[U] To Amplify Last Night's Point: A Consortium Of Money Center Banks Will Effectively Decide The Fate Of Musk's Bid -- And Twitter's Fate, As Well...

With the cold light of a new day, and a hot cup of coffee, I realize there is far more to be said -- about how this will all very likely play out. [So forgive me, in advance -- and do settle in, with your own cuppa -- smile.] The punchline is this: it all means that the fate of Musk's bid is very much dependent on whether Tesla stock begins to fade, or holds at around $1,000/share on the NASDAQ. [Update: Tesla is off 5% already at the open, here on Tuesday morning, "post announcement" trading day one -- so, this below is already a live scenario.]

You see, Musk has pledged about $12.5 billion of his own stock in Tesla as margin callable collateral, in the vast lending and equities package being used to float the purchase and "go private" of Twitter. [Of course, should Twitter begin to dive as well, that would be a problem, but not nearly the problem... of any sizable Tesla swoon.]

There are seven main i-bankers -- and by far, the ones with the most say are Morgan Stanley and B of A, each of whom are in for over $2 billion. The rest play at a lower level, but they are Morgan Stanley Senior Funding, Inc. (acting through such of affiliates or branches as it deems appropriate, “MSSF”), Bank of America, N.A. (“Bank of America”), BofA Securities, Inc. (or any of its designated affiliates, “BofA Securities”), Barclays Bank PLC (“Barclays”), MUFG Bank, Ltd. (“MUFG”), BNP Paribas (“BNP Paribas”), BNP Paribas Securities Corp. (“BNPP Securities” and, together with BNP Paribas, “BNPP”), Mizuho Bank, Ltd. (“Mizuho”) and Societe Generale (“SocGen”).

The letter I've linked above gives them the right to require that Mr. Musk make additional deposits of his shares, into the pledge account, should the loan ever become less than 35% secured. In plain English, that means each time the NASDAQ price of Tesla declines by even 2%, there will be creeping calls from the banks, to take more of Elon's Tesla horde.

Thursday Twitter itself will announce Q1 2022 results. The people who know mostly expect it to be ugly -- with actual GAAP losses, again. So there is a real possibility that Musk paying around $43 billion for it may be viewed as a folly. If Twitter shares start falling due to bad actual Q1 2022 results, it is highly likely that Tesla shares will as well. The two companies (even though the X Holdings structure is designed to dampen this effect). . . will cross-contaminate, here.

Significantly, there is no provision for Musk to withdraw shares of Tesla from the pledge, should Tesla rise in price on the NASDAQ. The pledge stays in place, in full. To be clear, I do think Elon will get the deal closed (assuming no higher bidder appears). . . but he may start to hear very loud grumbling from all his longer term institutional holders, at Tesla, if his folly begins to drag their shares southward.

So -- as I say. . . this deal gives outsized influence to the above seven multinational banks, and the bankers who run them. . . in "making suggestions" -- to Musk directly, since it will be Musk's entirely private company -- and the only way to pay off these loans is either with earnings from Twitter (not likely), or the sale. . . of other of Musk's assets -- like his stock in Tesla.

You've been duly warned -- this all would not be the case if Musk didn't want 100% control, in a going private move. So it may be that through some vehicle, he retains some public / stockholder financing. . . just to avoid the above spiral down scenario. We shall see. Be excellent to one another. [No news yet from Amazon's union vote.]

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