Hefty Losses for Banks Financing Elon Musk’s Twitter Deal
New York City: If you remember in March, Elon Musk tweeted that he was considering taking Tesla private at $420 per share and that he had funding secured to do it. Well, he walked back his plans not too long after that tweet saying the decision was better left to shareholders, but all of this got the attention of the Securities Exchange Commission (SEC). The SEC launched an investigation into whether or not Musk’s tweet was factual or if it was just a bunch of hot air to get the company’s stock price up.
Elon Musk’s U-turn on buying Twitter could not have come at a worse time for the banks funding a large portion of the $44 billion deal and they could be facing significant losses.
Banks financing Elon Musk’s $44 billion buyout of Twitter are facing hefty losses. The deal is contingent on a successful purchase of the social media company by the Tesla, SpaceX, and The Boring Company CEO. However, Mr. Musk’s announcement on Thursday to turn away from the acquisition has left banks in a bind because they have already lent him billions of dollars in various loans that will now be more difficult to recover. His change of heart could not have come at a worse time for the banks funding a large portion of the deal and they could be facing significant losses. Analysts believe the only option available to them would be taking some sort of equity position in order to get their money back – which also means losing out on their potential profit.
The potential loss of profits isn’t just limited to banks: Invesco, which was going to invest up to $100 million into Tesla as part of its stake sale agreement with SoftBank Group Corp., may also suffer if the agreement falls through. Furthermore, Deutsche Bank may lose $14 million it loaned to his SpaceX company after he used it as collateral for a margin loan worth about four times as much this past June.
While Musk will provide much of $44 billion by selling down his stake in electric vehicle maker Tesla and by leaning on equity financing from large investors, major banks have committed to provide $12.5 billion
The Tesla CEO, who has been under pressure from investors to deliver on promises of market-leading electric cars, announced on Twitter last week he would take the company private. This prompted a U.S. Securities and Exchange Commission inquiry about whether he had been truthful in his tweet, which did not specify any financing plans or detail how shares could be bought without large price swings.
The SEC contacted Tesla but the company said it had no comment on the matter which is being treated as a general inquiry rather than a formal investigation. If the regulator finds that Musk acted inappropriately, it could order him to stop tweeting while they try to bring charges. That would mark an escalation of the kind of role played by social media that got Facebook Inc into trouble over its handling of Russian-backed disinformation campaigns. Shares of Tesla climbed 1.4 percent after hours following the latest exchange with traders, adding around $830 million to Musk’s fortune, which stands at $21 billion according to Forbes magazine’s annual ranking.