Tesla’s $126 bn loss could put Musk’s Twitter takeover at risk

April 27, 2022

By Murtuza Merchant

Even as Twitter signed a definitive agreement to be acquired by an entity wholly owned by Elon Musk, American automotive and clean energy company Tesla Inc’s stock crashed over 12 percent, wiping out nearly $25 billion from Musk’s fortune.

The slide comes a day after Twitter announced that it has entered into a definitive agreement with Musk to sell the microblogging site for $44 billion or $54.20 per share.

Tesla’s market capitalization has fallen by $126 billion after what is being seen by the electric car maker’s investors as an adverse impact of the finalization of the deal between Musk and Twitter.

According to experts, their apprehensions are linked to the acquisition’s financing, as Musk would be raising $12.5 billion in loans against his Tesla stock. For the remaining amount, banks are offering $13 billion in debt financing and Musk has pledged to equity finance $21 billion himself.

According to sources, the banks backing Musk’s bid balked at providing more debt secured against Twitter, arguing that the San Francisco-based company did not produce enough cash flow to justify it. Some banks were also worried that financial regulators could reprimand them if they took on more risk, the sources added.

The company has seen significant growth over the last few years. Twitter’s largest user base is the US, with 76.9 million users followed by Japan at 58.95 million, and 23.6 million users in India, according to market intelligence firm Statista.

Tesla Inc’s shares closed at $876.42 apiece at Nasdaq at the time of writing this report, which was around 12.18 percent or nearly $122 lower compared to the previous day’s close.

With the recent battering, the stock has lost about 27% of its value year to date. However, Tesla reported a blockbuster first-quarter financial result with an 87% year-on-year jump in revenue to $16.86 billion. Its margin jumped 32.9% and net profit stood at $5.54 billion.

The Nasdaq also fell 3% and the S&P 500 index fell 2% amid the continued uncertainty in the Ukraine war and high inflation.

Musk’s tweets greatly affect investors in cryptocurrency, also raising questions about the solidity of a market that can be so easily swayed, especially as retail investors increasingly flock to cryptocurrencies.

In May last year, Musk tweeted that Tesla would no longer accept bitcoin as payment due to environmental concerns about its heavy energy use, a reversal of its acceptance of the marquee cryptocurrency just two months earlier. As a result, the price of bitcoin dropped around 15 percent.

Musk’s control over the crypto markets is so strong that it extends to imitators, too. The Federal Trade Commission recently reported that consumers were scammed out of $2 million by Musk impersonators in the past six months.

 


About the author

Murtuza Merchant is a senior journalist and an avid follower of blockchain and cryptocurrencies.

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