Myth of Money: The Bird Is Freed
Welcome to this week’s edition of Myth of Money, a weekly newsletter on the digital asset markets read by 12,000+ investors.
Disclaimer: The following is not intended as investment advice. Do your research.
“The bird is freed” tweeted Elon Musk on Thursday after he completed the $44 billion takeover of Twitter, according to an SEC filing. Another insightful tweet from Elon followed shortly after - “let the good times roll.”
This was of course follower by a twitter meme-storm.
The takeover comes after several months of legal negotiations between Musk and the Twitter board. Musk threatened to pull out of the deal, citing that Twitter wasn’t being completely honest about the number of spam accounts and that he and his co-investors were overpaying for the stock.
In private messages revealed in court filings, Musk discussed how the company’s CEO “Agrawal didn't understand how to fix the social media platform's problems.” The company’s CEO, CFO Ned Segal, and the firm's top legal and policy executive, Vijaya Gadde, were asked to resign alongside Agrawal.
Reacting to the change in ownership, the New York Stock Exchange suspended trading of Twitter stock.
A Deal 7 Months in the Making
In late March, Musk became one of the largest shareholders of Twitter and wanted to join the company board to affect change at the company. Musk and Twitter’s CEO Argawal, however, did not see eye to eye from the start. Musk texted another board member, “Fixing Twitter by chatting with Parag won't work" …"Drastic action is needed."
On April 14th, Elon announced he would be making a bid to buy Twitter and take the company private. He offered $44B in a take-it-or-leave-it offer, a proposal the company rebuffed, and even created a "poison pill" provision to prevent Musk from forcibly buying the company. On April 15, however, the company agreed to the deal post a shareholder vote.
After having his offer accepted, he repeatedly asked Twitter to provide data about how many real users it had.
Twitter executives maintained that fewer than 5% of daily active users, based on estimates from randomly sampled accounts, were bots. Musk argued that the number of bots was much greater and threatened to pull out of the deal on July 8th. The Twitter board argued that the company had a legally binding agreement with Musk and that canceling the deal was not an option.
With very expensive lawyers on both sides, a court date was set in Delaware for October 17th to decide whether Musk would be forced to buy the company. In court documents, the Twitter board argued it had given Musk ample information about how many real users it had. Musk argued Twitter user numbers were riddled with bots and even accused the company of fraud. Then suddenly, Musk had a change of heart and announced that the deal was back on.
Musk had until October 28th to come up with the money.
How Musk Funded The Acquisition
A large part of the funding was provided by Elon selling his Tesla shares. The rest came in a mix of equity and debt financing from outside investors.
Major banks including Bank of America, Barclays, BNP Paribas, Mizuho, Morgan Stanley, MUFG, and Société Générale have committed debt financing of approximately $13 Billion for the acquisition.
The loans are guaranteed by Twitter, which will assume the financial responsibility to pay them back.
On the equity front, the following investors made commitments:
Larry Ellison (Founder of Oracle) - $1B
Prince Alwaleed bin Talal of Saudi Arabia (transferred Musk nearly 35 million of Twitter already owned)
Sequoia Capital Fund - $800M
VyCapital - $700M
Binance - $500M
AH Capital Management - $400M
Aliya Capital Partners - $360M
Qatar Holding - $375M
Fidelity - $316M
Brookfield - $250M
Other equity investors include AM Management and Consulting, BAMCO, DFJ Growth IV Partners, Honeycomb Asset Management, Key Wealth Advisors, Lawrence J. Ellison Revocable Trust, Litani Ventures, Strauss Capital LLC, Tresser Blvd 402 LLC (Cartenna) and Witkoff Capital.
Notably, this is Binance’s second major media play, as they became a major financial backer in the attempted private takeover of Forbes Media.
Elon sold approximately $15.5bn worth of Tesla shares in two waves, in April and in August, to complete the acquisition.
The Way Forward For Twitter
Musk has emphasized that free speech will become the new focus of Twitter and that 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. Musk has not offered details on how he will achieve these goals or who will run the company going forward.
Previously, Musk has said that he would reverse Twitter's ban on Donald Trump, whose account was removed after the attack on the U.S. Capitol.
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.
Binance to Form Team for Twitter’s Blockchain Efforts
Crypto exchange Binance announced that it intends to create a team to work on crypto and blockchain solutions for Twitter. The development came hours after Binance’s founder and CEO, Changpeng “CZ” Zhao, confirmed that the company had backed Musk with $500 million, making the crypto exchange the fourth-biggest contributor to the takeover amid 19 other equity investors.
