Today may bring the announcement for which the world is waiting. Yesterday, The New York Times reported that Twitter’s (NYSE:TWTR) board had met with Tesla (NASDAQ:TSLA) CEO Elon Musk to discuss his offer to acquire the company. According to sources with knowledge of the situation, an agreement could come today. While TWTR shares are rising this morning in anticipation, TSLA stock is falling. Although many questions remain unanswered, Musk has made it clear that he is serious. Indeed, he has formed three holding companies in attempt to procure the necessary funding for the acquisition.
According to a recent filing with the U.S. Securities and Exchange Commission (SEC), three companies were formed last week, all starting with the letter X. Musk has not confirmed plans to merge them with his current companies. However, the fact that they all begin with X and Musk owns a company called SpaceX suggests that he might.
Furthermore, it’s also unclear what that would mean for TSLA stock. Tesla is Musk’s only publicly traded company, but some investors have raised concerns. Therefore, let’s take a closer look at the deal on the table and how it may affect TSLA stock.
What to Know About X Holdings and TSLA Stock
- First, Musk’s offer for Twitter includes $46.5 billion in funding. While he will commit $21 billion in equity, other funds will come from banks such as Morgan Stanley (NYSE:MS), Bank of America (NYSE:BAC) and Barclays (NYSE:BCS).
- Additionally, Musk currently serves as president, treasurer and secretary of Holdings I, Inc. The company is registered in Delaware, a state whose pro-business laws have earned it a reputation as a tax shelter for corporations.
- In December 2020, YouTube influencer Dave Lee tweeted a thread advocating for Musk to form one overarching company under the name “X.” Musk responded to the tweet, indicating that he was open to the idea.
- The SEC filing contains a letter on Musk’s plans to take over Twitter titled “Project X.” Indeed, the entrepreneur’s first company was called X.com. And while that ultimately merged with PayPal (NASDAQ:PYPL), Musk still owns the domain name.
- However, not everyone wants to see Musk develop this overarching corporation. Some institutional investors are concerned about what such a deal could mean for TSLA stock. As Fortune reports, “Wall Street doesn’t care for broad, diversified groups with numerous moving parts and opaque internal transfer pricing that make it hard to cleanly model future cash flows.”
- Investment advisor and fund manager Gary Black confirmed this, tweeting, “This is a terrible idea if $TSLA brought under its corp umbrella SpaceX and Boring Co. Investors hate conglomerates.” He added that investors would reduce Tesla earnings per share (EPS) and and price-to-earnings, thereby pushing TSLA stock down.
- According to Fortune, it is also likely “that X Holdings could serve as a virtual safe in which Musk securely stores his own various personal equity stakes in one tax-optimized structure, rather than the cornerstone of a one diversified conglomerate, in which unwilling Tesla investors would subsequently own a share.”
- Musk’s potential plans to form an umbrella company have drawn comparisons to Google. The tech conglomerate restructured in 2015 as Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), combining its holdings under one umbrella. The success of this decision suggest that this time of restructuring could serve TSLA stock well.
- However, the CEO has acknowledged that combining assets would be difficult, as the investor bases for Tesla and SpaceX are “quite different.” This is further complicated by his holdings in Boring Co. and Neuralink.
- As investors wait to hear if Musk will buy Twitter, the internet remains as divided as ever. In fact, both #ElonMuskBuyTwitter and #RIPTwitter have been trending on the platform all day.
On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.