Tesla Inc. CEO Elon Musk says he’s secured $46.5 billion in funding for a takeover of Twitter Inc. But more than two-thirds of that is either coming from his own pocket or borrowing against his Tesla shares.
Musk’s filing with the U.S. Securities and Exchange Commission on Thursday details $25.5 billion in debt financing from Morgan Stanley and other financial institutions, including margin loans backed by his equity stake in Tesla. It also includes $21 billion in equity financing to be provided by Musk himself.
Musk currently has about $3 billion in cash or other somewhat liquid assets after spending $2.6 billion buying a 9.1 percent stake in Twitter in recent months, according to Bloomberg estimates. His other holdings are tied up in Tesla stock — about $184 billion worth — and his ownership of closely held Space Exploration Technologies Corp.
The big question is whether Musk would consider selling part of his stake in one of his prized companies to acquire Twitter.
Musk would need to pledge about 58.7 million Tesla shares to secure the $12.5 billion margin loan facility included in the debt financing. That would bring the total percentage of shares he’s pledged to about 85 percent of his holdings. The margin loan facility documents do allow Musk to sell his unpledged Tesla shares.
The unpledged shares are worth more than $25 billion, so if he sold almost all of them, it’d be enough to cover the $21 billion in equity financing, after taxes, coupled with the cash he has now.
Alternately, Musk could find partners to contribute to his equity financing. But one thing’s for sure: The mystery over how Musk will fund his bid was only partially solved today.
Musk and Jared Birchall, the managing director of Musk’s family office, didn’t immediately respond to a request for comment on how Musk plans to finance the $21 billion. Shares of Tesla pared early gains of as much as 12 percent, ending the day up 3.42 percent at $1,010.74 in after hours trading Thursday.
Musk’s $46.5 billion in financing is about $9 billion more than what he would need to acquire the 91 percent of Twitter he doesn’t already own, according to Bloomberg calculations, suggesting he’s giving himself room to increase the offer if it comes to that.
Excluding transactions costs, $46.5 billion equates to almost $64 a share, or 18 percent higher than Musk’s last offer. That’s closer to the $70 a share that Twitter traded at a year ago, and might be more attractive to the company’s board, which adopted a poison pill defense after receiving Musk’s initial unsolicited bid.
The higher price would also be more appealing to Twitter’s investors if he moves ahead with a tender offer, said Bloomberg Intelligence analyst Mandeep Singh.
“You have to go a little higher than your M&A price” Singh said. “That’s what really drives the smaller shareholders to tender their shares.”
Documents in Thursday’s securities filing support the idea that a higher offer has been contemplated. The margin lending agreement says that a higher acquisition price for Twitter isn’t a reason for the lenders to walk away from their commitment, unless it involves additional debt.
The filing doesn’t explain where Musk would get the $21 billion in equity financing he’s committed. That’s more cash than he has at the moment, according to the Bloomberg Billionaires Index. Bloomberg earlier reported that he’s vetting potential investors interested in backing the equity component of the deal.