Musk’s $44 Billion Twitter Deal Spooks Tesla Investors, Shares Fall 11%
Elon Musk believes that free speech and the ability to broadcast that speech as far and wide as possible are the foundation of a healthy democracy. The platform that best gives its users the ability to broadcast their thoughts to the universe is Twitter (NYSE: TWTR); he believes that Twitter is the “de facto public square.”
According to Musk, that public square needs to be populated by people of all backgrounds and viewpoints if democracy is to be preserved. So when major political figures like former President Donald Trump were banned from Twitter, Musk took it as an affront to our collective freedoms. So perturbed was he by account bans and other forms of perceived censorship that he decided to do something about it.
Musk set about acquiring large amounts of Twitter shares throughout the 1st quarter of 2022, eventually becoming the company’s largest shareholder. His position led Twitter’s Board of Directors to extend an invitation to Musk to join their ranks. Musk accepted the stated intention of enacting changes to protect and expand free speech.
It appears that there was serious conflict immediately between Musk and the Board; shortly after accepting the position, Musk ended up turning down the board seat and announced that he would seek to buy Twitter outright. After some more back and forth with the Board, including the Board instituting a “poison pill” in the form of a shareholder rights plan, it was eventually agreed that Musk would purchase Twitter for a cool $44 billion.
Also Read: Elon Musk Buys Twitter in $44 Billion Blockbuster Deal, Plans to Take Company Private
Musk does not have $44 billion in cash, of course, so he needed to get creative in how he would fund the deal. His plan includes a $12.5 loan secured against his Tesla (NASDAQ: TSLA) shares. This news was not taken kindly by Tesla shareholders, with the stock tanking 12% immediately following the announcement. The deal leaves Tesla investors exposed to potentially serious downward pressure in Tesla stock; If Musk fails to meet his payment obligations, he could be forced to sell hundreds of thousands of Tesla shares.
Tesla investors also fear that Musk is running out of bandwidth; he heads up Tesla, SpaceX, The Boring Company, Neuralink and now Twitter. With how vocal he has been about Twitter’s need for changes, it’s expected that he will be engaged there for the foreseeable future. The worry is that he simply won’t have the time to give Tesla the attention needed. With the deal for Twitter due to be completed by October, Tesla investors will have plenty of time to contemplate Musk’s new role and whether they wish to remain along for the ride.
Tesla shares are currently changing hands at $874.80 per share, down -0.76% on the day. YTD TSLA stock is down -27.09%.
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Disclaimer: Wealthy VC does not hold a position in any of the stocks mentioned in this article.
