Musk Buys Twitter with Debt, Faces Tax Controversy... Tesla Stock Plummets 12%

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Seulgina Cho] "The U.S. tax law has become a silent partner. (Bloomberg News)"

As Elon Musk, the world's richest person and CEO of Tesla, acquires Twitter, tax controversies have arisen in the United States. This is because a significant portion of the $44 billion (approximately 55 trillion KRW) Twitter acquisition fund is planned to be financed through debt, which is not subject to taxation.

On the 26th (local time), Bloomberg News reported this controversy, stating, "Musk's wealth, which is not subject to taxation, is helping with the Twitter acquisition."

The day before, Twitter agreed to be sold at $54.20 per share, totaling $44 billion, according to Musk's proposal. Reviewing the filing Musk submitted to the U.S. Securities and Exchange Commission (SEC) on the 21st, of the $46.5 billion acquisition fund plan disclosed, $25.5 billion is debt financing from bank loans. Additionally, $12.5 billion of this debt financing is secured by borrowing against his Tesla shares.

Most of Musk's wealth, the world's richest person, is in Tesla stock. Because Musk does not have cash on hand to acquire Twitter, he secured a significant portion of the funds by using his shares as collateral, thus avoiding paying taxes. Bloomberg pointed out that the interest on the debt is even eligible for tax deductions.

Musk has stated that $21 billion of the acquisition funds will be raised through equity. If he tries to secure the remaining acquisition funds by selling Tesla shares, he would have to pay capital gains tax. However, major foreign media have pointed out that Musk has not specified his equity financing plan in detail and suggested the possibility that Musk might seek additional investors. There is also a possibility of obtaining additional loans secured by shares in unlisted companies such as SpaceX and The Boring Company.

Steve Wamhoff, Policy Director at the Institute on Taxation and Economic Policy (ITEP), pointed out, "Musk is really wealthy, but by the tax law's defined taxable income standards, he is not wealthy enough to buy Twitter." Steve Rosenthal, Senior Fellow at the Brookings Tax Policy Center, also mentioned that Musk did not raise acquisition funds by selling Tesla shares and paying taxes but borrowed money using shares as collateral.

In political circles, a wealth tax is being discussed. Senator Elizabeth Warren said, "This deal is a danger to democracy. Billionaires like Musk act under different rules and accumulate power for their own benefit," and argued, "A wealth tax is necessary to hold Big Tech accountable." There are also calls for the introduction of a billionaire tax.

The overall custodian managing Musk's wealth is confirmed to be Jared Birchall of Excession. Birchall, a former banker from Morgan Stanley, is known as a close aide who advises Musk on financial matters, including relations with Wall Street. It is also observed that Birchall played a significant role in securing bank loans for the Twitter acquisition. In this deal, Musk's financial advisory team was led by Morgan Stanley, where Birchall previously worked.

If Musk fails to secure funds or faces opposition from shareholders and cannot acquire Twitter, he will have to pay a $1 billion penalty. Twitter disclosed the acquisition agreement with Musk to the SEC on this day.

On this day, in the New York stock market, Tesla's stock price plunged more than 12% due to the aftershock of Musk's Twitter acquisition agreement. Tesla closed the regular trading session down 12.18% and is showing a slight decline in after-hours trading as well.

This is understood to be due to investors' anxiety fueled by concerns that Musk might sell Tesla shares to acquire Twitter. The Wall Street Journal (WSJ) reported it as "the largest drop in a year and a half since September 2020." CNBC evaluated it as "possibly reflecting investors' concerns about the Twitter acquisition." Reviewing the loan agreements Musk made with financial institutions, he pledged Tesla shares worth five times the loan amount as collateral.

Twitter, which Musk agreed to acquire, also closed the regular session down 3.91% on this day. It is recording a decline of more than 1% in after-hours trading as well.

This content was produced with the assistance of AI translation services.