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eToro: Tesla is caught in the saga of the acquisition of Twitter. How will Musk finance the remaining $ 21 billion?


After Netflix felt the impact of the Ukrainian conflict by reducing the number of subscribers, Youtube, owned by Alphabet, felt the effects of the disappearance of revenues from Russia, contributing to the decline of the technology stock market. Testa unexpectedly became a “falling star”, losing more than 12% of its value due to investor concerns about how Elon Musk will finance the acquisition of Twitter, the general market situation and concerns that India does not accept Tesla cars made in China on the local market.

The Twitter acquisition saga is underway, with shareholders voting to sell the company to Elon Musk for $ 54.20 per share. According to documents submitted to the SEC – the US stock exchange oversight and control body – the $ 46.5 billion financing of the transaction is covered by a $ 13 billion complex loan, a $ 12.5 billion margin loan. leaving Elon Musk the task of bringing in the remaining $ 21 billion in equity.

According to SEC documents, Elon Musk said he believed in free speech, but realized that Twitter could not thrive or serve this societal imperative in its current form. “As a result, I offer to buy 100% of Twitter for $ 54.20 per share in cash, a 54% premium from the day before I started investing in Twitter and a 38% premium from the day before the date my investment was publicly announced, “Musk wrote. And then he indicated that he would delist Twitter from the stock market.

A letter of commitment describing what the financing of the investment will look like was sent by a banking union that includes banks such as Morgan Stanley Senior Funding, Bank of America – BOFA Securities, Barclays, MUFG, BNP Paribas Securities, Mizuho Bank and Societe Generale. $ 13 billion in financing consists of a $ 6.5 billion guaranteed loan, a $ 500 million guaranteed revolving credit facility, of which $ 40 million can be used as working capital, a secured bridge loan $ 3 billion and another $ 3 billion unsecured bridge loan. $ 12.5 billion is financed by a three-year margin loan to be secured by Tesla shares. It contains a mandatory early repayment clause stating that Tesla shares may not be deducted by more than 40% from the value from the date the financing will be granted. If this happens, we’ll see one of the biggest margin calls in history.

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The key question investors ask is how Elon will fund the remaining $ 21 billion. The margin loan documents allow Musk to sell the unsecured Tesla shares. According to Bloomberg, to secure the margin loan, Musk should pledge about 58.7 million Tesla shares. This means that it has already pledged about 85% of its shares. If it has to sell Tesla shares to secure the remaining $ 21 billion, at $ 890 a share, it will have to sell nearly $ 23.6 million. It is not an easy task, but it is not a destabilizing one for the price of the action. Elon Musk is Tesla’s largest shareholder, with about 175 million shares, accounting for 17% of the company.

In addition to funding issues, there are issues that increase investor uncertainty. It is unclear who will lead Twitter, as Musk has publicly stated that he does not trust the company’s management. Musk is also very busy, and the Twitter project will further limit his time as CEO of Tesla.

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It is unclear how Musk will change Twitter’s business model and how many new employees it will need for this. And in a small labor market, this is becoming an important question. We already know that former President Trump has refused to return to Twitter, hoping to support the development of his own Truth Social network, which has its own set of problems, from periods of unavailability of the platform to moving potential subscribers to waiting lists and problems. related to stock price fluctuations.

Tesla was the largest shareholder globally on the eToro platform and the second largest shareholder by Romanians in the first quarter of 2022, indicating that investors see the long-term potential of this sector. The number of investors owning Tesla increased by 12% globally (17% in Romania) between Q4 2021 and Q1 2022. Time will tell if investors will keep their confidence in the electric vehicle manufacturer.

Bogdan Maioreanu, an eToro market analyst and market commentator, has over 20 years of experience in financial services and investment, as well as a solid background in journalism. He held various management positions in the Corporate Banking area at Raiffeisen Bank and OTP Bank, before moving on to business consulting, working for several companies, including IBM Romania. Bogdan holds an Executive MBA from Asebuss and Washington University.

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