3 ms·

> 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

> 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. ----- 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.

dpflan 4y ago
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?
- dragontamer 4y ago
  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.
  - dpflan 4y ago
    Thank you, interesting details on MS. Some of the classic "yield farming"...Twitter deal as the black box this time.
    - dragontamer 4y ago
      https://archive.ph/PMvWz 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-banks-backing-him-morgan-stanley-buyout-debt/ https://fortune.com/2022/10/05/elon-musk-flipflop-twitter-ba... * https://www.axios.com/pro/media-deals/2022/10/05/musk-twitter-deal-banks-debt https://www.axios.com/pro/media-deals/2022/10/05/musk-twitte...
- merely-unlikely 4y ago
  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/1418091/000119312522202163/d283119ddefm14a.htm#toc283119_16 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).
  - lazide 4y ago
    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
  - collegeburner 4y ago
    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.
- bogomipz 4y ago
  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.
boringg 4y ago
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.
- dragontamer 4y ago
  > 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.
  - boringg 4y ago
    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.
freedude 4y ago
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.
- bee_rider 4y ago
  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.
  - polski-g 4y ago
    The 7500 employees were working on new ways to censor people.
  - Keyframe 4y ago
    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?
  - therealdrag0 4y ago
    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.
caeril 4y ago
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.
- pavlov 4y ago
  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.
- deleted 4y ago
  [deleted]
Zigurd 4y ago
Add $4B in existing long term debt to that $13B.
majani 4y ago
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.

dpflan 4y ago

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?

dragontamer 4y ago
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.
- dpflan 4y ago
  Thank you, interesting details on MS. Some of the classic "yield farming"...Twitter deal as the black box this time.
  - dragontamer 4y ago
    https://archive.ph/PMvWz 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-banks-backing-him-morgan-stanley-buyout-debt/ https://fortune.com/2022/10/05/elon-musk-flipflop-twitter-ba... * https://www.axios.com/pro/media-deals/2022/10/05/musk-twitter-deal-banks-debt https://www.axios.com/pro/media-deals/2022/10/05/musk-twitte...
merely-unlikely 4y ago
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/1418091/000119312522202163/d283119ddefm14a.htm#toc283119_16 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).
- lazide 4y ago
  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
- collegeburner 4y ago
  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.
bogomipz 4y ago
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.

boringg 4y ago

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.

dragontamer 4y ago
> 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.
- boringg 4y ago
  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.

freedude 4y ago

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.

bee_rider 4y ago
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.
- polski-g 4y ago
  The 7500 employees were working on new ways to censor people.
- Keyframe 4y ago
  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?
- therealdrag0 4y ago
  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.

caeril 4y ago

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.

pavlov 4y ago
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.
deleted 4y ago
[deleted]

Zigurd 4y ago

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

majani 4y ago

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.