This Week By the Numbers 📈
Top Stories 🗞️
The International Criminal Police Organization (Interpol) is putting on its virtual reality headsets as it prepares to crack down on an expanding list of “possible crimes” in the metaverse. According to an Oct. 20 announcement, Interpol has launched the “first-ever Metaverse specifically designed for law enforcement worldwide” — introducing it at the 90th Interpol General Assembly in New Delhi — already fully operational. Interpol outlined that a key driver behind its jump into the metaverse is due to bad actors already leveraging the tech to conduct crimes, while public adoption rates are likely to significantly increase over the next few years.
The co-founder of Terraform Labs, Do Kwon, is rumoured to have left Singapore for Dubai – rumours that may have some validity, Bloomberg reported on Friday. On Thursday there were reports Kwon had left Singapore last month and landed in Dubai. According to Bloomberg, South Korean prosecutors have said that the report was "not false." The Terra ecosystem imploded in May, evaporating $60 billion in value, after which Kwon faced charges of violating capital markets laws in South Korea. Having departed his native country for Singapore, Kwon denied reports that he was on the run, despite Interpol issuing a "red notice" for his arrest. He claimed he had moved to Singapore before the collapse of the Terra ecosystem.
Adidas on Tuesday ended its partnership with Ye, formerly known as Kanye West, after the musician made a series of offensive and antisemitic comments. Hours later, Gap and then Foot Locker said they would immediately remove Yeezy products from its stores. "Foot Locker, Inc. does not tolerate any form of antisemitism, or hateful and discriminatory behavior. While we remain a partner with adidas and carry a wide assortment of their collections – we will not be supporting any future Yeezy product drops," a Foot Locker spokesperson said. Adidas' decision also cost Ye his billionaire status. Forbes estimates that without the Adidas deal, his net worth has dropped to $400 million, which comes from his music catalog, real estate and his 5% stake in ex-Kim Kardashian's shapewear company, Skims. Forbes valued his Adidas deal as adding $1.5 billion to his net worth. "In the end, Adidas' action sends a powerful message that antisemitism & bigotry have NO place in society," the ADL's statement said. Talent agency CAA confirmed it had dropped Ye as a client Monday, and he was let go by Balenciaga last week. Twitter and Instagram blocked him over antisemitic remarks. Conservative social media platform Parler then announced Ye had agreed to buy it.
US home prices could plunge 20% by next summer as a housing recession kicks in, a top economist says
The US housing market is in a recession, and home prices are poised to tumble another 20% by next summer, a top economist has warned. "The plunging trend in sales has further to go, and prices are falling," Ian Shepherdson, the chief economist of Pantheon Macroeconomics, said in a research note published on Wednesday. Shepherdson and his team estimated that seasonally adjusted existing-home prices slid by 0.7% in August, the third monthly decline in a row. Prices are now down about 5% from their May peak, and are poised to slide further despite a tight supply of homes, they said.
Lawmakers in the U.K. voted in favor of recognizing crypto assets as regulated financial instruments and products in the country on Tuesday. The House of Commons, the Parliament's lower house, met on Tuesday for a line-by-line reading of the proposed Financial Services and Markets Bill, which broadly covers the U.K.'s post-Brexit economic strategy. The lawmakers considered a list of proposed amendments to the bill, including one put forward by parliamentarian Andrew Griffith to include crypto assets in the scope of regulated financial services in the country. The draft bill already included measures to extend existing regulations to payments-focused stablecoins, which are cryptocurrencies pegged to the value of other assets like the U.S. dollar or gold. "The Treasury will consult on its approach with industry and stakeholders ahead of using the powers to ensure the framework reflects the unique benefits and risks posed by crypto activities," Griffith said. The rules have quite a way to go before they are passed into law, however. Next, the bill has to go through the House of Lords, the upper house of the Parliament, before the amendments are given a final consideration followed by royal approval by King Charles III.
Thank you for reading this week’s edition of the Myth of Money.🚀
Until next week,
By Tatiana Koffman
Hi there and thanks for reading. If you stumble upon my newsletter, you will notice that I write about money, economics, and technology. I hold a JD/MBA and spent my career in Capital Markets working across Mergers & Acquisitions, Derivatives, Venture Capital, and Cryptocurrencies. I believe in empowerment closing the financial education gap and creating equal opportunity for the next generation. I have invested in 20+ companies and funds. Check out my portfolio here.
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