Musk and Twitter: What. Is. Happening?
Musk's commitment to being a free speech absolutist fell apart faster than a wet paper bag. Trying to make sense of the carnage that was Twitter's 2022.
As those of you who are Heretic Speculator loyalists may recall, I viewed the Elon Musk buyout of Twitter as a positive for Twitter’s user base when we learned about it. While I’ve been very clear about not trusting Musk this entire time, I was optimistic enough about Musk muscling change at Twitter (even if he didn’t own it entirely) because he is such a power user of the platform and figured to be one of the few people with the money, connections, and apparent motivation to make it better.
But I’d be lying if I didn’t say I’ve been very disappointed with many of Musk’s moves so far. I really mean it when I say I care about intellectual honesty and consistency - it doesn’t matter to me which jersey you wear. If it’s not okay to suspend ZeroHedge for posting about the Wuhan lab scientists, then it’s not okay to suspend jet trackers either. Having the right to do something as a private business doesn’t mean it’s good policy. Either be open for business, or don’t. If you want to play platform dictator, fine, but it won’t end well.
For someone who claims to be a ‘free speech absolutist,’ Musk flat out hasn’t lived up to that having already banned adversaries and accounts he doesn’t like. At one point he even tried to ban the very concept of sharing links to other platforms - something that would have theoretically given Musk policy justification to ban literally any user he wished at any time. And this is really just one aspect of the shortcomings so far. Musk seems to be running Twitter in a very reactionary way. An approach that has culminated in Musk literally asking the platform if he should step down as CEO earlier this week.
Here are the only three ways Musk’s actions make any sense from where I sit:
There is some master plan we aren’t privy to
He’s an erratic manic who is making it up as he goes along
Some weird hybrid of the two
I don’t think you can get to be the wealthiest person on the planet by accident. So I think #2 is a very low probability explanation. #3 does seem to make some sense but in that case, which parts of this fiasco are part of ‘a plan' and which are just Musk being over his skis? And if there is a legit plan, what is it? Spoiler: I don’t know. But let’s at least try to follow some monetary motivations…
The Art of the Deal
As part of Musk’s $44 billion deal to buy Twitter, he has had to sell quite a bit of his Tesla stock to raise the funds for the purchase. Notably, TSLA was on an absolute tear from mid-2019 when it traded at a split-adjusted $12.27 through 2021 when it topped out at $414 - a rare 34-bagger for what was an already very large company. Most of Musk’s wealth is still tied up in Tesla stock. It’s the reason why Musk went from a net worth of just $20 billion in 2019 to over $250 billion this year.
When your paper wealth reaches this point, none of this money is actually real. And it raises a serious problem for Musk; how do you lock some of this in without panicking your TSLA shareholders because you’re selling?
You need to sell the shares to finance another important purchase, of course! Let’s look at Musk’s Tesla sales so far this year:
According to financial research firm VerityData, Musk has sold 94,202,321 shares so far this year at an average price of $243.46 per share for pretax proceeds of approximately $22.93 billion.
Tesla stock is currently about $138 per share. At a $243.46 average share price, Musk has saved himself just about $10 billion in unrealized losses by selling his TSLA shares to buy Twitter. So he hasn’t quite accounted for all of the $44 billion Twitter purchase but Musk isn’t spending all of his own money either. $13 billion of the $44 billion is coming from financing - just $3 billion of which is secured. Then an additional $7.1 billion is actually coming from other investors. And Musk already owned over 73 million shares from his original equity position before the buyout offer; those shares account for $4 billion at a $54.20 deal price.
All told and assuming my math and understanding of the deal are correct, Musk needed to come up with another $20 billion or so before closing fees through liquidated Tesla equity to make the Twitter deal happen - which he has done. And he’s already offset half of that capital raise with savings from what would have been paper losses in his TSLA position had he held those shares instead. Interesting. I know what you might be thinking… but, Mike, Tesla stock doesn’t go down this bad if Musk isn’t selling, right? Eh, I’m not sure…
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