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> If he can simply wait for Twitter to be worth as much as he paid for it, so that he can sell it again and cover his losses, that will be a fairly good outcome.

This is a leveraged buyout.

That means that $13 Billion was borrowed from Morgan Stanley to make this deal happen, and Twitter is the owner of that debt. Estimates are ~$1.3 Billion / year in interest payments (the most risky $3 Billion is unsecured loans, expected to be CCC-rated, and CCC-rated debt is around 16% right now). So I think 10% is a reasonable estimate for what this financing will cost.

In 2021, Twitter made... _NEGATIVE_ 200-million bucks.

So... yeah. Add $1.3 Billion of interest payments on top of that, and I think we got a problem here folks. Another note: TWTR's revenue (mostly advertisements) is $5 Billion/year. I really dunno where they're gonna find $1.3 Billion/year from.

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What Musk bought here is a white elephant. It will cost tons of money just to stay afloat, let alone "make money" or even "retain value". If Elon Musk holds onto this and "only" loses a few dozen billion over the next few years, I think he'd have done a good job. I have no expectation that TWTR will remain a $44 Billion company over the next decade. Selling the company off for $20 Billion 5 years from now (IE: a $24 Billion loss) would be a herculean effort as it is IMO.

The debt payments and IR -- was this the trick to have the money upfront, then sell the debt, so banks, do they own any amount of Twitter or did they get a payout immediately after "the ink dried", and now this $1.3bb scenario is going to be offloaded onto someone else? Financial engineering that leads to Musk's ownership and banks payout. And now is the when the price of that debt is highest, so the highest possible payout (?). Because you've pointed out the paradoxical financials, IR payments seem whimsical, or a way to eventually sell more TSLA stock...

Any good resources on the deal structure?

I don't recall the full details. But I think it was roughly 50% effectively fixed (in April 2022) and 50% effectively adjustable.

Thus: the estimate for ~10% for the overall debt deal. The fixed-portion of the debt is already hilarious to look at, IIRC Morgan Stanley expected 11% yields for the CCC tranche, but are now looking at 16%+. Morgan Stanley's losses are already in the hundreds-of-millions.

Thank you, interesting details on MS. Some of the classic "yield farming"...Twitter deal as the black box this time.

https://archive.ph/PMvWz

Here's an archived Bloomberg quick-take back when the debt was financed last April.

Here's some commentary on the subject:

* https://fortune.com/2022/10/05/elon-musk-flipflop-twitter-ba...

* https://www.axios.com/pro/media-deals/2022/10/05/musk-twitte...

The banks own the debt and will try to syndicate it out to new investors later. This is standard in an LBO. The banks provide "bridge financing" for the deal while they line up end debt investors. But the banks are ultimately on the hook if the debt market freezes up, as happened here.

ETA: Financing the Merger section of the proxy lays all this out:

https://www.sec.gov/Archives/edgar/data/1418091/000119312522...

Pursuant to a debt commitment letter (which we refer to as the “debt commitment letter”), Morgan Stanley Senior Funding, Inc. and the other financial institutions party thereto committed to provide to Acquisition Sub (which we collectively refer to as the “bank debt financing”):

  • a senior secured term loan facility in an aggregate principal amount of $6.5 billion;

  • a senior secured revolving facility in an aggregate committed amount of $500.0 million;

  • up to $3.0 billion in aggregate principal amount of senior secured bridge commitments (which commitments may be replaced by the proceeds of the issuance of one or more series of senior secured notes (in escrow or otherwise) pursuant to a Rule 144A offering or other private placement, as contemplated by the debt commitment letter); and

  • up to $3.0 billion in aggregate principal amount of senior unsecured bridge commitments (which commitments may be replaced by the proceeds of the issuance of one or more series of senior unsecured notes (in escrow or otherwise) pursuant to a Rule 144A offering or other private placement, as contemplated by the debt commitment letter).

