Before the markets opened on Thursday, Elon Musk announced that he had made an offer to buy Twitter for…
43 billion dollars
When markets closed Thursday, Elon Musk’s net worth sat at…
250 billion dollars
A quarter of a trillion dollars fortune makes Elon easily the richest person in the world. At the moment, he is about $75 billion richer than the second richest person in the world, Jeff Bezos. He beats the third person, Bernard Arnault, with $110 billion, and the fourth man, Bill Gates, with $120 billion.
It would be easy to assume that the world’s richest person, someone with a net worth of $250 billion, could easily buy Twitter for $43 billion. On paper, you might assume that Elon could buy Twitter for $43 billion and still have over $200 billion left over. right? It turns out, maybe not…
(Photo by Susan Cordero/AFP via Getty Images)
Elon is “Cash Poor”
Elon does not receive any salary as CEO of Telsa. His net worth consists almost entirely of stock in Tesla and SpaceX.
Since Tesla went public in 2010, he’s been living largely off lines of credit from various banks that were backed by Tesla stock as collateral. In fact, before Tesla went public, when Elon was in the midst of a bitter divorce battle, he told a California judge that he had no cash and was “living on emergency loans from friends.”
He explained:
“I have no other investments that I can easily sell in order to generate money. My cash position is very limited. About four months ago, I completely ran out of cash.“
When Tesla went public in 2010, it had a market capitalization of $2.2 billion. Fast forward to 2019, when Tesla had a market capitalization of $50 billion, you might assume its cash position improved. no.
In 2019, Elon was in the midst of another court battle, this case is a defamation case brought by a rescue diver Elon dubbed a “pedophile” via Twitter. In this court case, Elon once again claimed to be “cash poor” and “financially illiquid.”
Fast forward to the present. Telsa has a market capitalization of $1 trillion, and surprisingly, Elon’s liquid financial position is largely unchanged.
When you hear that Elon’s fortune is $250 billion, here’s how to calculate it:
He now owns 17% of Tesla, freely and explicitly. That’s about $170 billion.
He also has the option to buy an additional 59 million shares in Tesla. If he exercised those options today, he would have about $37 billion of actual stock left with him after paying various strike prices.
He owns 43% of privately owned SpaceX. In SpaceX’s latest funding, the company raised $100 billion in funds. That’s $43 billion in pre-tax paper wealth that belongs to Elon.
170 + 37 + 43 = 250 billion dollars
The most important tip in the above equation is that none of this wealth is liquid and all this is before Elon pays his share to the IRS if any of it gets liquidated.
Will Elon really sell $85 billion worth of stock so he can get $43 billion after taxes to fund his Twitter purchases? Almost certainly not.
Instead of selling shares, he could go to a big bank and borrow $43 billion using Tesla shares as collateral. But! This would be a very risky move on the part of the bank. Tesla stock is rising as fast and unexpectedly as it goes down. Please remember the above in the article how we indicated that just three years ago, 2019, Tesla’s market capitalization was $50 billion. This is not an established behemoth like Procter & Gamble or Coca Cola that has been around for 100 years and will likely be around in 100 years. Tesla’s stock price is swinging wildly due to rumors, theories, and most importantly, Elon’s tweets. There is a good chance that Tesla will grow 10fold in the next few years as there is a chance of its demise.
For example, after taking out a $43 billion bank loan, it would be imaginative to imagine a world in which Elon woke up one day and tweeted something like “Dumb electric cars. I am selling all my Tesla stock and investing in frogs.“No, right?
So it seems unlikely that the bank loan route would be a viable option.
I have to correct something that just happened to me. Elon already owns 9.2% of Twitter. He bought his current stake in mid-March, paying about $2.3 billion. In order to pay $43 billion on Twitter, he’d actually only need to get $38.7 billion from his bid price. So that would require about $70 billion before taxes.
[ad_2]
