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Comment by ndsipa_pomu | Hacker News Reader

Looks like he's sprinting towards the endgame of bankruptcy: https://www.nytimes.com/2022/12/13/technology/elon-musk-twit...

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I'm guessing bankruptcy has always been the plan, but I never really understood why his financial backers would knowingly light a pile of money on fire. For oppressive governments, it seems easier to monitor & block activity on one major social media platform, rather than quashing twitter and dealing with the dozens of platforms that rise from the ashes.

Maybe it's a megalomaniac dictator thing, and I will never understand.

> I never really understood why his financial backers would knowingly light a pile of money on fire

Think about FTX, cryptocurrencies, Juicero... it's becoming pretty overwhelmingly clear that having money is not in any way correlated to being able to spend it intelligently. It's time to start seriously thinking about wealth caps.

> I'm guessing bankruptcy has always been the plan

Why? What advantage would that bring to him?

Honest question. With him overpaying for Twitter already (maybe not completely voluntary), bankruptcy looks like the fastest way to make the deal even worse.

> Why?

It doesn't take a financial wizard to realize that Twitter was insolvent from the day it was purchased. Saddling a company with an interest payment that's nearly double revenue is a clear indication to me that the time period from purchase-to-bankruptcy was going to be measured in months. So we can be pretty confident that everyone involved with this purchase was expecting Twitter to die quickly.

You and I are on the same page. But the "why" is not "why would they make such a poor financial choice," since it's clear the answer to that is "to kill Twitter." The why is really, "why bother killing Twitter?" I get Musk's reasoning, but I don't understand what his co-investors get out of the deal. Authoritarian regimes benefit from having dissidents operate on a centralized platform, because it's easier to monitor. Killing twitter pushes these groups out to platforms that are going to be decentralized and impossible to block. It's weakening their grip, not reinforcing it.

My best guess is that they assumed that Musk would stay on post bankruptcy and act as their pro-authoritarian sock puppet. But they didn't anticipate his complete ineptitude would drive users off the platform in such numbers.

Won't have to pay a Billion Dollars a year in interest.

How so? Either those loans are attached to Twitter (as I think they are), in which case his investment going to zero is still the worst thing that can happen, or they are attached to his wealth directly, in which case he will need to pay either way.

> maybe not completely voluntary

Why would you say that?

He signed a binding agreement to buy Twitter at an agreed upon price.

Nobody forced him to sign that, ergo: he completely voluntarily signed a binding agreement on which he later wanted to renege.

By the time he signed the agreement, it was voluntary. By the time ge actually bought it, it looked a lot like he'd rather not.

This is not to defend Musk in any way, it's just a statement of facts.

Bankruptcy would be really bad for Musk in this case - his creditors will get 10s of billions worth of Tesla shares as collateral.

I have no idea how this works. Did he pledge a particular number of shares, or was it a dollar amount? I.e. if he had to pay up, would it be based on the current value of TSLA, or the value at the time he put them up as collateral?

It could get ugly indeed. Tesla's brand image is slipping, and everything points to that just getting worse. Between Elon as the face of the company, and their seeming inability to deliver a competitive product now that everyone else has started making EVs... well, I wouldn't buy any TSLA for sure. You buy a Tesla now for the supercharger network, everything else is a compromise. That's a shaky place to be.

https://archive.ph/JhTuM

Musk put up $22.4B of his own money to buy Twitter, plus another $4B he already had invested.

Maybe Twitter was worthless when Musk bought it, and that $26.4B was - theoretically - already burnt in the deal. If you pay $26.4B to buy garbage, you lost $26.4B from the start...

Assuming Twitter is not worthless, Musk loses whatever percentage of that $26.4B actually has value. Worst case, that's probably at least 20% - which is still $5.28B.

He'll also still be on the hook for $13B in personal debt financing to banks. Unless Musk himself can claim to be bankrupt, he owes them $13B - and they're going to get it one way or the other.

Further, another $7B of equity investments came from questionable investors like Saudi Prince Alwaleed bin Talal. Who knows what they're going to do if Musk purposefully runs the company into the ground and burns billions of their money...

There's a lot of reasons why Musk can't just say oops, claim bankruptcy and leave everyone else holding the bag.

It's almost as if all the other investors aren't morons...

Yeah I really think the banks backed this deal with the intention of carving up Musk because of the way he financed this. I don’t know enough about the subject to be confident but I wouldn’t be shocked if he loses control of Tesla in the long run because of this

Not necessarily - bankruptcy is not the same as defaulting. Bankruptcy, or threatening it, would be an effort to prevent default and instead renegotiate the existing debt, likely with lenders taking a signficant haircut.

They're not going to take a haircut when Musk personally secured the loans...

