Analyst: Musk leveraging Tesla stock to buy Twitter is like swapping sushi for a hot dog
New York (CNN Business)Tesla CEO Elon Musk sold $4.8 billion worth of the electric automaker’s stock on Tuesday, the day after the Twitter board agreed to sell the company to him in a deal valuing the social media platform at $44 billion.
Musk sold 5.3 million shares of Tesla stock for an average price of $905.30, according to filings he made with the Securities and Exchange Commission Thursday. The sales represent only 3.1% of the Tesla shares he held outright at the start of the day Tuesday, and just less than 2% of his total holdings of Tesla if stock options he controls are included.
The filings do not disclose the reason for the sale but it appears to be to raise funds to make his planned purchase of Twitter and take the company private. In a tweet later Thursday evening, Musk answered a question about the stock sale with the remark, “No further TSLA sales planned after today.” But it wasn’t clear if that meant that there would be no further sales after the sales he reported taking place on Tuesday, or whether or perhaps that there were additional sales that took place Wednesday and Thursday which he has yet to report.
Insiders at a company, such as Musk, must report purchases or sales of their company’s stock to the SEC to inform the broader investment community of their activity. But they have a couple of days to make that filing and still comply with the rules.
Musk’s sales of Tesla shares were large enough to put downward pressure on the stock’s price. The number of shares sold represented 20% of the normal trading value in Tesla shares so far this year before Tuesday. And Tesla shares lost 12.2% of their value during the course of trading Tuesday, the biggest one-day drop in Tesla shares since September of 2020. The stock’s decline prompted a selling spree by other investors, as 45 million shares traded hands, about twice the volume of trades the day before.
Tesla investors could also have sold shares this week out of concern that Musk would not be able to give as much time and attention to Tesla, which has very ambitious growth plans, and growing competition from traditional automakers who are spending billions on their own electric vehicle offerings.
Musk is expected to use his massive Tesla holdings, which have made him the richest person on the planet, as a way to finance his purchase of Twitter, but that doesn’t mean he necessarily needs to sell all the shares he needs to raise the full purchase price. Instead he can use the shares as collateral for loans to raise the cash.
But there are limits to how much money he can raise simply by pledging his Tesla shares as collateral. He can raise more money by simply selling some portion of his Tesla shares. Tesla corporate rules state that officers and directors of the company can raise only 25% of the value of the stock being pledged as collateral.
As of June 30 of 2021, company filings show he already had pledged 88.3 million of his Tesla shares as collateral, but those shares were pledged years ago when Tesla shares were worth a small fraction of their current value. He would likely be able to borrow more money even against some of those shares. And the estimated 79 million unpledged shares that he owns after Tuesday’s sales could be used to borrow $17 billion, even with the recent decline in Tesla share price.
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