Last Monday, in a dramatic turn of events that seemed straight out of a thriller novel, Elon Musk closed the deal to buy Twitter Inc. in a cash transaction for $54.20 per share, valued at 44 billion USD. Musk, the CEO of Tesla and the richest man in the world, plans to take the popular social media company private. A frequent presence on the platform himself, Musk marked the occasion with a tweet about the importance of free speech. In fact, Musk has held several polls in the past on the subject, asking his approximately 80 million followers on the platform for their opinion. Publish the acquisition; Musk issued a press release with a list of sweeping changes he plans to make, including making Twitter’s algorithms open source.
Richest and most indebted CEO
To fund the deal, Musk reportedly loaned $13 billion using Tesla stock as collateral along with $21 billion in cash, likely from the sale of Tesla stock. According to SEC filings, Musk will have to pledge $65 billion in Tesla stock. Even before bidding on Twitter, Musk had already pledged 88 million shares of the electric vehicle maker for margin loans. Audit Analytics, a research firm, revealed that Musk had a total of more than $90 billion pledged for loans. Despite Musk’s safe amortization thanks to the new stock options he received for hitting Tesla’s performance targets, there is little doubt about the level of risk involved in these loans.
It’s unlikely that a shrewd businessman like Musk would have spontaneously agreed to buy a social media platform in a highly leveraged deal simply because of his personal belief in freedom. of expression. Is this a guise for Musk’s own ambitions with Twitter? What could he want?
Access to datasets
Avid EV subscriber account, Entire catalog of Mars, tweeted, indicating that Musk may be looking to benefit from the huge volume of data that Twitter produces every day. Data is vital for the improvement of all advanced autonomous vehicles like Tesla, especially for features such as their sensor systems, light detection and ranging (LiDAR) and the performance of sensors used to reduce false activations.
Tesla isn’t the only Musk company that could benefit from access to this data. Optimus, Tesla’s humanoid robot, trained with the aim of reducing labor costs, could also benefit from Twitter’s rich data set. After Tesla’s first-quarter earnings announcement this year, Musk stressed the importance of the bipedal robot, saying Optimus would eventually be worth more than the company’s automotive business and fully autonomous driving. Earlier this year, Musk also said Optimus was a higher priority for him than other Tesla vehicles that are themselves highly anticipated, like the Cybertruck and Tesla Semi.
Musk has used Twitter to his advantage like very few have. His presence on the platform caused waves among the media and Twitterati and propelled Tesla’s free marketing campaign. Although it may seem like he is often reckless with his media strategy, there is a method behind the madness. For example, in November last year, the 50-year-old created a poll on Twitter asking if he should sell 10% of his shares, then worth $20 billion. At first glance, this may seem impulsive; however, this was simply due to a pending tax bill. Musk had received options in 2012 as part of his compensation plan. Those options were due to expire in April of this year, and to exercise them, Musk would have to pay capital gains tax. The way Musk engages with his followers and the persona he has built using Twitter has propelled the brand of his companies.
Avoid SEC regulations
Musk’s antics on Twitter have led to several public run-ins with the United States Securities and Exchange Commission, or SEC. In 2018, Musk signed a contract with the SEC over his tweets to take Tesla private at $420 per share. Musk and Tesla ended up paying a $20 million fine for the tweets separately. Incidentally, the automaker still remains public, but stock prices surged after his tweet. The contract also specified that Musk must obtain permission from Tesla’s lawyers before posting tweets or sharing other information about the company. After completing the purchase of Twitter, Musk immediately made an offer to revoke that deal. This signals that Musk wants to use Twitter with impunity. By privatizing Twitter, Musk will also be able to avoid SEC regulation and any external oversight of the platform.
Source: Statistica, maximum number of Twitter users (in millions) by country in January 2022
Discredit critics and competitors
Twitter has become a primary source of news due to the prominent figures and authority bodies that reside on the platform. Musk owning Twitter would be like owning a platform with news at its source. For Musk, the platform has also proven to be a perfect vehicle for responding to critics and naysayers, much to the delight of audiences. Recently, after Microsoft founder Bill Gates revealed he had half a billion dollars open against Tesla, Musk mocked Gates and criticized his environmental philanthropy. Earlier this week, Warren Buffett railed against bitcoin at Berkshire Hathaway’s annual shareholder meeting, to which Musk responded by mocking the number of times Buffett had referenced bitcoin.
It may not yet be obvious exactly how, but owning the company that gave him direct public access and added value to his brand might seem like the most logical step for someone who has as much capital as Musk. The “exactly how” and “by how much” are questions we still have to wait to find the answers to.