Musk's Twitter play sparks concerns about distraction, stock sales at Tesla
15/04/2022 01:30
By Hyunjoo Jin and Chavi Mehta
April 14 (Reuters) - Elon Musk's offer to buy Twitter
sparked concerns among Tesla investors and analysts that the
electric carmaker could suffer as the chief executive becomes
distracted by his takeover play and the possible sales of Tesla
shares to fund the deal.
The billionaire entrepreneur, who also heads rocket company
SpaceX, targeted Twitter Inc TWTR.N on Thursday with a $43
billion takeover offer. urn:newsml:reuters.com:*:nL3N2WC22G
The idea of Musk working to close that deal, possibly by
selling even more of his Tesla stake, and then overseeing yet
another company has Tesla observers worried.
"Elon is distracted. He's got a lot of things going on. He's
involved in a lot of different endeavors," said Gene Munster,
managing partner at venture capital firm Loup Ventures, which
owns shares in Tesla. "This is a one to three months headwind to
Tesla's stock."
Shares of Tesla, the world's most valuable automaker, fell
more than 9% since he disclosed his more than 9% stake in
Twitter last Monday. On Thursday, Tesla's stock fell 3.7%.
While Musk has talked about potential changes he would like
to see Twitter make, Tesla faces its own challenges - the need
to boost production at new assembly plants in Berlin and Texas,
analysts said. Meanwhile, Tesla's Shanghai factory - its largest
- has been idled by the COVID-19 crackdown in China.
"Musk is Tesla, and investors don't want to see Tesla lose
that leadership edge," Roth Capital Partners analyst Craig Irwin
said.
And investors have Musk's own words prior to this foray on
which they base their fears. Last year, he said he worked seven
days a week - "crazy hours" - splitting time between Tesla and
SpaceX. He also leads brain-chip startup Neuralink and tunneling
venture the Boring Company.
Another worry is how Musk will finance a potential deal for
Twitter, which would include stock sales and massive loans,
analysts said.
Wells Fargo analyst Colin Langan said Musk, who holds over a
9% stake in Twitter, would need $39 billion to complete the deal
and the sale of more Tesla shares could pressure the stock
further.
Tesla executives may pledge their company stock as
collateral for loans, but the maximum loan does not exceed 25%
of the total value of the pledged stock, according to company
policy.
This means that he could borrow $42.5 billion by pledging
all of his shares worth $170 billion. But he already pledged
over half of his Tesla shares as collateral to secure certain
personal indebtedness, according to a Tesla filing last year.
Musk said on Thursday he has the assets to buy Twitter, but
has not provided details.
The fortunes of the world's richest person consists largely
of stocks at Tesla, and Space X. He sold over $16 billion Tesla
shares late last year, $11 billion of which he said would be
paid in taxes.
"He is potentially setting himself up for a huge liability
down the road," said Howard Fischer, a partner at law firm Moses
& Singer and former senior trial counsel at the U.S. Securities
and Exchange Commission.
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TIMELINE-Musk's plans for Twitter as billionaire launches
takeover offer urn:newsml:reuters.com:*:nL3N2W222X
NEWSMAKER-With Twitter in his sights, Musk creates new model of
21st century billionaire urn:newsml:reuters.com:*:nL2N2WC155
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(Reporting by Hyunjoo Jin in San Fracisco, Chanvi Meta in
Bangalore; additional reporting by Chris Prentice. Editing by
Ben Klayman and Bernard Orr)
((hyunjoo.jin@thomsonreuters.com; 82-2-3704-5685; Reuters
Messaging: hyunjoo.jin.thomsonreuters.com@reuters.net))