The Elon Musk Double U-Turn: Cancelling Twitter & Saving Tesla.

hey we got a lot to talk about regarding

Twitter and a Tesla stock but first if

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investors so can Elon Musk still cancel

his deal to purchase Twitter and will it

finally stop the pain over a Tesla stock

whether he cancels or not is there a

potential scenario where Tesla stock

does gets hammered no matter what

happens we're going to talk about both

of those questions in this video hey

everyone meet Kevin here let's get

started with Kenny Elon Musk still

canceled so the best thing to do to

answer this question is simply to go to

the cancellation rights in the contract

here you go well here is the Glorious

section of the contract that tells you

exactly what happens in the event that

Elon Musk is able to terminate and for

what reasons he's able to terminate

there aren't many reasons as long as

Twitter fulfills their obligations which

obviously there's a whole Court battle

about that which hasn't completed yet

but clearly at this point it seems like

elon's kind of taken the L on that core

battle so far at least hey who knows

we're gonna assume right now that we're

not going to relitigate the entire court

case we're just going to look at this

cancellation right here and the

cancellation right creates three ways

that Elon Musk could terminate the

transaction however in the event he

terminated the transaction through one

of those three ways he would be required

parent in this case be Elon Musk will be

required to pay Twitter a termination

fee of 1 billion dollars okay and that

states here that

as described above if the conditions to

parents and acquisition Subs obligations

to complete the merchant are merger are

satisfied and Elon Musk basically fails

to consummate the merger as required

including because of the following

Equity debt and or margin financing is

not funded Elon Musk parent will be

required to pay a termination fee of 1

billion dollars now this is really

interesting because at first I thought

the three reasons he'd be able to cancel

would actually just be two it'd

basically just be if margin isn't funded

or debt isn't funded but let's break

these down one at a time and see where

there's an interesting potential

loophole maybe for Elon Musk so first

debt financing isn't funded Elon Musk

right now has about a 13 billion dollar

loan uh commitment from Morgan Stanley

and it is one heck of an expensive loan

or at least it has gotten very expensive

here is the section that talks about the

interest rate from the debt financing

commitment letter and it shows us that

Elon Musk pays approximately

sofr plus 4.75 or 4.5 let's just go

conservative and say 4.5 percent as the

spread on top of whatever sofr is well

sofr has exploded it's gone from about

30 basis points to over 3 percent that

means the following which I found on

Twitter from this person at realmeet

Kevin think interest rates going up

hurts just ask Elon Musk his 12.5

billion dollar loan approximately 13.

