This buyout may be headed in the same direction, and if it is, I conjecture it will have serious negative repercussions for Musk personally and his other companies. Everyone insists he's playing 5D chess with his moves, but a lot of his success depends upon the strength of his "reality distortion field."

In a very real way, he is successful because people think he's successful. A small failure here and a merger with another company there are merely blips. But a major failure that can be reasonably attributed to his "drinking his own kool-aid"[1] will undermine his ability to move markets or sell products on the sheer strength of Musk being Musk.

[1]: Yes I am aware of the origin of the phrase.

1) Tweet things like "I should buy Twitter", "I'm working on moving money around, finding investors, and freeing up money I have tied up to buy Twitter", "Hate selling Tesla, but we need a free speech platform. People will be getting bargains on TSLA!"

2) Sell the Tesla stock he wanted to sell.

3) Make an insulting offer for TWTR at a low value with all sorts of contingencies.

He wasn't planning on finalizing the purchase? When you aren't planning on finalizing the purchase, you put in all sorts of contingencies. You don't waive everything.

I'd say he tried to back out after the market started turning. It became clear that a lot of ad-based platforms were going to be facing some hard times ahead and interest rates started climbing.

I mean, if he'd waited a few months to make his "I want to buy Twitter" play, he'd been able to have offered a ton less. I think Twitter's board of directors went from "we're going to fight Musk" to "Musk must buy us" because of how the market turned. Had Twitter's board "drunk the kool-aid" when they were fighting the buyout?

I think it's in part a case of bad timing. In April, people were paying $130 for GOOG. A month later it was only $113 and now it's $85. META was $210 in April and now it's $89 (their story does have some complications around metaverse stuff). In November 2021, people were paying $54 for TWTR. In January when Musk started buying shares, Twitter was in the $30s. Without Musk's stated buyout offer, Twitter shares probably would have sank like Google or Meta's. Musk probably realized that he wasn't getting Twitter for cheap offering $54.20/share (below their 52-week high), but actually way overpaying given market conditions that were rapidly declining.

Twitter's board of directors wanted to adopt a poison pill to prevent getting $54.20/share in a hostile takeover.

I think it's hard to argue "it was just a ruse to dump Tesla stock". You don't waive due diligence if it's a ruse. Twitter's board wouldn't have been so hostile to it if they thought it was a great price. It's more just that the market conditions shifted a lot over the Spring, Summer, and Fall this year. If Musk had waited 6 months to make the offer, he probably could have bought Twitter for $15-20B instead of $44B.

A major failure that can be reasonably attributed to his engaging in high-risk stock market manipulation while flouting prudent business practices such as retaining the right to perform due diligence will undermine his ability to move markets or sell products on the sheer strength of Musk being Musk.

Let me get ahead of you there. They would only pay for a quality product which Twitter is definitely not, as a ruiner of modern discourse. Of course there's also the catch that there are no quality products anymore. The whole world of products is devolving at almost the speed of Google Search. But definitely paying is the superior business model

Bootstrap comes to mind - and while that's not something I foresee them "selling", a company large enough to produce a F/OSS project of that size and complexity surely has any number of large, mature products that they could sell or monetize.

Also, the key part of the LBO playbook isn't making quick cash from selling off assets - it's divesting the company of cost centers and investing heavily in profit centers. If you're able to sell the things that aren't making you money, all the better.

It's a tax thing/way to move money, isn't it?

I wish I was this good at business.

"Making a small fortune is easy. You just have to start with a large fortune and then go into business."

"If you want to be a millionaire, start with a billion dollars and launch a new airline."

He owns the company that has loans, but the company has the loans -- not him, he hasn't personally guaranteed them. Company folds, creditors have no recourse (generally).

https://www.financialsamurai.com/non-recourse-states-walk-aw...

https://www.cga.ct.gov/2010/rpt/2010-R-0327.htm

>It is difficult to classify states as strictly recourse or non-recourse. Almost all states allow deficiency judgments under certain conditions, for certain types of property or foreclosure proceedings. However, many states restrict not only the conditions under which deficiency judgments are allowed but the maximum recovery for the creditors.

>he hasn't personally guaranteed them.

Source? I imagine the terms of the loans for the Twitter purchase are not publicly available.

> Source? I imagine the terms of the loans for the Twitter purchase are not publicly available.

We can't know this, I suppose -- but it's quite uncommon from my understanding.

2. If you own a company and the company goes bankrupt with bonds (loans) outstanding, the recourse is that the bondholders get control of the company before the shareholders get anything. (This is analogous to the mortgage situation above: the mortgage lender gets the house, become an REO [real-estate owned] on the bank balance sheet.)

If you walk away, you lose your investment, but you aren't on the hook for the money that the bank put up.

It would affect your credit rating (and for musk there would be a similar reputational hit) but neither of you need to pay back the bank.

Well, not always. Banks can add clauses which make you responsible for any losses on the price of the house. In other words, when the price goes below the money owned then that can cause a margin call.

I've never seen this happen.

