Tesla shareholders are worried its distracted CEO, who already runs three companies, will pledge shares to finance the deal.
Tesla and SpaceX CEO Elon Musk shocked the world when he proposed a $43 billion hostile takeover of Twitter on Thursday morning, after disclosing a 9.1% stake in the company and turning down a board seat in recent weeks. Shareholders of at least one business he currently runs haven’t responded favorably – Forbes estimates Musk’s net worth was down roughly $8.9 billion as of 1 PM EST Thursday, as shares of Tesla (the main source of his wealth) slumped by more than 3%.
According to Dan Ives, a managing director and senior equity analyst at Wedbush, the reason for Tesla’s falling stock price is clear.
“The Street is worried about Musk’s distraction and him putting up Tesla shares as his financial backing to raise debt for the Twitter deal,” he says.
Forbes estimates that Musk has less than $2 billion of cash on hand, after selling more than $16 billion worth of Tesla’s shares late last year and paying $2.6 billion to acquire his Twitter stake in early 2022, leaving many to wonder how Musk might pay to buy up his favorite social media company. He’s already pledged more than half his 21% Tesla stake as collateral for loans, and a Tesla corporate policy limits his borrowing to 25% of the pledged shares’ value.
Plus, according to Columbia Law School professor John C. Coffee, Jr., Musk already has a lot on his plate.
“If I were a Tesla shareholder, I would be anxious about a Musk acquisition of Twitter,” he says “Musk already owns two time-consuming companies and Twitter would be more than an investment for him; it would be a very time-consuming toy, because he plans to fundamentally change its business strategy.”
Coffee says he’d also be worried about additional scrutiny from the Securities and Exchange Commission and potential plaintiffs already looking for a reason to sue Musk as the acquisition process drags on.
“I invested in Twitter as I believe in its potential to be the platform for free speech around the globe, and I believe free speech is a societal imperative for a functioning democracy,” Musk wrote in a letter to the board’s chairman filed with the SEC this morning. “Twitter has extraordinary potential. I will unlock it.”
So far, Twitter shareholders seem hesitant. The stock is trading around $47 per share as of Thursday afternoon–up around 1% from Wednesday’s close price but well below Musk’s offer of $54.20 per share–implying that investors are skeptical that the takeover will go through.
That small jump in Twitter stock has added less than $100 million to Musk’s net worth since yesterday–not nearly enough to compensate for the roughly $8.9 billion drop in the value of his stake in Tesla.
Despite the significant drop, however, Musk remains the world’s richest person by a longshot, with an estimated net worth of approximately $265 billion – more than seven times Twitter’s market capitalization.
