Elon Musk presently has about $3 billion in cash or other liquid assets after spending $2.6 billion buying a 9.1% stake in Twitter in recent months. The question arises that how will the Tesla CEO arrange $43 billion to buy Twitter.
Elon Musk’s massive offer
Elon Musk earlier proposed to buy Twitter for $54.20 a share, saying the social media company needs to be transformed privately, a little over a week after revealing a 9.1% stake in the company. Musk’s offer values Twitter at about $43 billion.
“I invested in Twitter as I believe in its potential to be the platform for free speech around the globe, and I believe free speech is a societal imperative for a functioning democracy,” said Elon Musk.
According to the CEO of Tesla Motors, the social media company needs to be private because it can “neither thrive nor serve” free speech in its current state.
“As a result, I am presenting to buy 100% of Twitter for $54.20 per share in cash, a 54% premium over the day before I began investing in Twitter, and a 38% premium over the day before my investment was publicly announced,” he wrote adding “My offer is my best and final offer and if it is not accepted, I would need to reconsider my position as a shareholder.”
How will Elon bring the massive $ 43 billion?
Even though Elon Musk is a billionaire, for him $43 billion is not a small price. The vast bulk of that wealth is bound to his stake in Tesla Inc., the electric carmaker he co-founded that has poured in value over the past two years and brought him to the top of the World Billionaires Index.
This purchase isn’t going to be easy, but the 50-year-old has several financing approaches. One such approach is to sell some of his Tesla shares. Another is borrowing against them to stage a leveraged buyout, perhaps with outside partners. Musk now has about $3 billion in cash or other liquid assets after spending $2.6 billion buying a 9.1% stake in Twitter in recent months.
For the world’s richest person to raise the additional $36 billion in cash to buy Twitter would require selling about 36.5 million Tesla shares. In such a case there is a risk that the price of his company’s share will fall.
His other option is to borrow against his positions in Tesla and space exploration company SpaceX. But in this case, there are limits. Elon Musk has already borrowed about $20 billion against his shares, leaving about $35 billion remaining that he could theoretically take out against the two holdings.
“This becomes a nasty takeover offer which is going to cost a serious amount of cash. He will have to sell an upright piece of Tesla stock to fund it, or a massive loan against it,” said Neil Campling, head of TMT research at Mirabaud Equity Research.
With this, Musk’s $43 billion offer has multiple conditions, including the realization of financing, which gives it a low probability of success.
After this massive offer, Twitter led out a statement that said, “The Twitter Board of Directors will carefully review the bid to choose the course of action that it believes is in the best interest of the Company and all Twitter stockholders,”