This is why banks always take it in the shorts really badly during downturns. They’re always chasing yields and behind the curve while being in the stereotypical ‘conservative’ financial position of low information about how anything actually works.

I’m amazed we haven’t had several high profile ‘jumped out of window’ events related to this already. Seriously, who thought it was a good idea to sign off in this from the financier side?

I’m amazed

tbh i've heard quite a few CLOs are sitting with warehouses now open for upwards of 200 days, so MS may just be waiting for them to get desperate to fill up so they don't take so much of a haircut. my guess is the overall prime to sub-IG spread isn't going to be moving down, but this is kinda an advantage for illiquid 144a offerings.

What is IR here?

My understanding is that normally the banks would have sold this debt long before the deal closed. However due to Elon's putting the deal "on hold" and what followed, the bank wasn't able to do the usual road show to sell the debt to investors. The banks are on the hooks for this now. And while they will likely be able to package and sell it still, they will be doing so in a much different environment than back in April when Elon made the offer to buy the company.

Sounds like you are defining a hood job solely on financial parameters which i don’t think should be the goal markers. That said I realize you are responding to the financial aspect of the question.

Also he likely has a plan to get more revenue otherwise he likely (caveat he is quite impulsive) wouldn't have jumped in. Theres clearly an idea to a path for a better company - well see if that can execute.

> Also he likely has a plan to get more revenue otherwise he likely (caveat he is quite impulsive) wouldn't have jumped in

I mean, just 3 weeks ago he went to court trying to get out of this deal.

I don't think he actually wanted to buy Twitter anymore. As these numbers came in, it became obvious that this was a bad deal for him.

I'd actually say that the macro market changed so dramatically during the debacle that he got cold feet given that his other assets devalued and still had to pay the asking price for an overpriced company is why he tried to back out.

Though he might not have a plan - that's also plausible.

One "cost savings" will come in the form of employee layoffs and then the following payroll reductions. IF twitter retains it's advertisers and continues to add additional advertisers this will make it profitable in short order. In fact, if I was in the marketing division at twitter I would be drumming up business.

If it is possible for Twitter to layoff employees, retain previous customers, and add more... I dunno, what was the previous management doing? I mean it is of course possible that Musk is just much more competent than them.

The 7500 employees were working on new ways to censor people.

I dunno, what was the previous management doing?

I think you can read through the exact same thing Musk was questioning in those leaked convos between him and Twitter's CEO. That'll be his game for sure, cut down on cruft. The hell does twitter need 7500 people for even at current state of affairs if not moderation or sheer incompetence?

Musk runs his existing employees very hard. Most tech companies don’t. There maybe room to squeeze out more juice per employee. Surely this will push some out, but new people will come in and replace them.

Firing 1000 engineers who contribute very little value at a total comp of $300-400k will make a meaningful dent in opex.

Eliminating the draconian content moderation policies and reinstating high-engagement accounts ought to boost revenue.

I think you're largely correct that this is a bad deal for Musk, but I doubt it will be quite as bad as it seems, when restructuring is completed.

Firing 1,000 non-contributing engineers is easier said than done. There will be enough false positives in that number that a lot of essential knowledge about the systems may walk out of the door too.

On your second point, how does eliminating content moderation boost revenue? Twitter’s revenue comes from advertisers, and they generally don’t want their ads to be shown next to offensive user-generated content. Nobody in corporate America is clamoring to buy banner space on 4chan — sites with the least moderation are also the least attractive to advertisers.

Add $4B in existing long term debt to that $13B.

This isn't just a white elephant, that title belongs to projects like the unfinished Dubai islands, which "only" cost about $8b. A forced purchase worth $44b for a company that's lost up to $1.5b in a year is a sword of Damocles hanging one inch over Elon's head. It has a very good chance of sinking him financially.

When normal people get drunk and have bad ideas they phone an ex-girlfriend or sign up to a marathon. When you are the richest man in the you blow half your fortune on a social media platform.