Musk's grand plan is to lose $30B or so of his own money, plus $13B from bankers who trusted that he would pay them back? That does not seem plausible to me.

Well, I would say that he didn't lose it so much as he spent it to destroy Twitter out of spite. In which case he must be getting value for his money, he certainly seems to be enjoying himself.

The $13 billion is now only worth $7 billion btw.

The bond market has shifted. Twitter still owes $13 Billion of course, but those bonds are toxic. No one wants junk-bonds from Twitter right now.

And yet, Twitter was insolvent the day the deal went through. The company is going to be "restructuring" it's debt by June '23. Whether that's in bankruptcy court or through private deals with bond holders.

The public data about the deal seems to indicate that backers wouldn't care as they have solid collateral from Musk personally in form of Tesla stock, so unless Tesla goes down as well, the Twitter deal will be profitable for them as all the losses are on Musk.

$TSLA is down 60% YTD. I hope they got really good prices for that stock.

Depends on what securities Elon had to provide to get the loans. If it was Tesla stock, well, thej it might not be as bad as deal for his financial backers, especially the banks. It might be for him, so.

What if he (or his investors) just wanted all of Twitter's data? What happens to the company's data if it goes bankrupt?

Honestly, I doubt it. Bankruptcy puts him under the very direct supervision of the kind of federal judge that does not fuck around. And network-effects businesses like Twitter can do pretty well even when being neglected. I think he might continue to use the spectre of bankruptcy to scare his staff; he clearly likes rule through fear to create a false sense of urgency. That leaves him with people who will do whatever he wants no matter what it means for Twitter's users or society at large, two things Twitter's previous workforce cared about.

Definitely not going bankrupt though people would be happy to see it.

Advertisers have come back and the staff is muuuuch smaller than before.

I think you need to avoid taking Musk’s word at face value and instead look at his actions. Avoiding paying rent and severance is not what a financially healthy company does.

The only logical reason I can think of to not pay something you know you’re legally obligated to pay is if you’re intending to declare bankruptcy to avoid paying. Otherwise you’re going to end up paying and pay a load of legal fees on top.

I guess one alternative is effectively taking a risky loan: you are running low on cash but you have a large cash flow coming in the future. Stop paying rent, eventually after a protracted court battle pay your debts with that future cash flow and the legal fees are “interest”.

Neither feels like the actions of a financially healthy company.

I don't agree with this. IMHO his career has almost been defined by an extraordinary ability to 'temporarily get away with shit'. For example, the current FSD story: I expect this will be a long, drawn-out, forgone conclusion where Tesla will eventually lose the battle by having to pay back owners but will win the war in having a cheap, easy loan from the most financially unstable years until now.

Other examples:

- Illegal firings of non-US Twitter staff

- Pushing back the Twitter acquisition

- Roadster/Truck deposits

- Radar will-they/won't-they

The ability to stop paying bills without seeing the inside of a cell or having to sleep in the cold is a powerful negotiation tool. Some won't even have the means to sue him. Despite being painted as failures, none of these will have a materially adverse affect on his life. Consequences are different for a person like him.

Judging by the quality of ads that are being presented on twitter these days (when I see any at all), this is very obviously not true, no matter how much Elon claims otherwise.

Have to agree with this. The ads I see now are for the kind of things temporary mall kiosks sell. Hard to believe they are raking in ad dollars from those.

Twitter still has to pay severance for the staff they fired - plus arbitration fees, damages, etc.

And other lawsuits will be coming in soon now that they got rid of their content moderation staff.

He needs 1b a year just to service the debt.

Didn't he create that debt mostly by the acquisition?

Yes. Leveraged buyouts usually end in default/bankruptcy. Hence the OP referring to bankruptcy as the "endgame". It was the expected outcome from the start.

Why would bankers agree to loan the money then? They get their year end bonus for originating the fee and don't care about the losses? Or do they think they can eventually get their money back by selling it to someone else?

Well, for starters, they collect those massive interest payments each year. They also saddle the companies with expensive, long-term consulting contracts which extract even more money. And if/when the company goes bankrupt, the courts often give financiers an equity slice of the new post-bankruptcy company.

The idea is usually to slash close enough to the bone that the company survives, but 100% of profits go to debt servicing. But this doesn't make for a company that's resilient to economic turmoil (or one that can invest money into growth). So the contingency plan is to ensure that they are first in line in court.

> Advertisers have come back

Which advertisers, for what price?

We will never know the true revenue of Twitter because it is no longer a traded company nor are they in any obligation to publish data of this kind publicly.

Which major advertisers are coming back?

https://www.reuters.com/technology/amazon-restart-advertisin...

Big names not sure about spend

A lot of that staff he got rid of were exactly people necessary to run large ads sales operation.

Twitter's accounts payable is telling a different story.

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