(Bloomberg) — Even for the world’s richest person, $43 billion is a steep price tag.
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Elon Musk’s cash offer to buy Twitter Inc. is about a sixth of his $250.6 billion fortune. Yet the vast majority of that wealth is tied to his stake in Tesla Inc., the electric car maker he co-founded that has grown in value over the past two years and lifted him to the top of the industry. Bloomberg Billionaires Index.
The purchase isn’t straightforward, but Musk has multiple avenues of funding. One option is to sell its Tesla shares outright. Another is to borrow against them to arrange a leveraged buyout, possibly with outside partners. Musk, 50, currently has around $3 billion in cash or other somewhat liquid assets after spending $2.6 billion to buy a 9.1% stake in Twitter in recent months, according to calculations by Bloomberg.
For Musk to raise the additional $36 billion needed to buy the rest of Twitter would require selling about 36.5 million Tesla shares, or more than a fifth of his stake. Such an exit could risk sending the company’s stock price plummeting, not to mention potentially raising questions about the commitment, financial and otherwise, of its CEO.
His other option is to borrow against his positions in Tesla and space exploration company SpaceX.
“It becomes a hostile takeover bid that is going to be very expensive,” said Neil Campling, head of TMT research at Mirabaud Equity Research. “He’ll have to sell a decent slice of Tesla stock to fund it, or a massive loan against it.”
But even for the world’s richest person, there are limits: The Bloomberg Index estimates he’s already borrowed about $20 billion against his stock, leaving about $35 billion he could theoretically borrow against. both have.
“Musk’s ‘best and final’ $43 billion non-binding offer has numerous conditions, including completion of financing, which we believe gives it a low probability of success,” Robert Schiffman wrote on Thursday. , senior credit analyst at Bloomberg Intelligence, in a report.
Twitter shares fell 1.7% on Thursday in New York, closing at $45.08. Musk offered $54.20 per share in cash. Tesla shares fell 3.7%.
Musk had 52% of his Tesla shares pledged as of June 30, according to the company’s latest proxy filing. The maximum that can be borrowed against pledged shares is 25% of their value, according to a Tesla policy.
Since then, Musk has increased his stock count by exercising options. His 172.6 million shares are worth $170 billion, meaning he could theoretically borrow $42.5 billion by pledging them all.
Musk said in December 2019 that he had also pledged some of his SpaceX stock. Its 47% stake in the company is worth around $47.5 billion, based on its October 2021 funding round. If there is a similar maximum loan-to-value ratio, it could raise an additional $12 billion. by fully committing its SpaceX position – although banks tend to be much more cautious in funding a private position, given the lack of liquidity.
Additionally, Musk has $54.1 billion worth of Tesla options he could borrow against.
Musk said at a TED event in Vancouver on Thursday that he could seek to retain up to 2,000 existing investors on Twitter, reducing the money he would need to take it private.
“The intention is to retain as many shareholders as the law allows,” he said, adding that he “could technically afford” the full purchase price.
After Saudi Prince Alwaleed bin Talal tweeted that the offer was not “close to the intrinsic value” of Twitter, Musk asked how many shares the billionaire held on Twitter and what the Kingdom’s view was on the freedom of expression for journalists.
Bank of America Corp., Goldman Sachs Group Inc. and Morgan Stanley were three of the banks that provided personal loans to Musk, according to a 2020 Tesla filing. He hired Morgan Stanley to advise on the Twitter offer, and his office family, Excession, is led by longtime adviser Jared Birchall, a former Morgan Stanley banker.
No matter how he goes about it, buying all of Twitter would be a radical overhaul of Musk’s empire. Its purchase of a 9.1% stake, first revealed last week, marked its first significant diversification outside of Tesla and SpaceX.
“I don’t play the back-and-forth game,” Musk said in Thursday’s filing. “I went straight to the point. It’s a high price and your shareholders will love it. If the deal doesn’t work out, since I don’t trust management and don’t believe I can drive the necessary change in the public market, I should reconsider my position as a shareholder.
Musk has showcased his dedication to both Tesla and SpaceX, frequently tweeting about their accomplishments and pretending to sleep on a Tesla factory floor to set an example for his employees. Meanwhile, since disclosing his stake in Twitter, he has appealed to other users about potential moves and, in one instance, suggested the website might be dying, given the lack of tweets from some celebrities.
In recent years, Musk has signaled that he’s been streamlining at least some aspects of his financial affairs. He sold several mansions in California after swearing “not to own a house” in 2020. He currently lives in Texas, where he moved Tesla’s headquarters last year.
(Adds comments from Musk, tweets from 14th paragraph. Updates stock prices throughout.)
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