Will Elon Dump $10 billion In Tesla This Week To Buy Twitter? Maybe Not.
Elon's Twitter funding "plan" to buy Twitter has been a disaster, time is running out, and it's all his fault. There's still time for him to salvage it without selling more Tesla.
Tesla (TSLA 0.00%↑) filed its Q3 10-Q this morning, releasing CEO Elon Musk to sell more Tesla stock as widely expected to cover the $10-12 billion he’s still short of the $26.5 billion he still needs to close his Twitter (TWTR 0.00%↑) acquisition by this Friday, as agreed.
Meanwhile, I suspect Elon has been busy trying to come up with less onerous alternatives.
The actual amount Elon needs is still fluid since, as I expected, investors who contributed to the $7.1 billion equity pool he raised back in May have become disenchanted. A Manhattan Venture Partners general partner recently told Business Insider, "We talked to the other investors, everyone's trying to get out of it, no one thinks the company should be valued at $44 billion."
Even Elon admitted to Tesla investors last week what many of us saw right away, that "he and other investors are “obviously overpaying,” which many of us saw from the beginning (see Twitter: Take The Money and Run, 4/26/22).
It hasn’t helped that Elon spent months doing everything he could to get out of the deal he rammed through, collateral damage be damned—including tanking Tesla
stock already under pressure with the increasing deterioration in Tesla’s revenue and profit prospects (see Tesla Q3 Missed Drastically Reduced Mkt Ests; And Somehow the Market is Surprised, 10/20/22).
Now the bill will come due on Friday.
Show Me The Money
I speculated last week that Elon could direct Tesla to “invest” in Twitter under the guise of claimed synergies:
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).
After all, as I wrote last week, Elon has for years moved substantial cash, assets, and employees around between all the companies he controls—with impunity. No one tells Elon no.
And, 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.
It also could ease the considerable uncertainty at Elon’s banks. They already have incurred more than $500 million in losses after interest rates have spiked to some 17% versus 11.75% back in April when deal terms were agreed. Now they have abandoned efforts to sell any of the debt and are stuck with keeping it on their balance sheets for the foreseeable future, as I expected (see Elon V. Twitter: Elon Caved...For Sure...Maybe, 10/5/22).
They also might try to tie him into another margin loan with similar terms to the one he wormed out of in their original debt funding package. I calculate Elon could borrow nearly $4 billion on his greatly reduced Tesla stake, assuming Tesla’s margin restrictions and the banks’ original margin loan covenants.
Or get Elon to direct Tesla to “invest” into some of those ugly Twitter LBO bonds they can’t sell.
Whatever happens, we won’t have long to wait.
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.
Contact Us:
Disclaimer
This publication is prepared by Bond Angle LLC and is distributed solely to authorized recipients and clients of Bond Angle for their general use. In addition:
I/We have no position(s) in any of the securities referenced in this publication.
Views expressed in this publication accurately reflects my/our personal opinion(s) about the referenced securities and issuers and/or other subject matter as appropriate.
This publication does not contain and is not based on any non-public, material information.
To the best of my/our knowledge, the views expressed in this publication comply with applicable law in the country from which it is posted.
I/We have not been commissioned to write this publication or hold any specific opinion on the securities referenced therein.
Bond Angle does not do business with companies covered in its
publications, and nothing in this publication should be construed as a solicitation to buy or sell any security or product.Bond Angle accepts no liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this publication and/or further communication in relation to this document.