Elon Has "Freed" Twitter: Send The Ravens
Elon Musk closed his Twitter deal yesterday as confirmed today via SEC filing to delist its stock. Still no filing that Elon sold Tesla to cover his shortfall. If not, did he get it from Tesla?
As widely reported yesterday, Elon Musk has closed his $44 billion acquisition of Twitter. The news was officially confirmed today by an SEC filing by Twitter to delist the stock.
What, you were expecting a standard formal announcement from Twitter and/or Elon Musk, and maybe a press conference, after one of the biggest acquisitions is history has been completed? Aren’t you cute.
We got this:
And this:
We don’t know how Elon's complicated funding came together at the last minute, including whether Elon ended up dumping $10-12 billion in his Tesla (TSLA 0.00%↑) stock as widely expected by market observers.
I have speculated, most recently here, that Elon was frantically working to avoid selling more Tesla given the hit he’s already taken to his stake via the $15 billion he’s already sold on top of Tesla’s plunging stock price.
Get used to being in the dark about Twitter’s funding, its increasingly distressed financial condition, and its already dicey prospects like, for example, pending third quarter results. Elon has taken the company private and delisted the stock. Twitter’s existing bonds will likely be taken out as soon as possible with the LBO cash he just raised.
As I long have warned, this will eliminate Twitter’s SEC-mandated requirements relating to the quality, depth, and timing of financial reporting. Good luck marking such equity to market; much less selling it.
Oh well, these now are concerns for Twitter’s new investors, who surely must know by now what they’re in for doing business with Elon Musk at the helm. He’s notoriously reckless, ruthless to critics, with a famously fragile ego. He seems to know little to nothing about running Twitter, and is taking on total, largely unchallenged control without a comprehensive turnaround plan or credible performance targets.
Such concerns, I’ve also warned, should be a clarion warning to prospective buyers in the $13 billion in risky LBO debt Elon’s beleaguered banks will try again to unload at some point. This will include at least $6 billion in high risk bonds likely rated CCC (at best) which I already have recommended investors should avoid—especially if, as I suspect, Twitter elects to issue them as unregistered with the SEC. Run away bravely!
Quick! Give Me All Your Cash!
If market consensus is correct, acute pressure on Tesla’s floundering stock has been relieved now that Elon finished selling this week to raise the $10-12 billion in cash he still needed to close the deal on time.
The SEC requires such sales to be reported by the end of the second business day following the trade. For example, Elon reported his last series of Tesla sales, roughly $7 billion, on August 9th—the same day of the trades.
Since there has been no such reporting all week, Elon must have sold it all on Thursday, the day he closed. If so, he presumably must file SEC Form 4 by the end of business hours on Monday.
If Elon didn’t sell on Thursday it could be because he came up with alternatives—like my suggestions, for example.
He could revive the margin loan against his Tesla stock originally arranged with his banks when the original funding agreement was struck back in April.
Assuming 25% of Tesla’s recent market value indicated nearly $25 billion available to borrow, per Tesla's terms and restrictions. Subtract $8 billion still presumably outstanding in existing margin loans since March, indicated nearly $17 billion net.
If the banks applied the same pricey terms and 5-1 LTV as previously required, Elon could get a new margin loan for up to $3.4 billion.
Still short. But, I thought of another idea. if the banks allowed Elon to borrow under slightly tougher terms (to account for higher risk with mostly illiquid options) against $59 billion in Tesla options Elon reported as of the last proxy filing, he could come up with maybe another $3 billion.
Helps, but still not enough. And, critically, Elon continues to bear all the risk indefinitely. This will become even more troublesome into next year if Tesla’s sales and profits continue to struggle into next year, as I have projected.
Come To Papa
That was why I also suspected that Elon might try to direct Tesla to “invest” in Twitter under the guise of claimed synergies, in keeping with his long history of moving cash, assets, and employees around his companies as if they were his personal slush funds:
For example, he might say Twitter and Tesla can share and develop Tesla’s dubiously endowed AI technology to help evolve Twitter into Elon’s newly invented “X, the everything app.”
Is Elon About To Tap Tesla For Billions in Debt To Bolster Cash—And Help Him Buy Twitter?, 10/19/22).
Interestingly, Bloomberg reported that Elon sent Tesla engineers to Twitter’s San Francisco headquarters on Thursday to “review Twitter’s code” so they could “assess and explain to Musk what the company needs, according to one of the people.”
Really? We’re supposed to believe that Tesla’s engineers already know enough about Twitter’s code to assess it for improvements? Like assessing code running a massive social media platform with 400 users because it is functionally similar enough to writing successful code so that Teslas don’t stop suddenly at highway speeds or aim at pedestrians or hit a $3.5 million jet or a crash into a parked police car.
So many examples of persistent failures, like these from Jalopnik: mistaking the moon for a yellow light, a washer and dryer for a bus, a billboard for a stop sign, a cop car for no impediment at all and sidewalks full of people for open roads.
In short, Tesla engineers haven’t quite cracked the code yet. But Elon assumes they can just come in and fix Twitter, so he can fire 75% of its workforce. How hard can it be?
See, this way Twitter and Tesla can share tech resources. You know, synergies.
Elon’s long history shows it doesn't matter if this ever happens, or if it's even true.
But Elon really could use Tesla’s cash, and Tesla can easily afford it without touching its own bank account:
As I also noted, Tesla can issue $10-20 billion in newly minted investment grade quality bonds without pushing its already nominal leverage for the year to more than 1.5x. This option would be substantially cheaper for Elon than selling potentially another 1% or more of his dwindling Tesla stake to 13.84%, down from 23.5% as of March 31st, per the latest proxy statement.
With Tesla’s cash, Elon’s could cover his funding shortfall and even fund that Tesla stock buyback he teased last week to juice the stock.
Will Elon Dump $10 billion In Tesla This Week To Buy Twitter? Maybe Not, 10/24/22.
Now THAT would boost Tesla's stock price—and supply his aggrieved bankers with a fat new pot of fees.
I have no idea if Elon has been or is pursuing such a plan, but he should. If so, these transactions were already in the works long before this week. And it would explain why we haven’t seen evidence yet of a massive, last minute stock sale by Elon. We'll see.
Stay tuned.
Tesla repurchased its 5.3% senior notes in the third quarter of 2021 as I projected, though I doubt we’ve seen the last of Tesla as a bond issuer. Until then, I have Tesla: Not Rated.
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Basic question from me: if Tesla has already issued these bonds, is there anyway that we can find out?