The news that 19 investors have committed $7 billion in fresh financing toward Elon Musk’s takeover of Twitter (NYSE:TWTR) is cause for celebration. That is, it is cause for celebration for owners of Tesla (NASDAQ:TSLA) stock.
Musk has assembled a team of big-money backers in his bid to buy Twitter. This is positive news because it effectively reduces the personal risk that Musk must take in order to complete the $44 billion takeover. The assembled group of 19 investors includes Oracle (NYSE:ORCL) co-founder Larry Ellison, a Saudi prince, and controlling members of the cryptocurrency exchange Binance.
The news is also good for Tesla investors. The fresh investment means that the amount Musk will have to borrow against his Tesla holdings will effectively be cut in half. That should go a long way in reducing previous concerns that Musk was overextending himself and Tesla in his bid to overtake Twitter.
Changes Planned for TWTR Stock
The news is also positive for investors who agree with the notion that Twitter has become overly censorious. Musk’s plan is to take Twitter, a publicly held company, private. He will then again bring the company public in a few years after revamping the platform. There are currently concerns that censorship, bots, and abusive comments are all exacerbated by the company’s reliance on advertising. Current indications are that Twitter will become a subscription-based platform before it is publicly listed again.
The effects of the move on Twitter share prices may be more difficult to gauge than those on Tesla share prices. All in all, the news is positive for Tesla shareholders, who will now be less worried about the equity dilution potential posed by Musk utilizing Tesla equity to finance his takeover bid.
Before this newest round of financing, Musk was scheduled to direct $62.5 billion worth of Tesla equity toward the Twitter deal. Following the deal, his equity contribution has been reduced to $31.25 billion.
On the date of publication, Alex Sirois 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.
