Tesla stock must drop 18% before Musk must add Twitter guarantee

  • Elon Musk’s $44 billion deal to acquire Twitter hinges on Tesla’s stock price being stable.
  • Musk has put up Tesla shares as collateral and is committing an additional $21 billion of his own money to the deal.
  • Here’s how much Tesla stock needs to drop before Musk has to add more money to the deal.

Elon Musk’s $44 billion deal to acquire Twitter hinges on Tesla’s stock price stability, and Tuesday’s 12% drop shows how risky the deal could be for the person most likely to face it. richest in the world.

Musk has pledged Tesla shares to secure billions of dollars in loans from various banks to complete the deal, including $12.5 billion via a margin loan secured in part by his shares. That’s on top of the more than $20 billion of his own money he’s committed.

But Tesla wiped out $126 billion in market capitalization in its sale on Tuesday, costing Musk $32 billion in paper wealth. If Tesla’s stock price continues to fall, it will be forced to provide more collateral to meet margin lending requirements set by banks lending to it to buy Twitter.

According to Bloomberg’s calculations, if Tesla’s stock price falls below $740, Musk will be forced to add more money to the deal. And that could involve Musk selling some of his stake in Tesla or promising more shares.

Near current prices, Musk has about $12 billion in unpledged Tesla stock that he can use to add to the Twitter deal. But if the stock fell below $740, “Musk wouldn’t have enough to cover the full $12.5 billion,” Bloomberg reported.

Tesla falling below $740 is not out of the question, as this represents a drop of just 18% from current levels. The stock briefly traded below that of Feb. 24 and traded between $500 and $800 for much of 2021.

Market participants seem increasingly worried about the potential for Tesla shares


volatility

derail Musk’s acquisition of Twitter, as the gap between Twitter’s current stock price and its transaction price widens. Twitter is trading 10% below its buyback price of $54.20 per share.

And if Musk goes through with his Twitter deal, the Tesla CEO will face annual interest payments of around $1 billion. It could eat away at Musk’s wealth given that Twitter is barely profitable and Musk has said he’s not in the business for economic interests. “It’s no way to make money,” he said.

Ultimately, in assessing whether Musk will be able to complete his takeover of Twitter, investors should watch Tesla’s share price volatility as much as Twitter’s.

About Nicole Harmon

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