The ego of Elon: Why Musk has again changed his mind about buying Twitter

That is, however, the least of his problems.

He bid for Twitter in April after threatening to do so for weeks. Before his interest became known Twitter shares had been trading at less than $US40 a share in a sharemarket that was already sliding from its peak at the start of this year.

Since then the overall market has fallen more than 17 per cent and the more relevant Nasdaq market, with its technology focus, has slumped 23 per cent.

If Twitter shares had tracked the market, they might well be trading at or below $US30 each if Musk had never become involved.

In fact they would almost certainly be trading below $US30 and potentially well below that level, given what has happened to other social media companies.

Shares in Facebook’s parent, Meta Platforms, have fallen about 40 per cent since the day Musk tabled his bid for Twitter. Snap shares have fallen more than 70 per cent.

Musk, assuming he can and does make good on his commitment to bid – he might not be able to complete the funding arrangements in this market – can only blame himself for the value-destroying predicament he finds himself in.

Shares in Digital World Acquisition Corp – the special purpose vehicle trying to buy Donald Trump’s struggling Truth Social platform – were trading around $US57 in April (having been well above $US100 in March). They are now valued by the market at $US19.

(The revival of the bid for Twitter and Musk’s stated plan to lift Twitter’s ban on Trump is another piece of bad news for Digital World and Truth Social, given that Trump’s tweets are their major, albeit non-exclusive, asset.)

Musk will be clearly overpaying for Twitter in this market – by at least $US10 billion and probably significantly more.

Among those who will be unhappy about his revival of the offer will be Tesla shareholders, concerned that Musk will be spreading himself too thin (the Tesla share price tanked the moment he committed to the bid back in April) and his bankers.

While the banks arranging the debt funding for the bid – Morgan Stanley, Bank of America and Barclays – will collect several hundred million dollars in fees, the ability of those banks and others that have committed to providing $US13 billion in debt funding to on-sell their exposures without loss is questionable.

The US Federal Reserve Board’s decision to raise US interest rates by three percentage points since March has transformed the financial landscape in the US and elsewhere. Rates have risen and the spreads between US government debt and riskier credits have blown out.

Trying to sell a $US6.5 billion leveraged loan, $US3 billion of secured bonds and $US3 billion of unsecured bonds in this market will be problematic.

Last month a group of major banks trying to sell down their exposure to the $US15 billion funding for the leveraged buyout of Citrix Systems were left holding $US6.5 billion of the debt and, because those loans that they could sell were sold at discounts to their face value, were left nursing (according to Bloomberg) about $US600 million of losses. Musk’s bankers might now face a similar fate.

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The only consolation for Musk might be that, to finance his share of the equity component of the funding for the bid, he has sold more than $US15 billion of his Tesla shares at prices above the current share price. Using those proceeds to pay well over the odds for Twitter, however, may not be his optimal outcome.

Musk, assuming he can and does make good on his commitment to bid – he might not be able to complete the funding arrangements in this market – can only blame himself for the value-destroying predicament he finds himself in.

His failure to conduct any due diligence on Twitter before bidding – he waived that right – left him without any escape clauses when Twitter insisted that he complete the deal and went to court to enforce the agreement he had signed.

While Musk can never be underestimated, that failure looks like ending in, even in the context of the wealth of the world’s richest man, a horrendously expensive vanity purchase.

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