Musk needs large loan or big Tesla stock sale to buy Twitter

Multiple conditions tied to billionaire's $58b offer give it low probability of success: Expert

NEW YORK. Even for the world's richest person, US$43 billion (S$58.3 billion) is a steep price.

Mr Elon Musk's proposed all cash offer to buy social media company Twitter represents about one-sixth of his US$250.6 billion fortune.

Yet, the vast majority of that wealth is tied to his stake in Tesla, the electric carmaker he co-founded, which has surged in value over the past two years and lifted him to the top of the Bloomberg Billionaires Index.

The purchase is not straightforward, but Mr. Musk has several financing paths.

One option is to sell his Tesla shares outright.

Another is borrowing against them to stage a leveraged buyout, possibly with outside partners.

Mr Musk, 50, has about US$3 billion in cash or other somewhat liquid assets after spending US$2.6 billion buying a 9.1 per cent stake in Twitter in recent months, according to Bloomberg calculations.

For Mr Musk to raise the additional cash needed to buy the rest of Twitter, it would require selling about 36.5 million Tesla shares, or more than a fifth of his stake.

Such an exit could risk a slide in the company's share price - not to mention potentially raising questions about the commitment, financial and otherwise, of its chief executive.

His other option is to borrow against his positions in Tesla and space exploration firm SpaceX.

“This becomes a hostile takeover offer which is going to cost a serious amount of cash,” said Mr Neil Campling, head of technology, media and telecommunications research at Mirabaud Equity Research. “He will have to sell a decent piece of Tesla stock to fund it, or a massive loan against it.”