Elon Musk is sitting at a loss in his Twitter position. The loss is peanuts, which happened to its Tesla stock. Despite all the red ink, the world’s richest man can still buy Twitter – if he still wants to.
Twitter (ticker: TWTR) closed $35.76, down 5.5%, amid a broader market sell-off, catalyzed by weak revenue guidance from Snap (SNAP). The Nasdaq Composite fell 2.3%. Snap stock fell 43.1%. Tesla (TSLA) stock fell 6.9% to close at $628.16.
Tuesday’s drop in Twitter and Tesla stock had nothing to do with Musk’s potential buyout of Twitter, but it still hurt Tesla’s CEO. Musk’s original 73-plus-share stake was disclosed on April 4, costing him an average of about $36.16.
Twitter shares had not closed below that since the stake was disclosed. Musk is down about 40 cents per share, or about $30 million, based on initial filings disclosing his stake.
For Musk, this amount is not a big deal. The decline in Tesla’s stock matters more. Since Musk’s initial stake in Twitter was disclosed, Tesla’s stock has fallen by about 45%. The decline in Tesla has resulted in a loss of approximately $87 billion in assets to the CEO. (The math is a little finicky. Musk sold about 9.6 million shares at higher prices in late April to fund his Twitter buyout).
Musk’s remaining 163 million shares are worth about $102 billion. He plans to use the stock to borrow about $6 billion to $7 billion against the value of his stock to fund part of his Twitter purchase. It is allowed to borrow up to 25% of the value of its Tesla stock, which gives it approximately $25 billion of borrowing capacity. However, Musk probably doesn’t have the full $25 billion of margin debt available; They have borrowed against the value of their shares in the past.
Investors need to know how much money he has borrowed or repaid to get an accurate idea of Musk’s borrowing ability. Tesla did not respond to a request for comment on the status of Musk’s prior margin debt.
Musk needs roughly $9 billion to buy more than 690 million shares of Twitter, which he doesn’t own. Musk already has billions in non-margin debt, cash from the sale of Tesla and other equity partners.
He has other sources of cash, primarily SpaceX shares, implied Tesla stock options. He could also sell more Tesla stock and avoid margin debt, but Tesla shareholders might not like to see more large blocks of Tesla stock sold.
What’s more, the $9 billion figure assumes Musk pays a base price of $54.20 per share. It is far from certain. Musk has been going back and forth with Twitter management on the number of spam tweets, which Musk says is a physical factor when evaluating Twitter’s worth. Twitter said it accounts for about 5% of daily active usage. Musk believes it is too much.
It seems that the market believes that a deal or a deal back and forth at a lower price is the most likely outcome. Twitter’s stock is down $18.44 from Musk’s bid. That means a profit of 52% for someone who buys Twitter now. Said another way, it is 34% less than the bid price.
The market is not waiting for that profit to materialize. It’s another shoe waiting to drop.
Write to Al Root at [email protected]
Credit: www.marketwatch.com /