The richest man on the planet is taking a big risk with the Twitter acquisition. He would see the stock level of his Tesla promised in the amount of $ 140 billion, or 60% of his fortune.
Elon Musk, the most indebted man in the world? If Tesla’s boss manages to buy Twitter, the world’s richest man’s debt will reach unprecedented levels in one-person global capitalism.
Recall that what is currently the first fortune on the planet with a wealth estimated by Bloomberg at 250 billion dollars has undertaken to buy the social network for an amount of 44 billion dollars. A sum that does not have, strictly speaking.
To complete his acquisition, Musk took out bank loans in the amount of $ 13 billion that the billionaire will have to repay with Twitter profits, according to documents sent to the SEC, the US stock exchange policeman. He will bring $ 21 billion out of his own pocket (probably through the sale of Tesla stock). Finally, a final personal loan with a margin of $ 12.5 billion concludes the financing round and for which Tesla shares are provided as collateral. Aside from the fact that the stock is a floating asset, Elon Musk would have pledged $ 62.5 billion in Tesla stock to cover his loan.
Finance your lifestyle
Borrowing in this way is a common practice in the world of the new economy with high returns on the stock market. Forbes has thus identified 32 American billionaires who in 2021 pledged shares of their company to take out loans. Among these, the American media cites the founder of Oracle Larry Ellison or the financier Carl Icahn.
The goal of these huge fortunes is to finance their lofty lifestyle without affecting the value of their assets or their power to control companies by selling stock. Larry Ellison, for example, bought an island for $ 300 million and a mansion for $ 110 million without selling a single stake between 2010 and 2020.
This is what Elon Musk has been doing since 2015, who funds his lifestyle with pawnbrokers. But with the acquisition of the social network, the operation takes on a whole scale and becomes increasingly risky.
Prior to Twitter, Musk had more than $ 90 billion in pledged shares according to industry firm Audit Analytics. He is by far the largest borrower of US stocks, far ahead of Larry Ellison and his $ 24 billion. The Tesla boss alone weighs more than a third of the shares pledged in the United States by listed companies, the amount of which is estimated at $ 271 billion by Audit Analytics.
Once the loans for the Twitter acquisition are taken out, the total of the shares pledged by Elon Musk would reach 140 billion dollars according to Forbes, which is more than half of all the shares pledged in the United States. by the way, nearly 60% of the billionaire’s current fortune. In other words, if Elon Musk fails to meet future margin calls, banks could use his assets and force him to sell colossal quantities of shares.
Markets in doubt
A situation that large American companies are increasingly trying to avoid.
“Executive stock pledges are considered a significant risk to corporate governance,” Jun Frank, chief executive officer of ICS Advisory, told CNBC. “If an executive with a significant promised ownership position fails to meet the margin call, it could lead to the sale of those shares, which could trigger a sharp drop in the share price.”
An overexposure of Musk that begins to question the markets. Especially as the Twitter company is struggling to find an economic model that generates money. After a few years in the green, net profit declined in 2021 and ended with a loss of $ 181 million. Difficult to repay loans with losses …
The markets were not wrong and are beginning to doubt the materialization of Musk’s offer on Twitter. The social network’s share price has lost more than 5% of its value since the announcement of the acquisition and Tesla’s by more than 8% this week. Since the billionaire expressed his interest in Twitter in early April, Tesla’s share price has even dropped more than 20%.
Doubts about the financing of the operation but also about the billionaire’s ability to manage five companies at a time. If Elon Musk becomes the owner of Twitter, he will directly control Tesla, SpaceX, Neuralink, The Boring Company and the blue bird social network.
“When you have more companies behind you than you oversee and manage, it can get complicated,” writes Frank of ISS Corporate Solutions on Forbes. “I’m not going to say if Elon Musk is capable of that, because he could be superhuman, but in general, this excessive commitment can create a challenge for shareholders.”