New York Elon Musk wants to take over the short message service Twitter. Officially, he has lofty goals, there is no way “to make money.“. Musk said this on Thursday. “My strong intuitive feeling tells me that a public platform that enjoys maximum trust and includes a broad public is extremely important.“ It is about the future of civilization, the economic aspects are completely irrelevant.
The publicly postulated intentions of the billionaire can be believed or not – the fact is that the cost-heavy takeover will not be manageable without the consideration of “economic aspects”. After all, it’s about $ 43 billion that Musk has raised.
Even for the richest person in the world, this is a large sum: the cash offer proposed by Musk to buy Twitter accounts for about a sixth of his more than $ 250 billion fortune. The bulk of it is tied up in Tesla shares, the value of which has risen sharply over the past two years.
This results in the following financing options for the Twitter takeover plan, neither of the two options is risk-free:
- Musk could sell some of his Tesla shares. He currently has about three billion dollars in cash or other liquid assets. He has already spent $2.6 billion in recent months on an earlier purchase of Twitter shares to achieve a nine per cent stake in the company. This was calculated by the information service Bloomberg.
In order for Musk to raise the additional $ 37 billion in cash required to buy the remaining shares, he would have to sell about 36.5 million Tesla shares, or more than a fifth of his share. But such an exit could send the company’s share price tumbling and destroy important investor confidence.
- Musk could also take a loanto carry out a leveraged acquisition, possibly with external partners. For this, Musk could lend his shares in Tesla and the space company SpaceX. According to Bloomberg estimates, Musk has already borrowed about $ 20 billion and deposited his own shares accordingly.
When it comes to lending, there are limits even for the multibillionaire. As of June 30, 2021, Musk had pledged a full 52 percent of his Tesla shares, as can be seen from the last Tesla publication. According to a company policy, a maximum of 25 percent of the value of the pledged shares can be taken as a loan.
Elon Musk wants to buy Twitter
Since then, Musk has increased his stock count by exercising options. Its more than 172 million shares are worth $ 170 billion. That means he could theoretically borrow $42.5 billion if he mortgaged all the shares.
Musk had stated in December 2019 that he had also pledged some SpaceX shares. His 47 percent stake in the unlisted company is worth $47.5 billion based on the latest round of financing. So with a lending limit similar to Tesla’s, Musk could raise another $12 billion by fully pledging his SpaceX position – with banks taking a much more cautious approach to non–exchange-traded shares due to the lack of liquidity.
In addition, Musk has $54.1 billion worth of Tesla options that he could potentially borrow.
The many construction sites of Elon Musk
Is that enough? Musk may not be as serious about his takeover plan as the billionaire claims. Musk’s “best and final”, non-binding offer of $43 billion is subject to numerous conditions, including the necessary financing. The chances of success are therefore low, wrote the analysts of Bloomberg.
The market experts at Deutsche Bank were similarly critical. “Our skepticism is based on the non-binding nature of the offer and the need for additional financing in connection with plans to reduce advertising, which could limit the list of partners willing to finance,” they write. Musk has also failed to privatize publicly traded companies in the past. Approximately in August 2018, when he announced such a step for Tesla.
“I’m not sure I’m going to be able to take over the company,” Musk himself said of his planned Twitter acquisition during a TED event on Thursday.
But even if the takeover fails, Musk has already made a significant step by buying his 9.1 percent stake in Twitter. This represents the largest investment to date outside of its Tesla and SpaceX universe. The question for observers is therefore whether Musk will not finally get bogged down with the new commitment.
Musk is already active on many construction sites today. In addition to leading Tesla, he is the head of SpaceX, which should one day colonize Mars. He is also involved in the tunnel drilling company The Boring Company and the brain chip start-up Neuralink. He integrated the solar cell manufacturer Solar City into Tesla in 2016. In addition, Musk always presents new, “cool ideas” – for example, a flamethrower.
Many Tesla shareholders should therefore breathe a sigh of relief if the Twitter takeover fails. The US business broadcaster CNBC compared Musk’s plans to run three billion-dollar companies at the same time with Carlos Ghosn’s claim to be CEO at the top of the car manufacturers Nissan and Renault and at the same time supervising the companies AvtoVAZ and Mitsubishi. Ghosn fell deeply and fled from Japanese justice to his homeland, Lebanon, at the end of 2019.
Twitter is fighting back
Twitter is not ready to accept the attack by Musk just like that. As it became known on Friday, Twitter has apparently called in a second investment bank, JP Morgan, to respond to the hostile takeover offer. According to an insider, Twitter has also shown interest in a takeover by other parties, including the private equity firm Thoma Bravo, which specializes in technology, as the “New York Post” reported on Thursday.
With JP Morgan, Twitter is working with a bank that does not shy away from the conflict with Musk. JP Morgan and Tesla have been fighting in court over stock transactions for years.
Some of these are related to Musk’s tweet from 2018, in which he stated that he had secured financing for a privatization of Tesla. The project failed weeks later. In addition to JP Morgan, Twitter is already supported by Goldman Sachs. Morgan Stanley’s competitors, in turn, are working with Musk.
Twitter on Friday passed a so-called “poison pill,” a measure designed to protect the company from Musk acquiring more shares in the company. The move could give the board more time to decide how to proceed.