Before the markets opened on Thursday, Elon Musk announced that he had made an offer to buy Twitter for …
$ 43 billion
When the markets closed on Thursday, Elon Musk’s net worth was at …
$ 250 billion
That quarter-trillion-dollar luck easily made Elon the richest man in the world. At the moment, he is approximately $ 75 billion richer than the second richest man in the world, Jeff Bezos. He leads the #3 man, Bernard Arnault, of $ 110 billion and the #4 man, Bill Gates, of $ 120 billion.
It’s easy to assume that the richest man in the world, someone with a net worth of $ 250 billion, could EASILY afford to buy Twitter for $ 43 billion. On paper you would assume Elon could have bought Twitter for $ 43 billion and still have over $ 200 billion left. right? Turns out, it may not …
Elon is “Cash Poor”
Elon has no salary as CEO of Telsa. His net worth is almost entirely made up of stock in Tesla and SpaceX.
Since Tesla went public in 2010, he has lived more on lines of credits from various banks backed by Tesla shares as collateral. In fact, before Tesla announced it publicly, when Elon was in the midst of a bitter divorce battle, he told a California judge that he had no money and was “living off emergency loans from friends. “
“I have no other investment that I can easily sell to make money. My position in money is very limited. About four months ago, I ran out of money.“
When Tesla finally went public in 2010, its market cap was $ 2.2 billion. Fast forward to 2019, when Tesla’s market cap is $ 50 billion, you can assume its monetary position has improved. No.
In 2019, Elon was in the middle of another court battle, this one being a defamation case brought by a rescue diver whom Elon called a “pedo guy” on Twitter. In this case in court, Elon again claimed to be “cash poor” and “financially illiquid.”
Fast forward to the present. Telsa’s market cap is $ 1 trillion and, surprisingly, Elon’s liquid financial position is virtually unchanged.
When you hear that Elon has a net worth of $ 250 billion, here’s how that is calculated:
-He owns 17% of Tesla now, free and clear. That’s about $ 170 billion.
– He also has the option to buy an additional 59 million Tesla shares. If he used those options now, he would be left with approximately $ 37 billion worth of actual stock after paying various strike prices.
-He owns 43% of privately held SpaceX. With SpaceX’s last funding, the company raised money to the tune of $ 100 billion. That’s $ 43 billion in pre-tax, paper wealth owned by Elon.
$ 170 + 37 + 43 = $ 250 billion
The most important takeaway in the above equation is that NONE of that wealth is liquid and everything is before Elon pays the IRS their share if any of it is liquidated.
Will Elon REALLY sell approximately $ 85 billion worth of stock to have $ 43 billion after taxes to fund his Twitter purchase? Almost certainly not.
Instead of selling shares he could go to a big bank and borrow $ 43 billion using Tesla stock as collateral. BUT! This would be a very risky step on the part of the bank. Tesla’s stock rose rapidly and unpredictably as it declined. Please remember from earlier in the article how we pointed out that just three years ago, 2019, Tesla’s market cap was $ 50 billion. It’s not a solid giant like Procter & Gamble or Coca Cola that existed 100 years ago and will likely exist for 100 years. Tesla’s share price is rapidly changing with rumors, theories and, most of all, Elon’s Tweets. There’s as much chance that Tesla will rise 10X over the next few years because there’s a chance it won’t exist.
For example, after taking out a $ 43 billion bank loan, it would be a stretch of the imagination to imagine a world where Elon woke up one day and tweeted something like “Electric cars are stupid. I sell all my Tesla shares and invest in frogs.“? Incorrect?
So it seems unlikely that the bank loan route is a viable option.
I had to correct something I just thought of. Elon already owns 9.2% of Twitter. He bought his current stake in mid-March, paying out approximately $ 2.3 billion. To pay $ 43 billion for Twitter he only had to come up with $ 38.7 billion of his offer price. So that would require about $ 70 billion before taxes.