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Comment by kelnos | Hacker News Reader

As the sibling pointed out, private companies don't have stock prices. But I've read estimates that Twitter is worth less $10B now, so less than a quarter what Musk paid for it.

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The banks just recently did a debt sale of a lot of that debt close to list price, so 44 billion dollar valuation is probably reasonable. Apparently the company is profitable now, sans the debt, so as long as it doesn't go out of business and can grow on other fronts then it's probably not a problem.

> profitable now, sans the debt

So, not profitable.

What، acompany needs to cover the costs of how it was acquired, now? If it's valued at the price it was purchased and making a positive revenue stream then it is profitable.

They need to cover their debts. If someone uses private equity raider tactics to load the company up with debt, it’s likely to be bad for the company but it still counts on their books just as taking payday loans is ill-advised but legal.

Yes, this seems to be common practice.

1. Borrow lots of cash

2. Buy a victim company with the cash

3. Carry out weird financial/legal alchemy to make the victim company solely responsible for paying off the loan

4. If the victim company can’t handle the debt and goes bankrupt, then you don’t own the company any more. That’s sad. Especially for the people who lose their jobs. But the people you borrowed the cash from can’t chase you for it, so no harm done, eh?

5. If the victim company pays off all the debt, then congratulations: you bought a successful profitable company for free!

I don’t understand step 3 or why it’s legal.

With the debt it's break even.

So, not profitable.

The company is profitable. The debt is unrelated to assets acquired or previous deficits.

a.k.a the worst kind of financial engineering. The company is not profitable if it doesn't make a profit when all things are considered.

And we're not even talking about the missed opportunity costs of the ~ $27bn cash used to purchase Twitter. Most of that value is completely gone.

If you were an investor in X and put up some of that $27 billion dollars you now own shares in xAI, so it's not not gone.

You can dress it up in "financial alchemy" like any hedge fund, but it doesn't disguise the fact that the last person to carry that can is going to lose a lot of very real money.

That doesn't even make any sense.

So much financial sophistry going on here, can almost see the sequel to the CDS infused trauma of 20 years ago coming down the line

This is part of the reason that the term EBITDA exists.

Can you list this sale you claim valued X at 44B?

Fidelty, which still owns a decent chunk of X, and is required by law to do due diligence on the value of that holding, and also has deeper insight into the value of X since they are also required to see X financials (since they own a big chunk of the private value), puts X value at 20% of the original 44B.

So please demonstrate your claims.

https://www.forbes.com/sites/tylerroush/2024/09/30/elon-musk...

A few weeks ago in February:

https://www.investing.com/news/stock-market-news/musks-x-sec...

> Banks have completed the sale of $5.5 billion in debt for Elon Musk's X, according a Wednesday report by the Wall Street Journal. The debt offering was increased following a strong response from investors. Ultimately, the loans were sold at 97 cents on the dollar.

This is not the same, as no ownership was traded, but it signaled surprising confidence that the debt could be sold with only a small discount.

That does not value X at $44B as the poster claimed. It also states “ These floating-rate debts have an interest rate of around 11%, making the borrowing costs several percentage points higher than even the riskiest loans on Wall Street.” which is a spectacular admission the markets put X on incredibly shaky ground.

X being forced to sell off debt at such extraordinarily bad terms means X is likely about to implode.

I agree that the interest rate is astonishingly high.

This makes no sense. The debt payments are larger than the company's entire revenue! The Twitter purchase was a financial boondoggle that Elon is attempting to hide with this latest deal.

If I borrow $4 million to buy a house worth $1 million I could technically say that sans the debt I'm a millionaire, but that's hardly a useful or positive claim.

Rhis raises it back to the original level (although entirely based off the absurdly overinflated value of Grok at $80 billion. VCs…)

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