The richest man on the planet is taking a big risk with the takeover of Twitter. He would see his level of Tesla shares pledged to the tune of $140 billion, or 60% of his fortune.
Elon Musk, the most indebted man in the world? If the boss of Tesla succeeds in buying Twitter, the debt of the richest man in the world will reach levels never seen in global capitalism for one person.
As a reminder, the one who is currently the first fortune on the planet with an estate estimated at 250 billion dollars by Bloomberg has undertaken to buy the social network for an amount of 44 billion dollars. A sum that he does not have, strictly speaking.
To complete his takeover, Musk took out bank loans to the tune of $13 billion that the billionaire will have to repay with the profits of Twitter, according to documents sent to the SEC, the policeman of the American stock market. He will bring in $21 billion out of pocket (probably through the sale of Tesla stock). Finally, a last personal loan on margin of 12.5 billion dollars concludes the financing round and for which Tesla shares are provided as collateral. Except that the action being a fluctuating asset, Elon Musk would have pledged $ 62.5 billion in Tesla shares to cover his loan.
Finance your lifestyle
Getting into debt like this is a common practice in the world of the new economy with high stock market returns. Forbes has thus identified 32 American billionaires who pledged shares of their company in 2021 to take out loans. Among them the American media quotes the founder of Oracle Larry Ellison or the financier Carl Icahn.
The goal for these very large fortunes is to finance their high lifestyle without affecting the value of their heritage or their power to control companies by selling shares. Larry Ellison, for example, bought an island for 300 million dollars and a mansion for 110 million without selling a single share between 2010 and 2020.
This is what Elon Musk has been doing since 2015, who finances his lifestyle with pawnbrokers. But with the takeover of the social network, the operation takes on a whole scale and becomes more and more risky.
Before Twitter, Musk would already have more than 90 billion dollars of shares pledged according to the specialized company Audit Analytics. He is by far the biggest debtor of American stocks, far ahead of Larry Ellison and his 24 billion dollars. The boss of Tesla alone weighs more than a third of the shares pledged in the United States by listed companies, the amount of which is estimated at 271 billion dollars by Audit Analytics.
Once the loans for the takeover of Twitter have been contracted, the total amount of shares pledged by Elon Musk would reach 140 billion dollars according to Forbes, that is to say more than half of all the shares pledged in the United States and incidentally nearly 60% of the billionaire’s current fortune. In other words, if Elon Musk failed to meet future margin calls, the banks could use the beast by forcing him to sell colossal amounts of shares.
Markets in doubt
A situation that big American companies are increasingly trying to avoid.
“Executive pledges of shares are considered a significant risk to corporate governance,” Jun Frank, managing director at ICS Advisory, told CNBC. “If an executive with a large pledged ownership position fails to meet the margin call, it could lead to the sale of those shares, which may trigger a sharp decline in the share price.”
An overexposure of Musk which is starting to make the markets doubt. Especially since the Twitter company is struggling to find an economic model that generates cash. After a few years in the green, net income fell in 2021 and ended with a loss of $181 million. Difficult to repay loans with losses…
The markets have not been mistaken and are beginning to doubt the materialization of Musk’s offer on Twitter. The social network’s share price has lost more than 5% of its value since the announcement of the takeover and that of Tesla more than 8% this week. Since the billionaire expressed his interest in Twitter in early April, Tesla’s share price has even fallen by more than 20%.
Doubts about the financing of the operation but also about the billionaire’s ability to manage five companies at the same time. If Elon Musk becomes the owner of Twitter, he will indeed directly control Tesla, SpaceX, Neuralink, The Boring Company and the blue bird social network.
“When you have multiple businesses under your belt that you oversee and manage, it can get tricky,” Frank of ISS Corporate Solutions writes in Forbes. “I’m not going to say if Elon Musk is capable of it, because he could be a superhuman, but in general, this over-commitment can create a challenge for shareholders.”