Elon Musk’s Twitter takeover: trouble for Tesla?
It’s hard to find a solid business case for the billionaire’s buyout of the social media platform
Some claim that Elon Musk’s $44bn deal to acquire Twitter is the largest leveraged buyout in history. It’s a moot point, said The New York Times: Dealogic thinks it is merely the biggest in the past two decades. But that doesn’t detract from the shock and awe. This was indeed “one of the most frenzied and unpredictable takeover bids ever”, said Bloomberg. A month ago, Musk’s main connection to the social media platform was as “a prolific user”. In quick succession, “he outed himself as Twitter’s largest shareholder, a short-lived prospective board member, a hostile suitor, and finally a successful dealmaker”. Musk moved at “breakneck speed” – he even “waived the chance to look at Twitter’s finances beyond what was publicly available”. A big breakthrough was speedily securing the finance for the purchase. After bringing on Morgan Stanley as an adviser, Musk “was able to get a dozen banks to commit $25.5bn in debt financing”, pledging another $21bn in equity financing himself. The bankers were impressed. One said that “while Musk has a public persona of shooting from the hip, in private he was curious, thoughtful and open to feedback”.
Tell that to Tesla shareholders, said Nils Pratley in The Guardian – the “forgotten constituent” of this deal. Shares in Musk’s electric vehicle business plunged 12% “as the market digested the meaning of the boss’s latest adventure”. One obvious risk is sales of Tesla stock by Musk to fund the $21bn equity portion of the package. “Another is spillover political risks, in the US and elsewhere.” Twitter is blocked in China because the platform rightly refuses to bow to Beijing’s censorship laws. “But Musk, wearing his Tesla hat, is a beneficiary of Chinese largesse in the form of financial incentives to build cars in China.” Rich Chinese consumers are big Tesla buyers, and the firm sources key elements needed for its vehicles’ batteries from the country. “What would happen if Beijing were to suggest that Twitter might wish to give the Chinese Communist Party an easier ride in the interest of smooth commercial relationships for Tesla?” Maybe that’s an extreme case, but the “potential for hassle and expense” is clear.
Investors are already concerned, said Sky News. And the deal has yet to be approved by shareholders. At best, it is a distraction for them; at worst, it is a real business risk. Unlike Twitter, which lost money in the last two fiscal years, Tesla is “nicely profitable”, making gross margins of 27% last quarter, said Pete Sweeney on Reuters Breakingviews. “Free speech is a public good worth defending”, but Tesla shareholders may end up paying “a lot of rent” for Musk’s “patch of moral high ground”.
Subscribe to The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.
Sign up for The Week's Free Newsletters
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
Create an account with the same email registered to your subscription to unlock access.
Sign up for Today's Best Articles in your inbox
A free daily email with the biggest news stories of the day – and the best features from TheWeek.com
-
6 stylish homes in Portland, Oregon
Feature Featuring a wall of windows in Collins View and a historic ballroom in Portland Heights
By The Week US Published
-
What's next for US interest rates?
The Explainer Stubborn inflation forestalls anticipated rate cuts
By Becca Stanek, The Week US Published
-
Russia rattles nuclear saber, orders tactical nuke drills
Speed Read President Vladimir Putin has ordered Russian military to hold nuclear weapons drills in response to Western "threats"
By Peter Weber, The Week US Published
-
Musk clears Tesla self-driving hurdle in China
Speed Read The Tesla CEO won China's approval to introduce Full Self-Driving (FSD) cars
By Peter Weber, The Week US Published
-
Why is Tesla stumbling?
In the Spotlight More competition, confusion about the future and a giant pay package for Elon Musk
By Joel Mathis, The Week US Published
-
Tesla cuts prices in 'intensifying' EV war
Speed Read Electric vehicle giant has struggled in the face of weakening demand, competition from China and technical setbacks
By Arion McNicoll, The Week UK Published
-
Brazil accuses Musk of 'disinformation campaign'
Speed Read A Brazilian Supreme Court judge has opened an inquiry into Elon Musk and X
By Rafi Schwartz, The Week US Published
-
Chinese electric cars may be coming to spy on you
Talking Points The Biden administration investigates Chinese electric cars as a potential economic and national security threat
By Harold Maass, The Week US Published
-
What Elon Musk has to fear from China's 'Tesla killer'
Talking Points BYD is now the world's biggest seller of electric vehicles
By Joel Mathis, The Week US Published
-
Shein: could the year’s mega-IPO fall apart at the seams?
Talking Point Latest hitch is a pre-float 'security review' that could deter potential investors
By The Week UK Published
-
Labor market strong as inflation sinks
Feature And more of the week's best financial insight
By The Week US Published