Will Bill Gates Benefit From Elon Musk’s $150 Billion Tesla Margin Debt?

Elon Musk is not taking my advice – he left and bought Tesla for around $44 billion.

Along the way, he expressed his belief that Bill Gates had shorted $500 million worth of Tesla stock – borrowing and selling stock to a broker in the hope of profiting by buying it back at a price less to repay the loan.

What could justify a bet that Tesla stock – which opens April 26 20% below its all-time high of $1,243 per share – will fall? For that, you need look no further than how Musk — whose net worth Forbes estimates at $268.2 billion — will come up with the $44 billion in cash.

Much of that money will come from borrowing from banks, backed by Elon Musk’s shares in Tesla. Another chunk will come from what he calls equity financing.

This funding structure could be bad for Tesla shareholders because it could mean Musk would sell a lot of his stock.

How Musk will pay for Twitter

Musk will pay for Twitter by borrowing money and selling assets. According to the deal’s press release, Musk “has secured $25.5 billion in fully committed debt and margin loan financing and is providing approximately $21.0 billion in equity commitment.”

However, there is more here than meets the eye, as much of this debt is made up of margin loans against its Tesla stock – meaning that if the stock drops enough, the banks will demand that it pays off the loan (selling Tesla stock could be a source of that money).

According to Bloomberg, that means he will pay for Twitter with “$13 billion in debt and $33.5 billion in his own money.”

Musk’s allegation that Bill Gates has a $500 million short bet against Tesla

On April 22, Musk expressed his belief that Bill Gates had sold short $500 million of Tesla stock – of which a modest 3% of shares are sold short, according to Barrons. who wrote that Gates declined to comment on Musk’s claim.

If Musk and Twitter sign their deal, Musk will likely be able to go further to use Twitter to ridicule people he sees as opposing his will.

It already goes further than most would. As Barron’s wrote, Musk took to Twitter last Friday to express his belief that “Gates shorted $500 million worth of Tesla stock. He then ridiculed Gates’ body circumference – with a photo, an emoji and a rude comment.

Also, Tesla has been doing pretty well lately, so the basis for the stock’s short-selling is somewhat questionable. For example, on April 21, Tesla announced record first-quarter earnings of $3.3 billion while predicting a 60% growth – to more than 1.5 million – in the number of vehicles it will produce in 2022, according to the Wall Street Journal.

How Musk’s funding for Twitter could drive Tesla stock down

Regardless of whether Gates shorted Tesla shares, I certainly see a risk for Tesla shareholders in how Musk is financing his purchase on Twitter.

That’s because $12.5 billion of that debt is a margin loan — and that could be bad for Tesla shareholders because, like Reuters reported, if Tesla shares fell 40%, Musk would have to repay that loan — possibly by selling Tesla stock.

More worryingly, this deal increases Musk’s personal borrowing by 70%. According to Reuters, “He had already borrowed against $88 billion worth of Tesla stock, and the proposed acquisition financing for Twitter would bring that figure to more than $150 billion.”

Tesla shareholders will pay for Twitter in other ways. Bloomberg highlights two:

  • To get to the unborrowed portion of the $44 billion Twitter purchase price, Musk ‘will have to sell billions of dollars worth of Tesla stock’
  • He could ‘spend time overseeing Twitter instead of inventing new electric cars’ and do other things to benefit Tesla

Musk’s deal also puts him under pressure to find money now and in the future.

For example, Musk’s $21 billion equity commitment is a fancy way of saying he needs to find as much money from the money he currently has or can generate by selling stocks. assets.

As Reuters noted, “It’s unclear how much of the $21 billion in cash Musk has committed to the deal is immediately available to him, and whether he should cash out any of his assets. They include stakes in rocket maker SpaceX and tunneling startup Boring Co.

On top of that, Musk will have to pay annual interest charges on Twitter’s margin loan. A regulatory filing estimates that could amount to “about $1 billion a year in interest and amortization expense,” Reuters noted, which accounts for about two-thirds of Twitter’s earnings before interest, taxes, depreciation. and depreciation.

Is this cash flow likely to decline? Musk said he would like to reduce the amount of advertising on Twitter and increase revenue from subscriptions. “The accepted offer puts a $5 billion-a-year advertising business in the hands of someone who has publicly questioned Twitter’s advertising business model,” the company noted. Log.

If Musk can’t find a new company to replace Twitter advertising, where else will he look for that $1 billion loan in annual debt payments?

I wouldn’t sell Tesla shares short, but Tesla shareholders could bear the brunt of the financial obligations Musk incurred to acquire Twitter.

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