Elon Musk Buys Twitter

Elon Musk Buys Twitter

By: Joey Calaprico | 6/1/22

On Monday, April 25th 2022, Elon Musk acquired Twitter at $52.50 per share, which came to a deal worth 44 billion dollars. There is a huge underlying fault that comes with this purchase. Musk took out 13.9 billion dollars in loans from nine different banks, and secured this loan with 40% of his shares of Tesla. The problem with this is Musk already has half of his ownership of his Tesla shares in other projects, leaving him only 10% of his shares at his disposal. The banks also agreed to give him another 12 billion for the purchase, using his Tesla shares as collateral.

The issue with this deal is the overvaluation of Tesla’s shares in an extremely high market. This deal was made when Tesla’s shares were around $1000, but after the announcement of this deal they dropped 15% to $850 per share. If Tesla’s shares were to drop below $600, the banks would require extra collateral requiring Musk to quickly sell his stocks to make the payments, creating a free fall effect with lots of others selling off the stock. This flaw is a dangerous game to play because it could collapse Musk’s wealth, and the purchase of this extra company could collapse his main business.

As for what implications he wants to make to Twitter, Musk has disclosed imposing a small fee to commercial/government users, however he has stated that it will always remain free to casual users. Other implications Musk has discussed include lengthening character limits, open-sourcing the algorithm, and effectively putting an end to content moderation. The biggest of his ideas is moderating content. He wants to allow the platform to be a free speech platform. He could start by relaxing the moderation rules and seeing how it plays out.

Elon Musk buying Twitter is a massive story that has been highlighted many times throughout the media since his purchase. Only time will be able to tell whether this was a financially smart decision by Musk, and if his changes to the company will benefit the platform or hinder it. Either way, I’m excited for the future and to see how this whole story plays out.