The job of a good lawyer is to predict what the judge is going to say after the client has wasted his money on litigating. The main purpose of going all the way to trial is if someone is lying. Then that's the job of the jury to determine who's lying and who's telling the truth.

It had to be a hell of a problem he faced should the suit move forward:

  Twitter is worth perhaps half the price Elon paid
  Tesla is worth half what is was when Elon started accumulating shares

IOW Elon used money that cost him 2X what is did last year to buy something worth 0.5X what he just now paid (assuming the check clears).

Even for the Richest Man Ever that will sting.

Innovation may take a back seat to cost cutting, like a basic LBO. Elon has creditors who lent him about $13B that got used to buy a thing worth half what was paid. What are the covenants on that? Twitter has about $4B in existing long term debt. Twitter free cash flow is negative, and 3X more negative than a year earlier. Where will debt service come from?

These are the mundane, apolitical reasons Twitter faces more headwinds now than before. Elon is much about doing more with less. He will need a lot of that to happen.

Twitter was badly run by several metrics.

He said exactly why he bought Twitter. Yet you dismiss his reasons out of hand. Don’t even mention them in your analysis. And presents this theory of a very reactive, fearful personality who is motivated by money and has little vision for the future.

(People will agree with you. Because the question they ask is: “How is Elon Musk a smaller person than I am?”. They ask that not because they want to understand. But because they think this was somehow some form of personal competition. “If Elon is good I am bad“. Nietzsche said, another persons vanity triggers us only if we feel their vanity to stand in the way of our own. And sometimes, that leads us to see vanity where there might be none. Because what we’re looking at, really, is the mirror.)

> He said exactly why he bought Twitter.

He's said any number of things that are either not true or at least misleading over the years. Taking tweets at complete face value with Musk is... unwise.

Not my experience, at all. He’s been very consistent about what he values throughout the years. And he has also been very honest about when he had been wrong (say about “having egg on his face” about FSD timelines, or “seeing the world in radar”).

"Am considering taking Tesla private at $420. Funding secured."

https://www.reuters.com/business/autos-transportation/court-...

> A U.S. judge has determined that Elon Musk's 2018 tweets that funding had been secured to take electric car maker Tesla private was inaccurate and reckless, saying "there was nothing concrete" about financing from Saudi Arabia's sovereign wealth fund at that time.

> He said exactly why he bought Twitter.

Yeah. There are too many bots and therefore he doesn't want to buy Twitter. In fact, Twitter is lying about their bot numbers, so please Mrs. Judge, don't force me to buy Twitter. Its such a bad value no one should buy it at $44 Billion.

Also, I don't wanna do the deposition Mrs. Judge, I'll go through with the $44 Billion transaction. Also, I wanna buy Twitter now and its going to be amazing and called "X", the everything company. Please get Twitter's lawyers off of me and don't drag me through this trial anymore.

Are you aware that you’re casting Musk in a baby voice?

You're welcome to do your own summary of the past month if you wish.

EDIT: Alternatively, you can point out where my summary is wrong. I did put some effort into it after all.

> Don’t even mention them in your analysis.

Neither do you. Are you referring to the bots saga? He initially said he wanted to buy Twitter because he wanted to rid it of bots. Then he said he didn't want to buy Twitter because there were too many bots. That doesn't make a lot of sense.

If not, what exactly are you referring to?

Fair enough. Sorry for not being specific. I was referring to this: https://twitter.com/elonmusk/status/1585619322239561728

> He said exactly why he bought Twitter.

He said he was buying it because there were too many bots. Then he said he was not gonna buy it because there were too many bots.

He implied in a few interviews that he wants to turn it into a WeChat version of the west. Doesn't 200M+ daily active users opens up that door.

You have to remember that those 200M+ users are located in many, many countries, with different laws and customs

He mentioned "the everything app" I think once? But -- IMHO -- people who tweet don't fit the profile of people who would need such an app. They're trying to sell stuff, not buy stuff.

