Elon Musk seems desperate to walk away from Twitter

Tesla shares have fallen nearly 38% since the bid was announced, forcing significant changes in how it plans to fund the offer.

The first version of the financing included a $13 billion leveraged loan, a $12.5 billion margin loan secured by $62.5 billion of its Tesla stake and $21 billion in equity. . He sold $8.5 billion worth of Tesla stock, presumably to help fill the equity component.

The second attempt to structure the funding last month saw the leveraged loan remain at $13 billion, but the margin loan was cut in half to $6.25 billion (backed by $31 billion in shares) and the equity component increased to $27 billion. Musk said he has $7 billion in capital from outside parties committed to the deal.

Musk’s ego and ambition to control what he describes as “the digital town square” threatens to destroy a very large portion of his net worth.

Then, at the end of last month, there was another change in funding, with margin lending disappearing altogether and the equity tranche increasing to $33.5 billion. Musk has been trying to convince some existing Twitter shareholders, including founder Jack Dorsey, to transfer their stakes into his offering vehicle.

It is not difficult to understand why funding has changed.

With Tesla’s stock price implosing, the 5:1 relationship between the margin loan and the required security meant that an ever-increasing number of its Tesla shares were needed as collateral for the loan.

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It’s also not hard to see why Musk might want to truncate the offer.

The timing of the offer, made during the second wave of tech stock selling this year (the tech stock market rebounded in March after steep falls from last November’s peak), means it has pledged to pay well beyond the odds for Twitter, which is loss-making and had negative cash flow last year.

There is no real evidence, beyond the $7 billion already committed by other investors, that it is making significant progress in raising the remainder of the $33.5 billion in equity needed to complete the latest version of the funding for his bid, which leaves him personally exposed to fill the $26.5 billion hole in the equity component.

Given that the obvious source of funds of this magnitude would be its stake in Tesla and Tesla’s stock value has plummeted – the company is worth about $535 billion less than its $1.3 trillion valuation at its peak last year – Musk’s ego and ambition to control what he’s described as “the digital town square” threatens to destroy a very large chunk of his net worth.

Tesla shares have fallen nearly 38% since the bid was announced, forcing significant changes in how it plans to fund the offer.Credit:Bloomberg

He did not help his own cause, or that of Tesla shareholders, by emailing Tesla executives last week that he was considering a hiring freeze and job cuts of up to 10% of 100 000 Tesla employees worldwide, saying he had a “super bad feeling”. on the state of the economy.

He then backtracked last weekend, saying the total squad would actually increase over the next year, but the initial post gives some insight into his mindset. He worries about the outlook for the economy and Tesla and therefore the context of acquiring Twitter at a clearly inflated price.

In the US, the view is that Musk will face an uphill battle to try to extricate himself from the Twitter deal, with Twitter determined, for obvious reasons, to enforce the deal.

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If he ends up having to close the deal, it could be one of the most opportune deals in history, given that the whole market was aware that rising interest rates and the Dwindling liquidity as the Federal Reserve reacted to runaway inflation posed a clear and powerful threat to the stock market and to technology companies in particular.

If he can’t use the ‘bot’ excuse to back out of the deal or drop the price materially (very materially), the $1 billion breach fee for backing out of the deal could, if Twitter allows it rather than asking a court to enforce the deal, seems like the best option to recoup much of its wealth.

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