Tesla chief Elon Musk.
AFP via Getty Images
Good news for Musk’s Twitter bid has not translated into good news for Musk’s Tesla stock.
It should have been a day of celebration for Tesla and SpaceX chief Elon Musk, after he announced $7.1 billion in equity commitments toward his $44 billion Twitter takeover from prominent investors like Sequoia Capital and Andreesen Horowitz, as well as Saudi Arabia’s Prince Alwaleed, a current shareholder of the social media company with whom Musk had feuded on the platform recently.
But a report by CNBC that Musk is expected to serve as Twitter’s interim CEO after the deal closes has rained on his parade, likely driving the more than 7% drop in Tesla’s stock price as of 1 pm EST Thursday–and erasing some $18 billion of Musk’s fortune. The plunge in Tesla shares outpaced a general tech sell-off, with the Nasdaq down 4.7% as of 1 pm EST.)
“The interim CEO report is the concern for Tesla investors as this becomes a fear of distraction and focus for Musk,” says Wedbush analyst Dan Ives, who covers Tesla. “This is weighing on shares.”
To finance his Twitter acquisition, Musk originally planned to pledge $62.5 billion of Tesla shares to secure a $12.5 billion margin loan from his bankers, in addition to a $13 billion loan to be partly secured by Twitter itself. But after raising the $7.1 billion from outside investors, his margin loan and the number of Tesla shares to be pledged against it was cut in half. That should have provided some comfort to investors concerned about a margin-call induced sell-off of Tesla stock by Musk.
But Musk had also made a $21 billion equity commitment to Twitter’s board to finance the acquisition, leading many to wonder how the Tesla and SpaceX chief would come up with the cash. Even after selling more than $8 billion of the EV maker’s shares last week (pre-tax), Musk only had about $8 billion of cash on hand, according to Forbes’ estimates. The $7.1 billion raised from outside investors could have put Musk closer to meeting his cash commitment. Curiously, he opted instead to raise his equity commitment to $27.3 billion, an increase roughly proportional to the amount he raised from outside investors, suggesting that he’s confident he can find more partners.
In other words, we’re in roughly the same spot we were yesterday as it relates to Musk’s hunt for cash, which may also be dismaying to investors, who’d been dumping Tesla shares in recent weeks, possibly fearing that share sales by Musk to finance the Twitter acquisition would drive down Tesla’s stock price. (Musk has said he doesn’t plan to sell any more Tesla shares.)
But the threat of a distracted Musk may be even more worrisome.
“No one has ever rivaled the number of CEO positions that Mr. Musk will be simultaneously holding,” says Columbia University law professor John C. Coffee, an expert on corporate governance. “Add to that the fact that Tesla has no chief operating officer and that Twitter’s acquisition could be rocky as it needs to increase its earnings to pay a vastly increased debt service, and I would say that Tesla shareholders should be concerned—very concerned.”
Despite the drop in his net worth on Thursday, Musk remains the world’s richest person by a long shot, worth an estimated $248 billion – $101.4 billion more than runner-up Jeff Bezos. But his Twitter pursuit has proven extremely costly. His stake in Tesla, worth $203 billion today, was worth $235.1 billion on April 13, the day before he announced his Twitter takeover–meaning Musk was more than $30 billion richer before this whole spectacle began.
Musk has not responded to Forbes’ request for comment.
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