Why Elon Musk is $18 billion poorer despite raising $7 billion from high-profile investors for his Twitter takeover on Thursday
Good news for Musk’s Twitter offering didn’t translate into good news for Musk’s Tesla stock.
It should have been a day of celebration for Tesla and SpaceX chief Elon Musk after announcing $7.1 billion in equity commitments for its $44 billion takeover of Twitter by high-profile investors like Sequoia Capital and Andreesen Horowitz, as well as Saudi Prince Alwaleed, a current shareholder of the social media company with whom Musk had recently fallen out on the platform.
But a CNBC report that Musk is expected to serve as interim CEO of Twitter after the deal closes rained on his parade, likely sending Tesla’s stock price down more than 7% to 13. hours EST Thursday — and wiping some $18 billion from Musk’s fortune. The fall in Tesla shares topped a general tech selloff, with the Nasdaq down 4.7% as of 1 p.m. EST.)
“The CEO’s interim report is of concern to Tesla investors because it becomes a distraction and focus scare for Musk,” says Wedbush analyst Dan Ives, who covers Tesla. “It weighs on equities.”
To fund his acquisition of Twitter, Musk originally planned to pledge $62.5 billion of Tesla stock to secure a $12.5 billion margin loan from his bankers, in addition to a loan of $13 billion to be partly guaranteed by Twitter itself. But after raising $7.1 billion from outside investors, his margin loan and the number of Tesla shares to be pledged were cut in half. That should have reassured investors concerned about a margin call-induced sale of Tesla shares by Musk.
But Musk had also made a $21 billion pledge to Twitter’s board to fund the acquisition, leading many to wonder how the Tesla and SpaceX chief would come up with the money. Even after selling more than $8 billion of the electric vehicle maker’s stock last week (before taxes), Musk only had about $8 billion in cash, according to Forbes’ estimates. The $7.1 billion raised from outside investors could have brought Musk closer to his cash commitment. Curiously, he instead opted to increase his equity commitment to $27.3 billion, an increase roughly proportional to the amount he raised from outside investors, suggesting he is confident that can find more partners.
In other words, we’re pretty much where we were yesterday when it comes to Musk’s money hunt, which may also be appalling for investors, who had been selling Tesla shares in recent weeks. , possibly fearing that stock sales by Musk to fund the Twitter acquisition would depress Tesla’s share price. (Musk said he no longer plans to sell Tesla stock.)
But the threat of a distracted Musk can be even more ominous.
“No one has ever rivaled the number of CEO positions Mr. Musk will hold concurrently,” says John C. Coffee, a Columbia University law professor and corporate governance expert. “Add to that the fact that Tesla doesn’t have a COO and the acquisition of Twitter could be difficult because it needs to increase revenue to pay significantly increased debt service, and I would say shareholders of Tesla should be worried, very worried.”
Despite his net worth dropping on Thursday, Musk remains by far the richest person in the world, with an estimated worth of $248 billion, or $101.4 billion more than runner-up Jeff Bezos. But his pursuit on Twitter proved extremely costly. His Tesla stake, worth $203 billion today, was worth $235.1 billion on April 13, the day before he announced his Twitter takeover, meaning Musk was richer by over $30 billion before this whole show started.
Musk did not respond to Forbes‘ request for comment.