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Elon Musk’s Twitter Deal Is Different Than Most LBOs, Here’s How

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Elon Musk’s $21 Billion Twitter Cash Mystery
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What’s the easiest way to buy something? With other people’s money. That’s the key to almost all of the LBOs, or leveraged buyouts, that have dominated mergers and acquisitions for a generation. But while Elon Musk’s $44 billion planned takeover of Twitter is an LBO, it differs from most in several important respects. When you’re the world’s richest man and one who professes to not care about the economics of the deal, buying can be easier -- and certainly faster -- if you’re willing to put up what to virtually anyone else would be an awful lot of money. Here’s a look at the complicated transaction pulled together by the Tesla Inc. chief executive, and how it differs from normal LBOs.

LBOs are acquisitions where debt plays a crucial role. The basic idea is to buy a company through a combination of equity and new debt. But the key is that the acquirer, most commonly a private equity firm, doesn’t borrow the money -- the target company does. LBOs limit the downside for the buyer, because it is only wagering its equity investment: If things go wrong, the company goes bankrupt, not the buyer. LBOs also increase the buyer’s upside because they can acquire bigger companies than they otherwise would have been able to afford.