Why Elon Musk is using Tesla to buy Twitter
Musk has a more than 20% stake in Tesla, analysts say, where most of that wealth is tied up. He can’t easily turn it into cash, although he sold off a sizable chunk of his Tesla stock last year, including $5 billion over several days.
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All of this means that instead of spending his immense wealth, he treats his shares in his businesses as collateral. Like using property to secure a loan, Musk sometimes had last year pledged more than half of its Tesla stock as collateral, according to financial documents, worth tens of billions of dollars.
“If Elon Musk were forced to sell common stock that he has pledged to secure certain personal loan obligations, such sales could cause our stock price to decline,” Tesla warned in its annual filing.
“We are not a party to these loans,” Tesla wrote, adding that if its stock price declines, banks may force Musk to sell stock to meet its loan obligations. This could cause the overall stock price to explode.
But Musk plans to lean further to buy Twitter, according to analysts and public filings.
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Musk this week went public with his funding plan to acquire the social media platform he says he wants to help serve as the city’s public square, where he communicates daily with his more than 80 million followers.
He described $46.5 billion he secured in funding to buy the social media company. More than half comes from loans from Morgan Stanley and other banks. But $21 billion will come from his personal fortune.
This has Tesla investors worried about the implications of his proposal to stake Tesla shares to buy Twitter.
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And the huge amount of risk — especially after Tesla upended market expectations — has some financial analysts puzzled.
“You give caviar to buy a hot dog on the street in New York,” Wedbush Securities analyst Dan Ives said Thursday.
Musk did not respond to a request for comment.
Elon Musk sells about $5 billion worth of Tesla shares
A financial filing last year detailed that of his more than 170 million shares in Tesla – which would be valued at more than $170 billion today – more than half were posted as collateral to secure loans .
Musk’s financial maneuverings have at times surprised investors and angered regulators. Tesla’s CEO said in 2018 that he had “secured funding” at $420 per share to take Tesla private. He later paid a $20 million fine to the Securities and Exchange Commission for the tweet and had to relinquish his chairmanship of Tesla’s board.
In May 2020, around the time his then-girlfriend Grimes gave birth to their child originally named X Æ A-12 (later changed to X Æ A-Xii), Musk said that he was selling most of his property.
I sell almost all physical goods. Will not own any house.
— Elon Musk (@elonmusk) May 1, 2020
Musk tweeted a minute later that Tesla’s stock valuation was excessive, sending shares plummeting.
Tesla stock price is too high in my opinion
— Elon Musk (@elonmusk) May 1, 2020
In November, he polled his followers on whether to sell his 10% stake in Tesla. The poll garnered over 3.5 million votes and 58% supported a sale. Later, it became clear that Musk had planned to sell at least some of the shares all along.
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Analysts who spoke with The Washington Post said the volume of Musk’s guarantees was unusual, and they said much was likely tied to Musk’s other business ventures, such as rocket company SpaceX.
Amazon founder Jeff Bezos (who owns The Post) has publicly stated that he sells $1 billion a year in company stock to fund his space company, Blue Origin.
Musk revealed for the first time that he bought a more than 9% stake in Twitter earlier this month. He flirted with the idea of a board seat before launching a hostile takeover bid a week ago.
“It’s all so unorthodox,” said Benjamin Black, co-head of internet research at New York-based Deutsche Bank. “It fits the character – we just don’t know what to make of it.”
“If there’s one thing Elon doesn’t want to do, it’s somehow undermine investor confidence in Tesla, which is the crown jewel of all his holdings,” he added.