved in the Twitter debt in such a market could run to hundreds of millions of dollars.
Societe Generale did not respond to a request for comment while the other banks declined to comment. Twitter also declined to comment. Musk did not immediately respond to a request for comment.
Just last week, a group of lenders had to cancel efforts to sell $3.9 billion of debt that financed Apollo Global Management Inc’s (APO.N) deal to buy telecom and broadband assets from Lumen Technologies Inc .
That came on the heels of a group of banks having to take a $700 million loss on the sale of about $4.55 billion in debt backing the leveraged buyout of business software company Citrix Systems Inc.
“The banks are on the hook for Twitter — they took a big loss on the Citrix deal a few weeks ago and they’re facing an even bigger headache with this deal,” said Chris Pultz, portfolio manager for merger arbitrage at Kellner Capital.
Banks have been forced to pull back from leveraged financing in the wake of Citrix and other deals weighing on their balance sheet and that is unlikely to change anytime soon.
The second quarter also saw U.S. banks start to take a hit on their leveraged loans’ exposure as the outlook for dealmaking turned sour. Banks will begin reporting third-quarter earnings next week.
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Reporting by Anirban Sen, additional reporting by Megan Davies, Lananh Nguyen, Sheila Dang and Hyunjoo Jin; Writing by Paritosh Bansal; Editing by Edwina Gibbs
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