Elon Musk has announced a new plan to finance his purchase of Twitter, a move prompted by declines in his net worth due to the falling value of Tesla stock.
According to a new filing with the Securities and Exchange Commission obtained by the Wall Street Journal, Musk has increased the equity component of the deal — i.e., the balance to be paid in cash from his personal assets — to $33.5 billion. This is the second increase Musk has announced to the equity financing for his Twitter takeover, which – at the time of announcement on April 25 – was $21 billion. The decision means that Musk will no longer have to rely on “margin loans,” or loans secured against his stock in Tesla, Inc., of which he is CEO. Such loans had amounted to $12.5 billion, or 28 percent of the original deal.
The restructuring of the deal comes as the value of Tesla’s stock has plummeted over the past month. From closing at $1,022.37 a share on April 13, the day before he announced his bid, the stock has since declined by 36.1 percent, closing at $658.80 on Wednesday. The sharp decline has been attributed to a variety of factors – including a downturn in capital markets amid rising inflation and supply-chain problems, fears of a recession, rate hikes by the Federal Reserve, and lack of investor confidence in technology stocks, of which Tesla is seen as one. Moreover, Musk’s initial sale of $8.5 billion of Tesla stock shortly after announcing his Twitter bid raised concerns about oversupply, driving down the price. Tesla stock constitutes the majority of Musk’s net worth, which is currently valued at $218.8 billion, a decline of $66.5 billion over the past few months.
The decline in Tesla’s stock price meant that Musk needed to obtain margin loans on less generous terms from borrowers. For Musk, who has already borrowed heavily against his Tesla stock for personal loans, the increased financial exposure as Tesla’s stock declines appears to have been unattractive — granting lenders more stock options at his expense as the price fell.
In a prelude to Wednesday’s filing, Musk filed an update on May 5 to his acquisition plans with the SEC that reduced his margin loans by $7.139 billion, with financing from 19 different investors. The eclectic list included Oracle CEO Larry Ellison, Saudi prince Al-Waleed Bin Talal, the Qatari royal family’s sovereign wealth fund, and alternative investor Brookfield Asset Management.
However, even as he reduces his margin loans, Musk will need to obtain the new equity financing to make up the new sum. The Financial Times has reported that he plans to ask existing Twitter shareholders, such as co-founder and former CEO Jack Dorsey, to join his bid, bringing him closer to his equity commitment to close the deal.