However, interest rates on loans reflect the risk of non-repayment of loans. Banks don’t seize loans, they sell them to other investors in the market, so if Twitter can’t pay off its debts, Mr. Musk will either have to pay those investors, perhaps by selling more Tesla shares, or he could dilute that stake and transfer some of his Twitter ownership.
Tesla had a market cap of $902 billion as of Friday, but its shares have fallen nearly 20 percent since Mr. If Twitter’s finances deteriorate, forcing Mr. Musk to sell more Tesla shares to pay off Twitter’s debts or pledge more shares as collateral for his personal loans, that could put further pressure on Tesla’s stock price. Mr. Musk does not receive a salary from Tesla, but is paid in the company’s issued stock based on performance milestones that include the stock price.
Since Mr Musk first announced his stake, the tech-heavy Nasdaq index has dropped more than 10 percent, making his offer seem even more generous. “That’s a high price and your shareholders will love it,” said Mr. Musk. Letter to the Twitter board. While the social media company’s shares traded higher than Musk’s bid just six months ago, it fell far below that price earlier this year and is unlikely to return to those highs anytime soon.
In his bid to buy Twitter, Mr. Musk has considered teaming up with investment firms, which would reduce the amount of money he has to personally invest. It could still help raise cash with a firm or other investors such as family offices, according to two people familiar with the discussions.
Thoma Bravo, a technology-focused acquisition firm, has expressed willingness to raise some financing, but nothing has been decided yet. Apollo, an alternative asset manager, also looked at a possible deal where he could extend a loan on preferred terms.
If the deal math gets distasteful for Mr. Musk, he has a way out: a $1 billion breakup fee. That’s a small price to pay for a man with an estimated net worth of over $200 billion.