Why Elon Musk’s pursuit of Twitter might fail

Time journal named Musk its Person of the Year in 2021

Even for the world’s richest particular person, US$43-billion is a steep worth.

Elon Musk’s proposed all-cash provide to purchase Twitter represents about one-sixth of his US$259.3-billion fortune. Yet the overwhelming majority of that wealth is tied to his stake in Tesla, the electrical automotive maker he co-founded that has surged in worth over the previous two years and lifted him to the highest of the Bloomberg Billionaires Index.

The buy isn’t easy, however Musk has a number of financing paths. One possibility is to promote his Tesla shares outright. Another is borrowing in opposition to them to stage a leveraged buyout, presumably with outdoors companions. Musk, 50, at the moment has about $3-billion in money or different considerably liquid property after spending $2.6-billion shopping for a 9.1% stake in Twitter in current months.

For Musk to boost the extra $36-billion in money wanted to purchase the remainder of Twitter would require promoting about 36.5 million Tesla shares, or greater than a fifth of his stake. Such an exit might threat a slide within the firm’s share worth — to not point out doubtlessly elevate questions concerning the dedication, monetary and in any other case, of its CEO.

His different possibility is to borrow in opposition to his positions in Tesla and house exploration firm SpaceX.

“This becomes a hostile takeover offer which is going to cost a serious amount of cash,” mentioned Neil Campling, head of TMT analysis at Mirabaud Equity Research. “He will have to sell a decent piece of Tesla stock to fund it, or a massive loan against it.”

But even for the wealthiest particular person on the planet, there are limits: the Bloomberg index estimates that he’s already borrowed about $20-billion in opposition to his shares, leaving about $35-billion remaining that he might theoretically take out in opposition to the 2 holdings.

‘Low probability of success’

“Musk’s ‘best and final’ $43-billion non-binding offer has numerous conditions, including completion of financing, which we believe give it a low probability of success,” Robert Schiffman, a Bloomberg Intelligence senior credit score analyst, wrote on Thursday in a report.

Twitter shares fell 0.4% to $45.68 at 11.59am in New York. Musk provided $54.20/share in money.

Musk had 52% of his Tesla shares pledged as of 30 June, in accordance with the corporate’s most up-to-date proxy submitting. The most that may be borrowed in opposition to pledged shares is 25% of their worth, in accordance with a Tesla coverage.

Since then, Musk has elevated his share rely by exercising choices. His 172.6 million shares are value $172-billion, which means he might borrow $43-billion by pledging all of them.

Musk mentioned in December 2019 that he had additionally pledged a few of his SpaceX shares. His 47% stake within the firm is value about $47.5-billion, based mostly on its February 2021 funding spherical. If there’s the same most loan-to-value ratio, he might elevate one other $12-billion by totally pledging his SpaceX place — though banks are usually way more cautious funding a privately held place, given the dearth of liquidity.

Also, Musk has Tesla choices value $56-billion that he would possibly have the ability to borrow in opposition to.

Bank of America, Goldman Sachs and Morgan Stanley have been three of the banks that offered Musk private loans, in accordance with a 2020 Tesla submitting. He has employed Morgan Stanley to advise on the Twitter bid, and his household workplace, Excession, is run by longtime adviser Jared Birchall, a former Morgan Stanley banker.

No matter how he goes about it, shopping for all of Twitter can be a stark shake-up of Musk’s empire. His buy of a 9.1% stake, first disclosed final week, marked his first vital diversification outdoors of Tesla and SpaceX.

“I am not playing the back-and-forth game,” Musk mentioned in Thursday’s submitting. “I have moved straight to the end. It’s a high price and your shareholders will love it. If the deal doesn’t work, given that I don’t have confidence in management nor do I believe I can drive the necessary change in the public market, I would need to reconsider my position as a shareholder.”

Musk has performed up his devotion to each Tesla and SpaceX, continuously tweeting about their achievements and claiming to sleep on the ground of a Tesla manufacturing unit to set an instance to his staff. Meanwhile, since disclosing his stake in Twitter, he has appealed to fellow customers about potential strikes and in a single case advised the web site is perhaps dying, given the dearth of tweets from some celebrities.

In current years, Musk has indicated he’s streamlining at the very least some facets of his monetary affairs. He’s offered a number of mansions in California after vowing to “own no home” in 2020. He at the moment lives in Texas, the place he relocated the headquarters of Tesla final yr.  — Devon Pendleton and Tom Maloney, (c) 2022 Bloomberg LP

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