right this is kind of where people round

it from Morgan Stanley to buy Twitter

now costs him an extra 375 million

dollars more per year

thanks to radhikes every single year 375

million dollars more that works out to

over one million dollars per day in

extra interest just to do this deal

because j-pal raised rates okay so worth

noting this is expensive but according

to the opposing Council and again this

is according to opposing counsel okay so

it's probably a little biased but as of

September 12th at least it they argue

here that not only is the agreement not

terminated but the bank commitment and

Equity commitment letters still remain

in effect now that is actually really

important right there because if that is

true that debt financing and Equity

financing commitments are still in

effect

and Elon Musk has already canceled his

need for margin financing he killed that

rather than using Tesla stock as

collateral he did the next best thing he

just sold his Tesla stock and now he

doesn't need the margin anymore

obviously that created a lot of selling

pressure on Tesla stock but anyway so

according to at least the defendants the

Twitter attorneys

financing commitment letter is still

active

Audi commitments are still active

however this is where things get a

little bit interesting

when it comes to the debt commitment I

pretty much agree because the debt

commitment actually says that the debt

commitment doesn't expire until the

outside date of six months after 4 20

when the deal was originally Inked I

know it was Inked on 420. but anyway

that means October 20th is when the bank

could actually renegotiate this loan and

I have a suspicion the bank would love

to renegotiate this loan that's because

interest rates have moved in such a

terrible direction that and and it's

very difficult to get third parties to

do unsecured financing deals right now

deals that aren't like leaned up against

the actual underlying property that the

bank might end up being on the hook for

this loan in terms of holding the loan

see you got to remember companies like

banks that put these deals together they

get usually one to one and a half

percent in advisory fees on these deals

on a 44 billion dollar deal that could

be like well quite frankly somewhere

around 400 million dollars in advisory

fees for this deal happening so like the

banks are going to make out like bandits

in advisory fees but they're potentially

going to get reamed on that 12 and a

half to 13 billion dollars of debt

financing because usually Banks don't

actually want your loan like people keep

thinking oh the interest rate is higher

like the bank's gonna make more money no

the bank does not want a book of loans

what they want is to write a loan going

hey you promised to repay this money

right okay here's the money all right

now I got a promise to repay now I'm

gonna maybe uh securitize this by

bundling it together with a bunch of

other loans and then slicing it up into

uh you know a thousand little slices and

selling it as uh bonds to you know

corporate bonds to some Swedish investor

or something and I'm sure everything

will be fine

nothing like 2008. but anyway Banks

don't want these what they want is the

fee for doing this it's basically what

you're doing is you're it's kind of like

syndicating real estate but it's

syndicating loans okay the bank doesn't

actually want to take all their cash and

tie it up in an unsecured loan

especially since that can lead them to

have to take Mark to Market write Downs

on their earnings reports which leads to

a lower earnings per share for the

quarter and then that looks bad for the

executive staff and it just looks like a

bad deal all around and it's generally

not something Banks want a lot of on the

book anyway because it creates too much

risk with the central banks and the

central banks are like ah you know

things go bad that loan could go bad and

then now that adds to more stress at

your bank and then if you're too big to

fail we have to bail that out and we

don't want to do that so we might tell

you you have to get rid of that and if

you have to get rid of that loan that

you're holding well we don't really care

what you have to sell it for just take a

big loss and get rid of it okay so like

long and short of it like the banks

would probably love to bail on this

equity or rather this debt financing

commitment because they're going to lose

probably more money than they're going

to make on advisory fees the problem is

they committed to this deal until

October 20th

now they could renege on that but that

would slay probably at least slay their

reputation on Wall Street it's like your

commitment letter is basically now

worthless because you just weasled out

of it at the last minute so I think the

banks are kind of on the hook with this

one so I don't think that debt financing

isn't going to get funded I actually

think that debt financing is going to

get funded uh the margin financing isn't

an issue and so really the only

potential loophole here is that

something squirrely happens with that

Equity financing commitment letter now

the equity financing some of that money

is coming from Elon Musk but some of

that money is coming from other people

like the following firms like Apollo

Global Management Inc and 6th Street

Partners had been in discussions to

contribute billions of dollars via

preferred Equity stake before musk

declared the deal dead this is from

Bloomberg

musk had been looking to raise as much

as six billion dollars from preferred

Equity investors as a way to reduce the

amount of cash he had to provide himself

to do the deal in the transaction

financing for the transaction includes

about 13 billion dollars of debt led by

Morgan Stanley we already talked about

that part right now Reuters via

Bloomberg is reporting that Apollo and

6th Street are no longer in talks with

Elon Musk to provide financing for the

deal there's talk on Wall Street that

they were never even really interested

from the get-go so maybe these two

companies are just straight up clickbait

trying to get their names in headlines

and maybe these two companies didn't

even matter from the get-go and that the

other companies who are providing money

for Elon stealer are actually still

interested I don't know but it's

