Elon Musk/Tesla: defiant CEO’s share sale is pragmatic move

Tesla chief executive Elon Musk insists that he should not be forced to complete his $44bn deal to buy Twitter. The social network repeatedly breached the merger agreement, he claims. It failed to give him the information he needed to evaluate its fake account and bot problem. Musk claims Twitter has so many bots they compromise the business. Still, he appears to be making preparations for defeat.

Musk’s fight with Twitter will be up to a Delaware court to decide later this year. But Musk is on the defensive. This week he sold $6.9bn of his Tesla shares. Their price had rallied as much as 47 per cent off the lows reached in July. In a tweet published on Tuesday night, Musk acknowledged that he might be forced to close the Twitter deal and that some of his equity co-investors may not put up the $33.5bn he agreed to pay. The October trial is not far off. The richest man in the world understands that he needs cash, pronto.

Musk has dumped a lot of Tesla shares. In April, he sold $8.5bn worth of stock as the Twitter buyout plan was unfolding. This followed $16.5bn of sales last year, largely for tax payments due on the exercise of options. Musk’s ownership of his electric vehicle company has dropped to 15 per cent. According to the company’s most recent proxy statement, more than half of the shares he owned have been pledged for personal loans.

Musk is no longer relying on margin loans to fund a portion of the $33.5bn in equity he committed for Twitter. But banks have put in place a $13bn debt package against Twitter’s future cash flows. Amid the digital ad slump that is plaguing social media companies, those loans look increasingly precarious.

Twitter shares, like Tesla’s, have been inching up too. They are up a third from their lows a month ago, though still 20 per cent below the deal price. Baked into the stock value is the chance the parties will settle for a lower deal price or a multibillion-dollar damages payment. Musk may be raising the cash he needs. Whether he will need to raise more remains unknown.