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Elon Musk cuts his margin risk with new equity partners for Twitter

The Tesla Inc. co-founder restructured his complex bid for the social-media giant by getting $7.1 billion in equity commitments from investors. He also cut in half the size of a record margin loan arranged last month with an array of investment banks.

May 05, 2022 / 10:11 PM IST
Elon Musk

Elon Musk

Elon Musk may be the world’s richest person, but that doesn’t mean he wants to put his massive fortune at risk to buy Twitter Inc.

The Tesla Inc. co-founder restructured his complex bid for the social-media giant by getting $7.1 billion in equity commitments from investors. He also cut in half the size of a record margin loan arranged last month with an array of investment banks.

As a result, Musk is significantly less exposed to any potential market volatility. Before, he needed Tesla to remain above about $837 a share for him to have the $62.5 billion to collateralize the $12.5 billion margin loan when it’s first funded. Now Tesla needs to trade above $419 for his available shares to be enough to secure the smaller, $6.25 billion loan.

The shift in the financing bolstered optimism that Musk can complete the transaction, for which he’s offering $54.20 a share. The stock climbed 3.7% to $50.90 at 10:19 a.m. in New York, even as U.S. equities broadly declined. Tesla slipped 4.4% to $910.62.

Musk’s $44 billion purchase of Twitter originally relied on $21 billion of equity that he has to come up with and $12.5 billion in margin loans secured by his Tesla stock.

Close

After selling $8.5 billion of shares in the electric carmaker to help raise cash, it wasn’t obvious that his remaining stake would be sufficient to secure the margin loan. Even if it were, he’d be left covering an enormous debt load with his Tesla holdings levered to the hilt.

Musk already had more than half of his $134 billion Tesla position pledged to secure existing debt as of June, according to Tesla’s most recent proxy filing. The $12.5 billion margin loan would be secured by Tesla stock worth $62.5 billion -- shares that could be sold by his lenders in the event that he defaulted.

‘Cash Poor’

Musk now has to come up with $27.25 billion in equity, according to a filing Thursday. He’s built his cash war chest by recently selling Tesla stock and has already amassed 9.6% of the social-media company.

Musk is worth $267.7 billion, according to the Bloomberg Billionaires Index, but much of that fortune is illiquid and he has on occasion bemoaned being “cash poor.”

Along with the new commitments from investors including Larry Ellison, Sequoia Capital and Qatar, Saudi Prince Alwaleed bin Talal is rolling his $1.9 billion of Twitter stock into the privatized company. Musk is also trying to persuade Twitter founder Jack Dorsey to do the same with his stake.

Musk can continue seeking additional investors to close any potential financing gap.

One immediate benefit: Owning Twitter could now be significantly cheaper for him. The original margin loan was set to cost Musk about $500 million a year, depending on interest rates. That number now drops to about $250 million.
Bloomberg
first published: May 5, 2022 10:10 pm
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