New Delhi: Tesla Chief Executive Officer (CEO) Elon Musk’s proposed all-cash offer to buy Twitter is no small question.
Musk (50), the world’s richest man, offered to buy 100 percent of Twitter at $54.20 per share in a full-cash transaction, in a filing with the US Securities and Exchange Commission (SEC) on Thursday.
According to Musk’s offer, Twitter has an estimated valuation of $43 billion, which would be roughly one-sixth of his $250.6 billion fortune.
However, according to a Bloomberg report, a large portion of that asset is tied to Musk’s stake in Tesla, the company he co-founded. Tesla’s value has risen over the past two years, placing it at the top of the Bloomberg Billionaires Index.
The report said Twitter’s purchase is not going to be straightforward, but that Musk has several financing avenues.
Musk’s Choice
According to Bloomberg, one option facing Musk is to sell his Tesla shares outright, while another would be to borrow against him “possibly to stage a leveraged buyout with outside partners”. The Telsa CEO currently has about $3 billion in cash or other liquid assets after spending $2.6 billion to buy a 9.1 percent stake in Twitter, Bloomberg calculations said.
Musk would need to raise an additional $36 billion in cash to buy the rest of Twitter, and that would require him to sell about 36.5 million Tesla shares, which is more than a fifth of his stake.
Another option for him is to borrow for his positions at Tesla and space exploration company SpaceX.
“It becomes a hostile takeover offer that’s going to cost huge amounts of cash,” the report quoted Neil Campling, head of TMT Research at Mirabaud Equity Research, as saying. “He has to sell a good piece of Tesla stock. Fund it, or take out a massive loan against it.”
borrowing limit
According to Bloomberg Index estimates, Musk has already borrowed $20 billion against his shares, giving him about $35 billion.
Robert Schiffman, senior credit analyst at Bloomberg Intelligence, said in the report, “Musk’s ‘best and final’ $43 billion non-binding offer has several conditions, including completing financing, that we believe give it a low chance of success. “
Twitter shares fell 1.7 percent on Thursday to close at $45.08 in New York after Musk’s offer. Tesla shares are down 3.7 percent.
As of June 30, according to Tesla’s most recent proxy filing, Musk owned 52 percent of his shares in the company. Tesla’s policy limits the maximum borrowing on pledged shares to 25 percent of their value.
In an SEC filing, Musk attached a letter to Twitter President Brett Taylor in which he noted that the social media firm had “extraordinary potential,” and that he wanted to “unlock” it.
“I invested in Twitter because I believe in its potential to be the platform for free speech around the world, and I believe free speech is a social imperative to a functioning democracy,” Musk wrote.
He earlier disclosed about 9 per cent stake on April 4. However, he later decided not to join Twitter’s board of directors.
Musk, who has more than 80 million followers on Twitter since joining in 2009, makes great use of the platform, and makes many announcements. He also teased a go-private deal for Tesla that landed him under regulatory scrutiny.