Earlier than the markets opened on Thursday, Elon Musk introduced he had made a suggestion to purchase Twitter for…
When the markets closed on Thursday Elon Musk’s web price sat at…
That quarter-trillion-dollar fortune simply makes Elon the richest particular person on the planet. At this second, he is about $75 billion richer than the world’s second-richest particular person, Jeff Bezos. He tops the #3 particular person, Bernard Arnault, by $110 billion and the #4 particular person, Invoice Gates, by $120 billion.
It will be simple to imagine that the richest particular person on the planet, an individual with a web price of $250 billion, may EASILY afford to purchase Twitter for $43 billion. On paper you’ll assume that Elon may purchase Twitter for $43 billion and nonetheless have greater than $200 billion left over. Proper? Seems, possibly not…
Elon is “Money Poor”
Elon takes no wage as CEO of Telsa. His web price is sort of fully made up inventory in Tesla and SpaceX.
Since Tesla went public in 2010, he has largely lived off traces of credit from numerous banks that have been backed by Tesla shares as collateral. The truth is, simply earlier than Tesla went public, when Elon was within the midst of a bitter divorce struggle, he informed a California decide that he had zero money and was “residing off emergency loans from buddies.”
“I’ve no different investments that I may simply promote so as to generate cash. My money place could be very restricted. About 4 months in the past, I ran out of money fully.“
When Tesla did ultimately go public in 2010, its market cap was $2.2 billion. Quick ahead to 2019, when Tesla’s market cap was $50 billion, you would possibly assume his money place had improved. Nope.
In 2019 Elon was within the midst of one other court docket battle, this one a defamation case introduced by a rescue diver who Elon referred to as “pedo man” over Twitter. On this court docket case, as soon as once more Elon claimed to be “money poor” and “financially illiquid.”
Quick ahead to the current. Telsa’s market cap is $1 trillion and, amazingly, Elon’s liquid monetary place is basically unchanged.
Whenever you hear that Elon has a web price of $250 billion, here is how that is calculated:
– He owns 17% of Tesla proper now, free and clear. That is round $170 billion.
– He additionally has the choice to purchase an extra 59 million Tesla shares. If he exercised these choices in the present day, he can be left with round $37 billion price of precise inventory after paying numerous strike costs.
– He owns 43% of privately-held SpaceX. At SpaceX’s final funding the corporate raised cash at a $100 billion valuation. That is $43 billion in pre-tax, paper wealth belonging to Elon.
$170 + 37 + 43 = $250 billion
An important takeaway within the above equation is that NONE of that wealth is liquid and it is all earlier than Elon paid the IRS their share if any of it was liquidated.
Would Elon REALLY promote roughly $85 billion price of inventory to have the ability to have $43 billion after taxes to fund his Twitter buy? Nearly definitely not.
As a substitute of promoting shares he may go to an enormous financial institution and borrow $43 billion utilizing Tesla inventory as collateral. BUT! This may be an especially dangerous transfer on the financial institution’s half. Tesla inventory goes up simply as shortly and unpredictably because it goes down. Please recall from earlier within the article how we identified that simply three years in the past, 2019, Tesla’s market cap was $50 billion. This is not a gentle large like Procter & Gamble or Coca Cola that existed 100 years in the past and can most likely exist in 100 years. Tesla’s share value swings wildly on rumors, theories and, most significantly, Elon’s Tweets. There’s simply as a lot of an opportunity that Tesla will increase by 10X within the subsequent few years as there’s a probability it ceases to exist.
For instance, after taking a $43 billion financial institution mortgage would it not be such a stretch of the creativeness to image a world the place Elon awakened at some point and Tweeted one thing like “Electrical automobiles are silly. I am promoting all my Tesla shares and investing in frogs.“? No, proper?
So it appears unlikely that the financial institution mortgage route can be a viable choice.
I do should right one thing that simply occurred to me. Elon already owns 9.2% of Twitter. He purchased his present stake in mid-March, paying round $2.3 billion. So as pay $43 billion for Twitter he would truly solely must provide you with $38.7 billion of his provide value. So that will require round $70 billion pre-tax.