If he buys Twitter, Elon Musk will be the most indebted man in the United States

If he buys Twitter, Elon Musk will be the most indebted man in the United States

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The richest man on the planet takes a big risk with the acquisition of Twitter. He would see his share of Tesla shares tied at $ 140 billion, or 60% of his fortune.

Elon Musk, the most indebted man in the world? If Tesla’s boss manages to buy Twitter, the debt of the richest man in the world will reach levels never seen before in world capitalism.

It is recalled that the one who is currently the first fortune on the planet with a fortune estimated at $ 250 billion by Bloomberg has undertaken to buy the social network for $ 44 billion. An amount he does not have, strictly.

To complete his acquisition, Musk has taken out $ 13 billion in bank loans that the billionaire will have to repay with Twitter profits, according to documents sent to the SEC, the US stockbroker. It will bring in $ 21 billion (possibly through the sale of Tesla shares). Finally, a final personal loan with a margin of $ 12.5 billion completes the round of financing and for which Tesla shares are provided as collateral. In addition to being a floating asset, Elon Musk would have pledged $ 62.5 billion in Tesla stock to cover his loan.

Finance your lifestyle

Debt like this is a common practice in the world of the new stock market economy. Thus, Forbes identified 32 American billionaires who pledged shares of their company in 2021 to obtain loans. Among them, the American media mention Oracle founder Larry Ellison or financier Carl Icahn.

The goal for these very large fortunes is to finance their high way of life without affecting the value of their inheritance or their ability to control companies by selling shares. Larry Ellison, for example, bought an island for $ 300 million and a mansion for $ 110 million without selling a single share between 2010 and 2020.

This is what Elon Musk has been doing since 2015, financing his lifestyle with pawnbrokers. But with the acquisition of the social network, the business takes on a whole scale and becomes more and more risky.

Before Twitter, Musk would already have over $ 90 billion in pledged shares, according to Audit Analytics. He is by far the largest debtor to US stocks, well ahead of Larry Ellison and his $ 24 billion. Tesla’s boss alone weighs in on more than a third of the shares owed in the United States by listed companies, valued at $ 271 billion by Audit Analytics.

Once the loans were taken out for the acquisition of Twitter, the total amount of shares pledged by Elon Musk would reach $ 140 billion, according to Forbes, which is more than half of the shares pledged in the United States and by the way almost 60% of it. billionaire’s current assets. In other words, if Elon Musk failed to meet future margins, banks could use the beast to force him to sell colossal amounts of stock.

Markets in question

A situation that large American companies are increasingly trying to avoid.

“Enforcement commitments are considered a significant risk to corporate governance,” Jun Frank, chief executive of ICS Advisory, told CNBC. “If an executive with a significant mortgaged position does not meet the profit margin, it could lead to the sale of these shares, which could cause a sharp drop in the share price.”

An overexposure to Musk that begins to challenge markets. Especially since Twitter is struggling to find a financial model that generates cash. After a few years in the green, net income fell in 2021 and ended with a loss of $ 181 million. It is difficult to repay loans with losses …

The markets have not made a mistake and are beginning to doubt the implementation of Musk’s offer on Twitter. The social network share price has lost more than 5% of its value since the announcement of the acquisition and that of Tesla more than 8% this week. Since the billionaire expressed interest in Twitter in early April, Tesla’s share price has fallen even more than 20%.

Doubts about the financing of the business but also about the ability of the billionaire to run five companies at the same time. If Elon Musk becomes the owner of Twitter, he will actually take direct control of Tesla, SpaceX, Neuralink, The Boring Company and the social network blue bird.

“When you have a lot of businesses in your area that you oversee and manage, you can have a hard time,” Frank of ISS Corporate Solutions writes in Forbes. “I’m not going to say if Elon Musk is capable of that, because he could be superhuman, but in general, this over-commitment can be a challenge for shareholders.”

Frederic Bianchi

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