There was reportedly a trigger in the margin loan covenants that would force repayment or perhaps allow the banks to seize and sell the underlying Tesla stock pledged as collateral if the price of the Tesla share would fall by 40 percent.
Since the initial announcement, Musk’s advisers have struggled to find co-investors to reduce Musk’s exposure. They have had some success raising about $7 billion from an investor group including Sequoia Capital, Qatar Holdings and Saudi Prince Alwaleed bin Talal. They want to collect more.
It seems Musk has admitted too late that he risks paying way too much for Twitter and, given the ongoing implosion in the stock markets, is setting aside a huge chunk of his personal wealth — both his paper wealth and the $8, 5 billion he raised by selling Telsa stock at the start of the process — jeopardizing and destabilizing the already sliding Tesla stock price in the process.
His problem is that there is no legal exit from his announced offer. The Twitter board can hold him to it unless he can’t raise the funding and both the Twitter board and Musk would likely be sued by Twitter investors if he tried to walk away or lower the price.
Nevertheless, Musk appears to be trying to lay the groundwork to either drop the offer or renegotiate the terms and lower the price.
while claiming that he remains committed to the dealhe cited a recent Twitter request stating that fake accounts on his social media platform have less than five percent of his users for deferring the bid as his bidding team tests the Twitter claim.
Twitter’s estimate of the fake accounts is one it has routinely made in previous filings, but which most analysts believe underestimates the true ratio.
Twitter is adding some qualifiers to the submissions, explicitly saying the number could be higher, and Musk had the opportunity, which he didn’t take, to do some proper due diligence before committing to the offer. .
That makes Musk interrupting the deal a pretext to either renegotiate the offer price or try to walk away.
If he could drop the offer, he would get a $1 billion “break” fee, although that could ultimately be seen as a small price to pay to avoid throwing away many multiples of that amount and his personal fortunes are jeopardized by going ahead with the offer. In addition to the margin loan for the Twitter bid, Musk has previously raised cash by using his Tesla shares as collateral.
It seems Musk has admitted too late that he risks paying way too much for Twitter and, given the ongoing implosion in the stock markets, endangering a huge chunk of his personal wealth and hurting Tesla’s already sliding stock price. the process destabilizes.
The Twitter bid made little financial sense when it was first revealed — it seemed like a vanity buy rather than a rational game — but it looks much worse in today’s uncertain market environment and with the currency backing Musk’s own position, Tesla stock, so heavily devalued.
It’s the kind of deal that wouldn’t have looked so out of place if it had been struck before the tech stock implosion kicked in last November. At its peak in early November, Tesla shares traded at just under $1230 dollars and the company was valued at $1.3 trillion, or about 40 percent more than it is now valued.
Rising inflation and the sharp rise in interest rates that occurred when central banks began tightening monetary policy by raising rates and withdrawing liquidity broke the boom in technology stocks that had inflated Tesla stocks.
There is now a bear market in technology and an even more bearish market in Tesla stock, thanks to the Twitter bid, even though Tesla’s operational and financial performance has been robust. Investors simply pay much less for earnings or, in the case of Twitter, potential future earnings.
The post-financial crisis eras of near-zero interest rates and unlimited liquidity have abruptly shifted to the new post-pandemic challenges of rapidly rising rates, steadily declining liquidity and the brutal unwinding of the highly stretched valuations that the previous era encouraged.
Musk doesn’t seem to have recognized the magnitude of the environmental change until he was hooked for $44 billion. He later realized his predicament, the multi-billion dollar question marks hovering over the future of both Twiitter and Tesla and their stock prices, is whether he can actually do anything about it.
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