Here’s how Elon Musk could take over Twitter

That’s a staggering sum for even the richest person in the world: Musk’s proposed cash offer to buy Twitter accounts for about a sixth of his $250 billion fortune. Most of that is tied up in Tesla stock, which has risen sharply in value over the past two years.

This results in the following financing options for the Twitter takeover plan, neither of which is risk-free:

1. Musk could sell some of his Tesla shares. He currently has approximately $3 billion in cash or other liquid assets. He has already spent $2.6 billion on an earlier purchase of Twitter stock in recent months to achieve a nine percent stake in the company. That was calculated by the information service Bloomberg.
   In order for Musk to raise the additional $37 billion or so in cash needed to purchase the remaining shares, he would need to sell about 36.5 million Tesla shares, more than a fifth of his stake. But such an exit could send the company’s share price plummeting and destroy vital investor confidence.
2. Musk could also take out a loanto conduct a leveraged acquisition, possibly with outside partners. For this, Musk could borrow his shares in Tesla and the space company SpaceX. According to estimates by Bloomberg, Musk has already borrowed around $20 billion and deposited his own shares accordingly.

When it comes to lending, there are limits even for the multi-billionaire. As of June 30, 2021, Musk had pledged as much as 52 percent of his Tesla shares, according to the latest Tesla release. According to company policy, a maximum of 25 percent of the value of the pledged shares can be borrowed.

Since then, Musk has increased his share count through the exercise of options. Its more than 172 million shares are valued at $170 billion. That means he could theoretically borrow $42.5 billion if he pawned all the shares.

Musk had stated in December 2019 that he had also pledged some SpaceX stock. His 47 percent stake in the privately held company is worth $47.5 billion based on the latest funding round. So, with a similar loan-to-value ratio as Tesla, Musk could raise another $12 billion by fully pledging his SpaceX position — though banks are much more cautious about non-exchange-traded stocks due to the lack of liquidity.

Additionally, Musk has $54.1 billion worth of Tesla options he could potentially borrow on.

The many construction sites of Elon Musk

Is that enough? Maybe Musk isn’t as serious about his takeover plan as the billionaire is making it out to be. Musk’s “best and final,” non-binding, $43 billion offer comes with numerous conditions, including the necessary funding. The chances of success are therefore low, wrote the analysts at 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 funding coupled with plans to reduce advertising, which may limit the list of partners willing to finance,” they write. Musk has also failed in the past to privatize listed companies. Around August 2018, when he announced such a step for Tesla.

“I’m not sure if I’ll be able to take over the company,” Musk himself said on Thursday during a TED event about his planned Twitter acquisition.

>> Read here: Four Scenarios for Elon Musk’s Twitter Takeover

But even if the takeover fails, Musk has already taken a significant step by buying his 9.1 percent stake in Twitter. This represents the largest investment so far outside of his Tesla and SpaceX universe. Observers are therefore wondering whether Musk is not finally getting bogged down with the new commitment.

Musk is already active on many construction sites. In addition to leading Tesla, he is the head of SpaceX, which is set to one day colonize Mars. He is also involved in the tunnel boring company The Boring Company and in the brain chip start-up Neuralink. He integrated the solar cell manufacturer Solar City into Tesla in 2016. In addition, Musk keeps coming up with new, “cool ideas” – such as 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 plan to manage three billion-dollar companies at the same time with Carlos Ghosn’s claim to be CEO of the car manufacturers Nissan and Renault and at the same time to oversee the companies AvtoVaz and Mitsubishi. Ghosn fell low and fled from Japanese justice in late 2019 to his homeland, Lebanon.

Twitter fights back

Twitter isn’t ready to take Musk’s attack just like that. As it became known on Friday, Twitter has apparently brought in a second investment bank, JP Morgan, to respond to the hostile takeover bid. According to an insider, Twitter has also shown interest in a takeover by other parties, including technology private equity firm Thoma Bravo, the New York Post reported on Thursday.

With JP Morgan, Twitter is working with a bank that does not shy away from conflict with Musk. JP Morgan and Tesla have been at odds in court over stock transactions for years.

Some of these are related to Musk’s 2018 tweet stating that he had secured funding for a Tesla privatization. The plan failed weeks later. In addition to JP Morgan, Twitter is already supported by Goldman Sachs. The competition from Morgan Stanley, in turn, is working with Musk.

Twitter on Friday passed a so-called “poison pill,” a measure intended to protect the company from Musk acquiring more shares in the company. The move could buy the board more time to decide how to proceed.

With material from Bloomberg.

More: Twitter opposes Elon Musk’s takeover