Elon Musk can't afford to buy Twitter and would have to borrow against Tesla stock, according to an NYU professor

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Elon Musk can't afford to buy Twitter and would have to borrow against Tesla stock, according to an NYU professor
Elon Musk.HANNIBAL HANSCHKE /Getty Images
  • Elon Musk can't afford to buy Twitter, according to NYU professor Scott Galloway.
  • Despite offering $43 billion, Musk has $2.95 billion in "cash," per Bloomberg Billionaires Index.
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Elon Musk can't afford to buy Twitter and would have to borrow cash against his Tesla stock, according to a New York University (NYU) professor.

The Tesla and SpaceX CEO offered to purchase Twitter outright on Wednesday in a deal that valued the social media platform at $43 billion.

Scott Galloway, who is a professor of marketing at NYU's Stern School of Business, said that despite an estimated fortune of $259 billion, Musk has "no viable route to financing" the deal without putting Tesla's stock at risk.

"He can't afford this," Galloway told listeners of Pivot, a New York magazine podcast that he co-hosts with tech journalist Kara Swisher.

Musk has $2.95 billion in "cash," per Bloomberg Billionaires Index estimates.

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Galloway set out Musk's possible options. "The first is with debt, and he can't because his company has no EBITDA. No firm is going to loan him more than a billion or a few billion dollars, so he has to come up with $40 billion in equity." EBITDA stands for earnings before interest, taxes, depreciation, and amortization.

He could go to his friends and ask them to put in cash, but Musk's "buddies" like money more than free speech, Galloway said, referring to Musk's motive for wanting to snap up Twitter. "They would start asking questions he can't answer," Galloway said.

"Really, the only viable source of financing here is for him to borrow against his shares in Tesla," he added.

Galloway said that Musk would therefore have to borrow $40 billion against $200 billion to $300 billion in equity value. "No single bank is going to be the bank ... they'll do their analysis and go 'if the s--t gets really awful here, we are not going to be the bank that's taken down by this guy's mania,'" he said.

Musk would have to go to several banks, according to Galloway. "They would put in huge margin requirements, meaning if Tesla stock got cut in half – which it easily could and ... I think it would still be the most valuable car company in the world – then all of a sudden Elon Musk would get margin calls and be a forced seller of Tesla stock," he said.

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He added: "You know whose stock goes down if this deal were to somehow go through and he would raise money against Tesla shares? Tesla's stock would tank."

Galloway did not immediately respond to Insider's request for comment made outside of normal working hours.

Earlier this month, Musk said he had acquired a 9.2% stake in Twitter, which made him the company's largest individual shareholder. Asset management company Vanguard Group owns 10.3%.

Twitter promptly offered Musk a board seat, which he turned down. Joining the board would have limited Musk's stock ownership to 14.9%, preventing him from gobbling up the whole company.

Galloway also expects Musk's purchase, which would take the company private, to result in job losses as employees looking for stock options turn to other big tech companies.

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