Musk's acquisition of Twitter drama staged for more than 1 month Tesla market value evaporated 30%

More than a month has passed since the revelations of the acquisition of about 9 percent of Twitter's stock in early April, and musk's takeover of Twitter has come in more than a month. However, in such a short period of time, Tesla's stock price plummeted by 30%, and the market value also evaporated by 30%.

If the deal goes wrong, it could also hurt Tesla and Twitter shareholders and put more pressure on Twitter's finances. There are already signs that investors are deeply concerned about this. Aswath Damodaran, a professor of finance at NYU's Stern School of Business, said: "Even if Musk has the ability to raise funds, it is not a wise deal from a financial standpoint. ”

Tesla shareholders want to know what happens when the CEO becomes the overseer of the internet wars.

Tesla stock became a trading weight

Musk and his partners are investing more than $20 billion in cash to buy Twitter, but he also intends to secure a $6.25 billion loan through Tesla stock, down from the previous $12.5 billion. Analysts say it's hard to imagine a deal that would burden individuals with such a huge stock mortgage, or margin loan, to help buy another company.

The terms of the loan may change, but the terms disclosed early in the lending process indicate that the lender believes that this is a potentially risky part of the transaction. One document shows that the bank asked Musk to collateral Tesla shares worth five times the value of the loan, which gave them plenty of redundancy. The loan also includes an upfront fee of 0.5% and an interest rate of more than 3%. Vicki Bryan, ceo of research firm Bond Angel, said the terms were "very harsh."

Banks are likely to remain wary because they have already lent musk loans. The latest disclosed documents show that as of the end of last year, Musk had pledged more than 92 million shares of Tesla stock to obtain personal loans before making a takeover offer to Twitter, but the documents did not say how much money he had borrowed.

Margin loans can go wrong

If tesla's stock plummets in value, Musk's margin loan to buy Twitter could be a constraint on the deal. The plunge in stock prices could prompt banks to sell stock collateral to recover money lent to Musk, which in turn could trigger more sell-offs in the market. Musk's margin loan terms stipulate that if Tesla's stock price falls more than 40% from the date the loan terms take effect, he must pay off all of his debts.

Tesla's business is doing well, so analysts don't expect its stock price to plummet. According to market research firm Cox Automotive, 75 percent of electric vehicles sold in the U.S. in the first three months of 2022 came from Tesla.

More recently, traditional automakers such as Ford, Hyundai and Kia have also been selling enough attractive electric vehicles, and most analysts expect Tesla's market share to decline. But that hasn't happened yet. Conversely, Tesla's market share in the first quarter was even higher than in the same period last year, when it accounted for 70% of the market share in the United States.

Michelle Krebs, executive analyst at Cox Automotive, said: "No one can capture 100% of the market share forever, and Tesla will face fierce competition. But on the other hand, every time we say that, no one really challenges them. ”

But some analysts have seen weaknesses in Tesla's business, including a lack of new products and persistent quality issues. They said margin loans added negative forces that could weigh on Tesla's stock price. Brian said: "Now Musk has brought new risks because he promised to mortgage more stocks. ”

Twitter could be a distraction for Musk

In addition, Twitter could distract Musk from focusing on running Tesla and other businesses. The risk is especially serious if managing Twitter becomes a headache, sparking more controversy and alienating potential Tesla customers. Many shareholders said that many of Musk's impromptu tweets have hurt Tesla's imagination and interests.

Kristin Hull, founder and CEO of California investment fund Nia Impact Capital, said: "Musk says a lot of controversial things, are they distracting? Confusing? Did Musk intervene in stock value by posting? Absolutely. ”

Meanwhile, the acquisition of Twitter could strengthen the stock market regulator's scrutiny of Musk. He has been sued by a shareholder of Twitter, accusing him of missing a key disclosure deadline in the process of continuing to buy Twitter shares.

Boston law firm Block & Leviton, which represents the lawsuit, said Musk saved himself tens of millions of dollars by disclosing information about his Twitter stakes after the deadline was six days. In this case, he was able to continue to buy Twitter stock at a lower price.

Musk's confrontation with the U.S. Securities and Exchange Commission (SEC) has a long history. Last month, he failed to persuade a judge in New York to lift a settlement he reached with the SEC in 2018, which required him to be vetted by the company's lawyers before issuing tweets that could affect Tesla's stock price.

Chester Spatt, a finance professor at Carnegie Mellon University's Taper School of Business, said that by acquiring Twitter, "you (Musk) expose yourself directly to the SEC." It's easy to imagine the SEC saying, 'This guy is a repeat offender, what else do we need to do?' ’”

Acquisition of Twitter could become a "bottomless pit"

Musk may be able to turn Twitter around, but if he doesn't, the company may struggle to repay the $13 billion in new borrowings it expects to take, depending on the deal plan.

If Twitter's financial situation deteriorates and it is unable to repay new debts, Musk and the company's other shareholders will have to decide whether to provide more financial support. He may be able to borrow more money as collateral from his Tesla stock holdings, sell some of the shares, and even borrow from other valuable assets, such as his stake in SpaceX, which could be worth more than $40 billion.

Asworth Damo Dalan, a professor of finance at NYU's Stern School of Business, said: "There is no doubt that Twitter cannot afford this debt. ”

Well-known short-selling firm Hindenburg Research has warned that Twitter's stock could plummet 50 percent if Musk abandons the acquisition. The agency said in the report: "Musk has all the initiative. If he announces his abandonment of the takeover of Twitter tomorrow, the latter's stock price will plummet 50% from current levels. Therefore, we believe that there is a high risk that this transaction will be repriced. ”