Here are all the ways Elon Musk’s Twitter deal could fall apart

Here are all the ways Elon Musk’s Twitter deal could fall apart

  • Musk’s Twitter takeover is partially funded by a huge loan secured by his Tesla shares.
  • He has cut that loan in half with additional funding, but as Tesla shares fall, the deal looks more shaky.
  • If Tesla shares fall below $420, Musk won’t have enough to cover the loan, Bloomberg reported.

If Tesla stock continues to fall, Elon Musk may not have enough money to buy Twitter.

Musk’s acquisition hinges on a $12.5 billion loan secured against his Tesla shares. But plummeting tech stocks have jeopardized this crucial part of the deal. Tesla is down more than 20% to $769 since the loan agreement was signed in April. If it drops below $420, Musk would not have enough unpromised Tesla shares to cover the margin loan, Bloomberg calculated on Thursday.

This creates a risk, though not inevitable, for Musk. He is raising an additional $7.1 billion from Sequoia Capital, Qatar, Oracle founder Larry Ellison and Saudi prince Alwaleed bin Talal, reducing the margin loan to $6.25 billion. Without that, Musk would have already run out of guarantees when Tesla dropped below $837, which it did last Friday.

The billionaire could also completely eliminate that margin lending through another round of funding, though that route will likely come with punitive interest rates of up to 14%, according to Bloomberg. And there is already concern about how Twitter, with its meager record of profitability, would be able to pay off such an expensive debt.

The market is betting that the deal will fail, or at least be priced much lower. On Friday, Twitter stock closed at $40.72. That’s a 25% discount to Musk’s $54.20 a share offer on April 25th.

On Friday morning, Musk tweeted that the deal was “temporarily on hold” to check whether spam and fake Twitter accounts account for less than 5% of the company’s total users. A little over two hours later, he tweeted that he was “still committed to the acquisition”. However, this reeked of buyer remorse, or some sort of effort to renegotiate the purchase price, and triggered a sudden 25% drop in Twitter stock.

The deal could still fail, but the terms of the deal would make it expensive for Musk. In addition to a $1 billion separation fee, Twitter can sue you for damages and breach of contract and charge more than $1 billion, according to CNBC.

“While I hope the deal is done, we need to be prepared for all scenarios and always do what’s right for Twitter,” wrote Parag Agrawal, the company’s CEO, on Friday.

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