According to a Friday note from Wedbush analyst Dan Ives, Elon Musk would be compelled to sell $5 billion to $10 billion in Tesla stock next week as he gears up to execute a $44 billion acquisition of Twitter.
Musk is looking for outside investors to assist him to raise the remaining $32 billion that he needs to complete the purchase. He now has $12.5 billion in debt financing secured. The present state of the stock market makes it more difficult for Musk to convince investors of Twitter's potential.
The more investors who get out of this agreement, Ives said, the more money Musk will need to contribute and the more Tesla shares he will have to sell as a result. The acquisition must be completed by October 28; therefore, Musk faces a make-or-break week this week, and any Tesla stock sales are expected to take place the following week.
Since Tesla shareholders would eventually "face the weight" of Musk's prospective stock sales, Ives called the scenario "brutal" for them.
As revealed at Wednesday's third-quarter results conference, Musk's stock sales would occur as the electric car firm is mulling its first-ever stock repurchase of between $5 billion and $10 billion.
However, any such stock purchase by Tesla would seem to be canceled out by the possibility of Musk selling a comparable number of shares.
Ives claims that the fact that Musk's deal to purchase Twitter isn't a good one based on its present pricing makes things much worse.
As revealed at Wednesday's third-quarter results conference, Musk's stock sales would occur as the electric car firm is mulling its first-ever stock repurchase of between $5 billion and $10 billion.
However, any such stock purchase by Tesla would seem to be canceled out by the possibility of Musk selling a comparable number of shares.
Ives claims that the fact that Musk's deal to purchase Twitter isn't a good one based on its present pricing makes things much worse.
In the midst of Everest-like uphill growth obstacles, we estimate Twitter's fair valuation to be in the $30 billion area at best, according to Ives. "The $44 billion price tag is simply a train wreck," he said. Musk concurs, claiming that he is "clearly" overpaying for the business on Wednesday.
According to recent estimates, Musk may quickly remove as much as 75% of Twitter's employees when he takes over the firm, but Ives is dubious that such drastic layoffs will improve the transaction.
"A leveraged $44 billion acquisition obviously requires significant personnel reductions and cost constraints, and given Twitter's lack of growth, these cuts have been overdue. A figure in the 75% zip code would be much too aggressive in our opinion right out of the gate and could set back this fundamental platform for years, but Musk cannot cut his way to growth with Twitter "said Ives.