Elon Musk’s Twitter funding puts more of his Tesla holdings at risk 2022-04-28 21:56:00

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Tesla company

chief executive officer

Elon Musk

For years, he worked on connecting his personal business ventures to his stake in the automaker. Use these holdings to help fund his $44 billion purchase

Twitter company

TWTR 0.97%

It takes this connection to a deeper level.

A major part of the financing plan involves borrowing $12.5 billion in loans backed by more than $62.5 billion of Tesla shares that Musk owns — or about 40% of his stake at Wednesday’s closing price of $881.51. Tesla and several banks have set rules that require it to provide more guarantees if the company’s stock prices fall.

The entrepreneur has always built his personal financial house on a network of loans backed by his stakes in the companies he supported.


picture:

Ryan Lash/AFP/Getty Images

Using Wednesday’s price, Mr. Musk will need to satisfy banks with more guarantees if Tesla shares fall 43% to about $504. In that case, the banks would request a rebalancing that would require an additional $14 billion, or 28.5 million shares at that level. This is in addition to the 70.9 million shares required at the Wednesday price of the original warrants.

Similarly, Tesla has long limited the amount that Mr. Musk is allowed to borrow against his shares at 25% of the total value of the pledged shares. This suggests that if the deal used Wednesday’s share price, it would have to pay more if those shares fell more than 20% to below $705 and Tesla enforced its policy. These arrangements mean that in some scenarios, he may be pressured to sell Tesla stock.

Tesla did not respond to a request for comment.

Mr. Musk has sold nearly $4 billion in Tesla stock In the two days after agreeing to buy Twitter, a total of more than 4.4 million shares sold on Tuesday and Wednesday at prices between about $870 and $1,000 per share, according to regulatory filings announced late Thursday.

The overall story for Tesla stock has been one of growth, rising more than 18,000% since it went public in 2010. But, like Tuesday, when it fell 12% as investors digested, among other things, what Mr. Musk’s participation in the Twitter Relative to other parts of his empire, the stock has been very volatile. Tesla shares have fallen 20% since April 4 after it refused to join Twitter’s board of directors, putting it on a path to bidding for the company.

In 2021, Tesla became the world’s first car maker, valued at more than $1 trillion.


picture:

Patrick Tehan / MediaNews Group / Bay Area News / Getty Images

Since 2010, positive and negative stock fluctuations of 5% or more in a single day have totaled 318, according to FactSet data, including on Tuesday when Tesla fell to $876.42 a share. in the same period,

apple

Saw 57 days similar while

general motors company

He had 90.

At the end of 2021, Mr. Musk had 173 million shares of Tesla, not counting his options. About half of his stake has already been promised as security for personal loans, according to the most recent public record last year. The depositor said that the pledge did not necessarily indicate that actual borrowing had taken place against those shares. The most recent public request in late 2020 said Mr. Musk personally owed $515 million

Morgan StanleyAnd

Goldman Sachs

And

American bank.

The entrepreneur has long built his personal financial home on a complex web of loans backed by his ownership stakes in the companies he has backed, including his own rocket company, Space Exploration Technologies Corp.

Tesla had previously warned investors about the risk that a stock sale by Mr. Musk to cover loans would cause stock prices to plummet.

“If the price of our common stock drops significantly and Mr. Musk cannot avoid selling the pledged shares (for example, by contributing collateral or reducing leverage), then Mr. Musk may be forced by one or more of the banking institutions to sell shares of our common stock.” The company wrote in a regulatory filing for 2020.

Besides vying for his attention, Tesla and SpaceX have over the years shared staff and resources — a prototype of the Model S sedan was developed under a tent inside SpaceX’s Hawthorne, California headquarters.

In 2016, Mr. Musk led Tesla’s controversial acquisition of a struggling solar panel company called SolarCity Corp. He was the Chairman of the Board of Directors and the largest individual shareholder. Opponents of the deal called it a rescue for Musk, while saying it would fuel natural synergies. A Delaware judge ruled Wednesday that The deal was legal.

Mr. Musk’s extraordinary financial resources are part of the legacy of the struggles Tesla and SpaceX faced during the Great Recession of 2008. He plowed the remainder of his fortune from his involvement in

PayPal

He was involved in those projects and was reluctant to sell his ownership stakes later as those companies improved.

This history has left him Cashless billionaire For most of his career, even as the Bloomberg Billionaires Index ranked him as the richest man in the world with a fortune of over $250 billion.

To fund his life and investments, Mr. Musk borrowed money against his shares in Tesla and SpaceX to avoid having to sell them, common practice Among some of the richest Americans. Before Mr Musk began selling billions of dollars in stock late last year to help cover taxes on his options granted, the company said in June that about half of Tesla’s shares The shares he owns They were used as collateral for personal borrowing.

His finances benefited from the fact that the valuations of Tesla and SpaceX continued to grow, which allowed him to borrow more as the number of shares declined.

Elon Musk at the 2019 event at the Tesla factory in Shanghai.


picture:

Kelay Shane/Bloomberg News

But Tesla’s stock has fallen sharply at times, often caused by events or predictions linked to the company’s growth prospects.

Shares fell 21% on September 8, 2020, after Tesla Failed to be included In the S&P 500 as expected. Later that fall it rose 8.2% the day after the company was announced will be included In the benchmark measure of US stocks.

In early 2019, a dark cloud descended over Tesla as shares plunged 43% in May of the year on concerns about company look. Mr. Musk was struggling to export the Model 3 compact car to China and Europe and made efforts to lower the car’s price in the US

Once these challenges are addressed and Tesla opens its first assembly plant in China, the stock will begin the run that took it to new heights as the world’s first automaker. It is valued at more than $1 trillion in 2021.

Twitter will go private if Elon Musk’s $44 billion takeover offer is approved. This step will allow Mask to make changes to the site. Dan Gallagher of the Wall Street Journal explains the changes Musk has proposed and the challenges he might face when activating them. Illustration: Jordan Crans

During those times when Tesla shares have fallen dramatically, attention often focuses on the margin price of Mr. Musk’s shares.

In May 2019, for example, some short sellers — those investors who benefit from a lower stock price — were pushing a theory about the price catalyst for selling as Mr. Musk moved to cover his position.

It didn’t happen, but his family clearly felt this pressure before. In 2015, Tesla board member and younger brother Kimbal Musk faced a potential margin call on SolarCity shares that had halved their value since the beginning of the year, according to court records. Under financial pressure, he sought a loan from his brother.

“You know I don’t have any money, right?” Mr. Musk responded, according to records released in the acquisition litigation. “I have to borrow.”

write to Tim Higgins in Tim.Higgins@WSJ.com

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