The parts for
CEO Elon Musk’s purchase of
continue to set up. This appeals to Twitter investors and should relieve Tesla investors as well.
Musk on Thursday unveiled new funding for his takeover. He’s cobbled together nearly 20 co-investors who will bring in $7.1 billion in equity funding for the Twitter takeover (ticker: TWTR).
The list includes
ORCL founder Larry Ellison – his trust is $1 billion – Fidelity Management & Research, a cryptocurrency exchange and a division of Qatar’s sovereign wealth fund. It’s an eclectic group.
“This was a smart financial and strategic move on Musk’s part that will be well received across the board,” Wedbush analyst Dan Ives wrote in a Thursday report. It also “shows that the Twitter deal is now on track to close by the end of this year, which should shut down the spread of arb in [Twitter stock].”
The arbitrage spread is the difference between Twitter’s stock price and the $54.20 Musk has agreed to pay. Twitter stock is up 3.5% at $50.82 in early trading Thursday.
The announcement looks like a win-win for Tesla (TSLA) and Twitter shareholders.
Twitter investors will likely be happy as the likelihood of the deal going through increases as all the funding pieces are put in place.
- Why not let the public participate in the case?
Tesla investors will likely be happy because new equity financing means less equity financing coming directly from Musk. That, in turn, means Musk is less likely to need to sell large blocks of Tesla stock.
Sales of large blocks of shares can drive down any stock. In the case of Tesla, shares fell significantly both when Musk sold shares in late 2021 and in April when Musk sold more shares to raise cash for his Twitter takeover.
There’s another tidbit for Tesla investors in Thursday’s news. A loan taken out and secured by Musk’s stock is also halved, from $12.5 billion to around $6.3 billion. Fewer margin loans also reduce the risk that a large block of Tesla stock will be sold to meet a margin call. Musk is expected to add cash to secure the loan if the stock backing him drops around 43%.
The Musk holding company formed to complete the purchase was initially expected to be funded with approximately $25 billion in debt and $21 billion in equity. Now that appears to be around $27 billion in equity funding and $19 billion in debt.
Musk sold about $8.5 billion worth of stock in April. If that’s all for Twitter, with the $7.1 billion in new commitments, there could be about $9 million or $10 billion of equity left to raise. This includes a block of Twitter shares held by Saudi Arabia that is expected to be integrated into the Musk company that will own Twitter.
Tesla investors might not be so pleased with a CNBC report that Musk will run Twitter as CEO for a while. This would raise the question of management distraction for Musk, although Wall Street analysts have asked by Barrons consistently express no real concern about Musk dividing his time. Twitter and Tesla did not immediately respond to a request for comment.
Tesla stock isn’t really reacting to Thursday’s news. Shares were down around 1.5% in early trading, but the
Dow Jones Industrial Average
are down about 1.1% and 0.8%, respectively.
Twitter did not immediately respond to a request for comment on the funding breakdown.
It is not uncommon for existing shareholders to inject their capital into the acquiring company in takeovers such as the one Musk is undertaking. The Tesla CEO has already suggested the idea on Twitter.
Around 35 million Saudi-controlled shares appear to remain with Musk. This reduces the capital requirements of Musk’s holding company by about $2 billion.
What all of this means for Twitter is that the funding seems increasingly secure.
Write to Al Root at [email protected]