It is becoming more and more plausible that investors in Tesla (Tesla stock) will have to cope with the possibility of its CEO, Elon Musk, purchasing the social media site Twitter.
Investors in Tesla (NASDAQ:TSLA) will run into trouble in the long run because management is distracted. In the short term, the acquisition of Twitter (TWTR) indicates that Tesla (NASDAQ:TSLA) will conduct another significant stock sale shortly. On the other hand, it is unclear just how much.
On October 17, both Twitter and Musk were scheduled to stand trial in Delaware. That was until a court put a hold on trial on October 6 when Elon Musk agreed to acquire Twitter at the Amount he had first offered for each share, which was $54.20.
In a note that was released on Tuesday, a Gordon Haskett special circumstances analyst named Don Bilson stated that “twelve days have now come off the clock since the halt and that gives Musk just 10 more days to conclude the deal…or face the consequences.” “First and foremost, that indicates that the trial would be brought back to life, and Musk would once again be facing a deposition that we think he would do virtually anything to avoid. ”
To prevent this from happening, Bilson believes that Musk may need to sell an additional $8 billion worth of Tesla stock (NASDAQ:TSLA) in order to close the acquisition. Musk has already amassed around $35.5 billion from the sale of approximately $15 billion worth of his own stock, in addition to $13 billion in debt obligations, approximately $7 billion in equity commitments from other parties, and approximately $1 billion in convertible debt.
Gary Black, who helped establish the Future Fund Active ETF (FFND), thinks that Bilson’s figure is a bit on the high side. According to Black’s calculations, little more than $5 billion is going to be required to close the purchase.
There is certainly space for argument here. Musk will be required to buy a different quantity of Twitter shares due to his stock-based pay. Alterations to the number of equity contributions made by third parties are also a possibility. These commitments to other parties may expand or contract as necessary.
Both Tesla (NASDAQ:TSLA) and Twitter (NYSE:TWTR) did not provide an instant response to inquiries regarding finance.
Musk may also wish to minimize the amount of new debt incurred as a result of the transaction. Because Twitter now has about the same amount of cash on hand as debt, the debt that Musk brings to the table will serve as the new leverage for the organization that currently owns Twitter.
Ebitda, which stands for profits before interest, taxes, depreciation, and amortization, is expected to be about $1.3 billion for Twitter in 2023. This decreased from the estimated $1.8 billion only a few months earlier.
As a result, Twitter’s pro forma debt-to-Ebitda ratio had increased to almost ten times, up from approximately 7 times when Musk initially planned his Twitter funding package. Both of these figures are in the upper range, but ten is very high. Less than two times is the ratio of a company’s net debt to its Ebitda for those in the S&P 500 (SPX +1.14%). The parent company of Facebook, Meta Platforms (META), has more cash on hand than it has debt.
In addition to that, interest rates have increased. This will result in a higher interest expenditure, which will reduce the amount of cash that the organization earns.
Musk will need to sell more stock if he wants to reduce his debt. The total value of the Tesla shares that Elon Musk sells is expected to be in the billions of dollars, and the sale is expected to take place in the few days after Tesla (NASDAQ:TSLA) reports its profits on October 19. Musk has been unsuccessful in selling shares leading up to results. The company’s management and other insiders are normally barred from selling their shares at the end of each quarter and before profits are published.
One potential bright spot for investors in Tesla (NASDAQ:TSLA) is that Bilson anticipates an optimistic earnings announcement from the company on Wednesday evening. A negative report might cause shares to fall, which would need Musk to sell more stock in order to generate the same amount of revenue.
Featured Image – Megapixl © Wellesenterprises
Author Valerie Remorosa