possible that maybe some of those other

companies aren't actually interested

we'll see so now you've got a really

interesting problem because you're

sitting in this world where uh oh okay

well the Dead financing is probably

going to happen and quite frankly if

Elon Musk wanted to like weasel out of

this deal why would he make this

commitment to do the deal

16 days before the debt financing offer

would expire oh and the likely reason

for that is the court date was set for

October 17th and that is a trial date

which means Elon Musk would have had to

have gone through depositions before

that trial date on the 17th then the

trial date would have occurred and quite

frankly as of October 5th here at 10 pm

California time the Delaware Chancery

Court on Wednesday said that neither

side has yet asked to pause the case

which is really interesting because then

it makes you wonder what if this is all

like a big charade like what if elon's

like okay I'll keep going in with the

deal and then even if you go to court on

the 17th you know would would the court

case be done within three days or could

you in court say like hey your honor I

said I'll complete the deal at full

price you know we just need some more

time Kick the Can down the road a week

and now your debt financing expires boom

one billion dollar termination walk away

I don't know this is not as clear-cut

and over as some folks are trying to

make it seem remember if he cancels

under either debt or Equity not being

available it's a billion dollar

termination fee and the benefit to this

billion dollar termination fee is let's

be real

he probably saved like 20 billion

dollars okay that's because on a price

to sales multiple Twitter is selling for

twice the sales ratio of Snapchat and

Facebook twice the valuation on a price

to sales basis

and now if you go to price to earnings

it's even worse I mean you're paying

over 70 times 2022 earnings for this

company when you have other companies

like Google trading for 10 to 15 Apple

trading around 30. I mean even Tesla

with what many think is a high valuation

is trading for like you know 55 to 60

times earnings in 2022. Twitter's

getting reamed here and it's not only

well I mean Twitter would be getting

reamed right like Windows valuation

should be getting reamed but it's not

only the fact that multiples have

completely collapsed in the market but

advertisers have pulled back a lot of

money for not from advertising so

earnings per share at Twitter are

probably collapsing as well in fact

their last quarter was terrible

so elon's kind of overpaying for this

deal and paying a billion dollar fine

and I mean when I say he's kind of

overpaying for the deal I should clarify

that and say he's really really

overpaying for the deal okay it's so bad

it's so bad that you literally have

Barons on the front page of Barons

running Elon Musk is overpaying for

Twitter by a huge amount here's the math

okay so like don't just take my word for

it to like do the math yourself and it's

just like oh terrible so Elon would

benefit from just walking away from this

deal even if it cost him a billion

dollars because a billion dollar loss

would be a lot better than the loss in

valuation he's going to suffer from for

actually owning this company now the

thesis is that hey well if he can you

know incorporate this as part of his ex

Holdings or maybe he as he's alluded to

on Twitter he can create a future app

like an x.com app or whatever that maybe

it's like a WeChat or subscription and

payment model and it's somewhat

decentralized and it's got Free Speech

but it's got public moderation for that

you know whatever if he can do all those

things and he can grow the user base to

a billion users and and monetize it in a

better way great

but you still love a pain right now but

don't change the fact that you're

overpaying by a lot right now okay now

is there the potential that any of this

creates some more stress on Tesla stock

and the reality is yes absolutely so

first of all we know that Elon Musk

needs to come up himself with

approximately another two billion

dollars so Elon musk's got to come up

with an extra two billion dollars but we

don't know the details of the equity

financing agreement but if the top two

are good let's say debt financing and

margin financing let's say these are not

considerations anymore but what if that

Equity financing says that whatever he

can't raise comes from Elon Musk well if

Elon Musk is and ends up being five

billion dollars short on Equity

financing it's entirely possible Elon

might have to sell another five billion

dollars of Tesla stock which could

create seven billion dollars of seven

selling pressure on Tesla now a really

dirty scenario could be what if they go

to court and then the debt financing

expires and then the judge says too bad

you tried to play a game letting your

debt financing expire I'm gonna make you

come up with with the money anyway that

could be another 13 billion dollars that

Elon has to come up with that would just

be like the worst possible potential

scenario but could happen now those are

short-term gyrations in in selling

pressure in the future uh Tesla should

go back to a more fundamental uh based

valuation one that's not based on a fear

over China or fear over you know

deliveries and demand evaporating or

fear over Elon selling which he could in

theory through a 10b51 plan even through

the lock-up period here or the blackout

period before earnings uh they could

have prescribed a plan for the selling

this extra two bill right

so yeah you absolutely potentially still

have other dangers and risks coming for

Tesla stock and a lot of it I think is

going to hinge on is that extra Equity

financing going to happen or can he

somehow get things to delay to the point

where the banks end up bailing on

financing and then oops sorry we played

the game waited 16 days here's your

billion dollar cancellation goodbye

you know if some of his Equity Partners

don't come through because valuations

went to poopy doopies and maybe they

don't want to overpay either

does that potentially mean more selling

pressure on Tesla and the answer there

is yes anyway thanks so much for

watching folks and uh as usual we'll see

in the next one and check out

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