This Investor Has The Right To Purchase Millions Of Tesla Shares For Pennies On The Dollar

The richest man in the world, Tesla TSLA CEO Elon Musk, has the right to purchase 25.2 million shares of the company for $70.01 per share. Here's how. 

Musk's Tesla Compensation Package: Musk's compensation structure was designed to ensure that his interests were aligned with those of other Tesla shareholders, and it was to be totally performance-based. The initial 10-year package acted as a stimulus for Tesla's strategic and financial goals to be met.

A 12-tranche bonus structure depending on market cap was incorporated in the agreement, with each tranche split into $50-billion portions. Starting with $100 billion, each $50 billion in market capitalization unlocked the following tranche.

This would mean that once Musk took Tesla to $650 billion, he would have achieved each milestone.

Musk delivered early on this — two years ago, to be precise.

A Source Of Funding For Twitter Takeover? Musk's Twitter TWTR takeover proposal requires him to produce $21.5 billion in equity himself, so he could choose to exercise the option to buy the shares at a hefty discount.

It's worth noting that if Musk exercises his option to purchase the shares, he won't be able to sell them for another five years.

He could use his stock as security — as he has in the past — to borrow the billions required to complete his Twitter investment.

“There are no discussions underway about incremental compensation for me,” he said on the company’s earnings call with investors.

There are no such plans in place, but given that Tesla shares are currently priced at slightly over $1,000, let's run some math to determine the value of this incentive. 

25,200,000 shares at a price of $1,008.78 would have a value of $25,421,256,000

25,200,000 shares purchased at $70.01 would represent a value of $1,764,252,000

This would mean that Musk would instantly see $23,657,004,000 in unrealized gains after exercising the option.

Tesla allows executive officers to borrow up to 25% of the value of pledged shares. According to a Tesla proxy statement, just over 51% of Musk’s stake has already been pledged as collateral.

TSLA, TWTR Price action: Shares of Tesla gained 3.23% to close at $1,008.78 on Thursday and were trading another 0.51% higher midday Friday at $1,013.89, according to Benzinga Pro. 

Shares of Twitter were trading 2.55% higher at $48.27.