Now that Elon Musk and Twitter have apparently reverted to their respective positions in early summer, with the CEO of Tesla finally eschewing attempts to wriggle out of a legally binding acquisition agreement, and Twitter cavorting on having secured a substantial valuation premium in the current malaise that is affecting the global equity markets, the focus is again returning to the financing aspects that underpin this entire arrangement. Here, though, Elon Musk has to contend with a significant problem: how to sell Tesla shares worth billions of dollars in the ongoing blackout window?
— Gary Black (@garyblack00) October 4, 2022 Gary Black, a managing partner at The Future Fund LLC, penned a very helpful tweet a few hours back, examining the additional equity financing that Elon Musk still needs to go through with the Twitter takeover deal. Twitter’s outstanding shares amount to 765.246 million (does not include 63 million in RSUs; more on this later on). Of these, Elon Musk already owns 73.115 million shares that are worth $3.963 billion at the proposed offer price of $54.20 per share. This means that the CEO of Tesla needs $37.5 billion in total to purchase the residual outstanding Twitter shares. Of course, the debt portion of the proposed financing structure currently computes at around $13 billion. This leaves the equity financing portion at $24.51 billion. In April-May, Elon Musk sold around $8.5 billion worth of Tesla shares to fund his equity commitments under the original Twitter takeover deal. Then, back in August, the CEO of Tesla sold $6.9 billion worth of Tesla shares. This means that he has so far accumulated $15.4 billion in funding by selling a portion of his gigantic Tesla stake. Moreover, back in May, Elon Musk was able to completely eliminate the $12.5 billion margin loan from the Twitter takeover deal’s proposed financing structure by securing $7.1 billion in equity commitments from the likes of Larry Ellison, Binance, Sequoia, the Saudi Prince Al Waleed, etc. So, with $15.4 billion in hand and $7.1 billion worth of equity commitments, Elon Musk currently has $22.5 billion worth of equity financing. However, as stated above, the CEO of Tesla needs $24.51 billion in equity financing to consummate the Twitter takeover deal, leaving a $2 billion funding hole. But here is where the math gets complicated. Twitter currently has around 63 million RSUs that are worth $3.4 billion at the proposed $54.20 per share offer price. When we account for this aspect, the overall funding hole increases to $5.4 billion. This means that Elon Musk will have to sell around 21.6 million additional Tesla shares, based on yesterday’s closing price of $249.44. Yet, there is another complication. Tesla is currently in the blackout window, given the stock’s proximity to the upcoming Q3 2022 earnings. Normally, this would prevent Elon Musk from selling additional Tesla shares. However, there is a blackout window carve out for pressing financial commitments. Let’s see if the CEO of Tesla avails this optionality to close the Twitter takeover deal by next Monday, as reported by CNBC. Meanwhile, stay tuned for further updates in this ongoing saga.
