Elon Musk can't afford Twitter despite being world's richest man, says expert

Elon Musk made headlines when he offered to buy Twitter for $43 billion on Wednesday, but now a New York University (NYU) professor has said that the world's richest man would not be able to afford this purchase.

Scott Galloway, professor of marketing at NYU's Stern School of Business has shared the reasons why he thinks Musk wouldn't be able to stump up the cash required for the social media platform.

According to the lecturer, the Space X and Tesla CEO has "no viable route to financing" because he would need to borrow against his Tesla shares, consequently causing them to "tank."

Speaking on the Pivot podcast which he co-hosts with technology journalist Kara Swisher, Galloway looked at the different options on the table for Musk.

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"The first is with debt, and he can't because his company has no EBITDA (earnings before interest, taxes, depreciation, and amortisation)," he said. "No firm is going to loan him more than a billion or a few billion dollars, so he has to come up with $40 billion in equity."

While Musk may have some rich friends, Galloway thinks they're not going to be helpful in this instance, as they would prefer their money over free speech and added: "They would start asking questions he can't answer.”

"Really, the only viable source of financing here is for him to borrow against his shares in Tesla," the professor concluded.

As a result, Galloway believes Musk would need to borrow "$40 billion against between $200 billion and $300 billion in equity value."

It would mean that the billionaire needs to approach several banks to ask them to lend him the money.

"They [the banks] would put in huge margin requirements, meaning if Tesla stock got cut in half – which it easily could – then all of a sudden Elon Musk would get margin calls and be a forced seller of Tesla stock."

"You know whose stock goes down if this deal were to somehow go through and he would raise money against Tesla shares? Tesla's stock would tank," Galloway said.

Currently, Musk has a 9.2 per cent stake in Twitter which he acquired earlier this month, making him the company's biggest individual shareholder and was offered a board seat (which would've capped his stock ownership to 14.9 per cent) but he declined.

After making the offer to purchase Twitter for $43 billion, the company has attempted to prevent Musk's hostile takeover by adopting the "poison pill" plan which enables current shareholders to buy stocks at a discounted rate in order to dilute the stakes of new investors like Musk.

Guess we'll have to wait and see how this plays out to see if Galloway's predictions come true.

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