Billionaire Tesla CEO Elon Musk Needs 'Massive Loan’ Or Big Tesla Stock Sale To Buy Twitter: Report

Musk in a filing with the US Securities and Exchange Commission on Thursday, Elon Musk made an offer to buy 100 per cent of Twitter at $54.20 per share in an all-cash transaction.

Elon Musk had 52 per cent of his Tesla shares pledged as of June 30, according to the company’s most recent proxy filing. Image: Getty

New Delhi: The proposed all-cash offer to buy Twitter by Tesla Chief Executive Officer (CEO) Elon Musk isn’t a small ask.

Musk (50), the world’s richest person, in a filing with the US Securities and Exchange Commission (SEC) on Thursday, made an offer to buy 100 per cent of Twitter at $54.20 per share in an all-cash transaction.

According to Musk’s offer, the approximate valuation of Twitter stands at $43 billion, which would be about one-sixth of his $250.6 billion fortune.

However, according to a Bloomberg report, a vast majority of that wealth is tied to Musk’s stake in Tesla, the company he co-founded. Tesla's value has surged over the past two years, which places him at the top of the Bloomberg Billionaires Index.

The report said the Twitter purchase isn’t going to be straightforward, but Musk has several financing paths.

Options before Musk

According to Bloomberg, one option before Musk is to sell his Tesla shares outright, while another would be to borrow against them "to stage a leveraged buyout, possibly with outside partners". Bloomberg's calculations say the Telsa CEO currently has nearly $3 billion in cash or other liquid assets after he spent $2.6 billion to buy a 9.1 per cent stake in Twitter.

Musk will need to raise an additional $36 billion in cash to buy the rest of Twitter, and fot that he would require to offload about 3.65 crore Tesla shares, which is more than a fifth of his stake.

Borrowing against his positions in Tesla and space exploration company SpaceX remains his other option.

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

Borrowing limits

According to Bloomberg index estimates, Musk has already borrowed $20 billion against his shares, which leaves him with about $35 billion.

“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,” said Robert Schiffman, a Bloomberg Intelligence senior credit analyst, in the report.

Twitter shares fell 1.7 per cent on Thursday in New York, closing at $45.08, after Musk's offer. Tesla shares dipped 3.7 per cent.

As of June 30, according to Tesla's most recent proxy filing, Musk had 52 per cent of his shares in the company pledged. A Tesla policy restricts the maximum borrowing against pledged shares to 25 per cent of their value.

In the SEC filing, Musk attached a letter to Twitter chairman Bret Taylor in which he had mentioned that the social media firm had "extraordinary potential", and that he wanted to "unlock" it.

"I invested in Twitter as I believe in its potential to be the platform for free speech around the globe, and I believe free speech is a societal imperative for a functioning democracy," Musk wrote.

He first disclosed a stake of about 9 per cent on April 4. However, he later decided not to join Twitter's board of directors.

Musk, who has over 8 crore followers on Twitter since joining in 2009, prolificly uses the platform, and made several announcements. He even teased a go-private deal for Tesla that landed him in regulatory scrutiny.