National Post (National Edition)
Musk's US$21B money mystery
Where will he get cash for Twitter?
Elon Musk and Twitter Inc. reached an agreement for the world's richest man to buy the social networking platform for US$44 billion, resolving the pressing question of whether the company's board would consent to the leveraged buyout deal.
On Musk's side, though, there remains a mystery: How is he going to cover the US$21 billion equity portion of the transaction that he's personally guaranteed?
Musk, 50, has outlined the US$13 billion in bank financing secured by the social media company and the US$12.5 billion backed by a pledge of some of his US$170 billion Tesla Inc. stake. But he's been short on details about how he'll fund the remainder.
Twitter fell 3.9 per cent in New York on Tuesday at US$49.68, short of the US$54.20 that investors will receive for each share they own. The deal includes a provision that the billionaire must pay a so-called reverse breakup fee if he were to walk away or the agreement falls apart, Bloomberg News reported.
Ultimately, there's little doubt he can come up with the money. Musk is the world's richest person, with a fortune of US$257 billion, according to the Bloomberg Billionaires Index. However, he has just about US$3 billion in cash and somewhat liquid assets, according to Bloomberg estimates.
That leaves him with the following options:
❚ Other Investors
One path for Musk is finding like-minded investors who buy into his vision for Twitter to join him in his purchase. That would mean some of the equity portion comes from new or existing shareholders.
He's already hinted that such a strategy may be in the cards. After his initial offer to buy Twitter, Musk said at a TED event that “the intent is to retain as many shareholders as is allowed by the law.”
Private U.S. companies are generally limited to fewer than 2,000 shareholders, meaning most retail investors won't continue to own Twitter if the buyout closes.
But larger shareholders, like Twitter founder Jack Dorsey, might choose to keep their holdings in the company if they believe in Musk's vision. Dorsey's stake is worth almost US$1 billion.
❚ Selling Stakes
Even if Musk can't round up many other equity investors, he has the financial firepower to go at it mostly alone, thanks to the crown jewel of his enormous fortune: His stake in Tesla.
After pledging shares to cover his US$12.5 billion margin loan, Musk will still own unpledged shares in the car company worth about US$21.6 billion, based on Tesla's closing price Monday. After taxes, that sale would come close to covering his full commitment, though a lot will depend on the price he gets for the stock.
That strategy comes with its own set of risks. For one, concerns about Musk needing to sell some of his shares may already be weighing on the electric carmaker's stock price. It's down about eight per cent since the beginning of the month.
❚ Cash, Crypto
The other possibility: Musk is even richer than calculated by the Bloomberg Billionaires Index.
Musk's cash estimate is based on filings related to publicly traded shares and news reports, but much of the information on his private finances is limited. If his portfolio of investments has outperformed the market, for instance, Musk could be wealthier than the Bloomberg estimate and he might not need new sources of funding to cover the US$21 billion.
Musk said in July he owned Bitcoin, Ether and Dogecoin. While it's not clear how much he holds or for how long he's owned them, the first two cryptocurrencies have gained about 720 per cent and 2,600 per cent, respectively, since March 2020.