They are also demonstrating that they're likely to use specialized services for specific tasks - Twitter is a very specialized tool. This is the exact opposite from someone who draws any profit from an "everything app".

If not even Facebook with its userbase of people already using a single mediocre tool for different purposes manages to crack the "everything app for the west" nut, Twitter is bound to fail.

Maybe everyone is bound to fail simply because the concept does not fly in the west.

It doesn't for the same reason there isn't already a "WeChat" of the west.

Additionally Twitter has as far as I can tell (speculative) a much much less stable foundation in the EU then it seems if you just look at daily users count.

> It doesn't for the same reason there isn't already a "WeChat" of the west.

iMessage? (US)

WhatsApp? (EU)

WeChat is so much more then WhatsApp (for China)

EDIT: It's not only what everyone has (WeChat in China), instead of just many people (WhatsApp in EU). It's also the default payment service, you pay through it all the time in all kinds of situations. It's like WhatsApp but more monopolistic combined with PayPal but also more monopolistic. And both with full government support so no worries some bank lobby gets in you way.

payments? community? local user discovery? etc etc

Twitter is a microblogging site. Not a messaging platform. He could have bought snapchat which is based on messaging.

Twitter is a pool of highly capable people, a large user base, and, currently, opportunity. A messaging platform added to their microblogging service is not outside the realm. It already has DM and Vine-like video.

Digg tried to pivot too.

Indeed. They weren't as successful after. Perhaps Twitter repeats history, or perhaps they do something new.

You assume 200M+ human daily active users. A large portion of Twitter's DAU & MAU are bots.

I can't square that ambition with the idea that Twitter is 4x overstaffed and needs to shed 75% of its workforce, though.

If he has ambitions to turn Twitter into an Everything App, he'll need to diverrt a significant portion of the workforce onto that project, leaving him with a fraction of a fraction of the current workforce to keep Twitter's microblogging and ad shilling platform up and running.

I've read some speculation that Musk did it because he wanted to dump a bunch of Tesla stock without tanking its price (with the justification being to help fund the Twitter buyout) and thought he could somehow back out of the agreement unscathed.

I have no idea how accurate that is, though, and I'm certainly not a lawyer.

An odd was to do that.

TSLA is down by half from last year. If you believe the TSLA bulls he sold at the bottom to buy something that instantly loses him half what he paid.

I think he has handed people enough rope to hang themselves. It is now very clear if those figures were dodgy the deal was off so everyone involved knew the stakes were incredibly high. He now has access to all the data, all the communications and all the time he wants to prove his case. If it turns out twitter has been misleading everyone then it just takes 1 or 2 people threatened with criminal charges to make deals and everyone turns on everyone and it all collapses with enough evidence for many lawsuits to claw back money. If the evidence isn't there because they didn't mislead anyone then that's also fine, he agreed a fair deal at the time based on accurate information.

> But, some amount of free speech without being a pure hellscape is close to what Twitter is right now. That's not a plan for the future, that's an observation of how things are at present

I think the issue is that a lot of people disagree with your assessment and think the censorship has gone too far for far too long. You might not think so, but a significant portion of the population does.

I view Elon's purchase of Twitter the same as other ultra wealthy people that purchase a news or media business (The Atlantic - Laurene Powell, Washington Post - Bezos), a way to shape narratives and control information.

The question is, was a new media platform worth the price compared to a "newspaper" or magazine?

What I don't understand is the lawsuit from Twitter. There's an high risk that this is going to damage the company in the long run, so why did the company decided to force him to finish the deal? Sounds a bit kinda suicidal

Or it could be that he was tired of Ideologues controlling the narrative and deciding what is right/wrong/misinformation/fake news etc for the rest of us.

The political effects Musk is after are mostly accomplished by removing bans on a small number of people and accounts. The rest can stay (roughly) the same.