He’ll be liable only if he personally guaranteed the loans, but the details say otherwise.

Twitter borrowed $13 Billion, not Elon Musk. Technically, "X Holdings" took on the debt (a new company Elon started up), but "X Holdings" is effectively Twitter now.

> I can’t just buy a house with a mortgage and walk away.

If you create a business, lets say "Foobar Incorporated", and get the banks to recognize the debt as assigned to "Foobar Incorporated", you can walk away as "Foobar Incorporated" goes bankrupt.

Similarly, it is "X Holdings" who goes bankrupt in this arrangement, not Elon Musk.

But the banks can sell those bands over the next few weeks, so the "final owners" are still yet to be seen.

There were even pearl clutching op-eds about how it was "immoral" to stop paying a loan on a property that wasn't worth the loan, even though that is is literally the legal and optimum move that companies do all the time.

[1] https://www.nytimes.com/2010/10/04/business/04mortgage.html

I know that at least $3 Billion is fully unsecured (!!), no collateral involved at all. I forget what the other $10 Billion was like right now though. So its complicated.

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Elon Musk was responsible for the $33 Billion. $44 Billion buyout + some debt (I guess Twitter had $2 Billion preexisting debt?) == $46 Billion total buyout, structured as $13 Billion from Morgan Stanley + other banks, and $33 Billion from Elon Musk.

However Elon Musk raised "his end" of the $33 Billion is yet another mystery. He probably sold TSLA shares, or took a loan using TSLA stock as collateral. But this is independent of the $13 Billion I was talking about earlier.

So he might have had to sell ~$20B in stock to pay that extra $13B.

For this Twitter purchase, a lot of it was purchased using some Tesla stock as collateral, but he probably has a personal limit to how much stock he wants to leverage, and he continues to have a fiscal duty to Tesla investors to not over-collateralize his position on TSLA[1], so he probably tried to put as much of the company itself up as collateral for the loans he needed to take it private.

Note that Tesla's 10-Q [2] supports this theory: "If Elon Musk were forced to sell shares of our common stock that he has pledged to secure certain personal loan obligations, such sales could cause our stock price to decline."

Now this has happened before, particularly with Toys-R-Us when a private equity firm came in and did the same thing, using the business itself as collateral to get the loan that pays for all of the currently-public shares. This didn't particularly end well for the company[3].

0: https://www.sec.gov/Archives/edgar/data/1318605/000156459022...

1: if Tesla's stock price drops below the limit price the banks that have loaned to Musk have placed on their collateral, then the banks might not make back their loan amount+interest. There is a fiscal duty here because such an event with millions of TSLA entering the sell market, even over weeks, will tank the value of the stock

2: https://www.sec.gov/Archives/edgar/data/1318605/000095017022...

3: https://www.theatlantic.com/magazine/archive/2018/07/toys-r-...

I have no idea what average salary was there, but it looks to me like the layoffs might not even cover that.

At least one source I found says the average salary of Twitter employees is $97k. (US only total compensation is closer to $300k with an average of $270k. But a lot of that is probably stock options which now must be paid in cash).

So I would imagine the total savings are closer to $250m compared to when Twitter was public but maybe a lot more in savings vs what Twitter would have bled considering the stock options portion of the compensation would have had to have been cash.

> a lot of that is probably stock options which now must be paid in cash

I won't say that's not a big deal, but it's a one-time cost. Paying $500k today to save $300k / year is an excellent move for Twitter - assuming, of course, that Musk is correct in his estimation that the employees cut were not contributing to the company's revenue.

Although level.fyi is probably biased to high earners who post their salaries and has less data for non-engineers.

Why didn't Ford and Boeing, companies with a much better footing than Musk, simply move into those sectors (EVs and re-usable rockets, respectively) and mop up all those subsidies for themselves?

Tesla did lobby, quite a bit. They've also been angry about the subsidies that require cars to be union made.

Tesla was already a successful, innovative electric car company before it started lobbying like a regular car company.

All of the risk that paid off (what makes a businessman a good businessman) was done in the early days when he invested 6.5 million that he turned into billions.

He didn't create the company, and he didn't create the Roadster.

He deserves credit for believing in the David and turning it into Goliath (of EVs), even if government subsidies helped.

I support the government subsidizing clean energy, electric cars and cheaper access to space and I think it's hypocritical to turn around and shit on the companies that take advantage of those subsidies and do exactly the thing that they are meant to encourage.

FWIW I have no idea how finances work, just can imagine Elon getting into weird loopholes.

SpaceX is privately-held, but has raised billions of dollars from dozens of investors, so that won’t fly neither.

Why not, when twitter's operational costs are ~5.5 billion and you are reportedly laying off 50-75% of staff?

And trolling does not help either. The sink thing was trolling and between that and layouts, the remaining people will be dysfunctional for quite a long time.

As you note, it's really hard to cut deep enough to cover $1B in interest payments without cutting stuff that ends up hurting your revenue. As Twitter cuts their R&D, they're leaving themselves open to missing out on the future. Should Twitter have continued to invest in Vine? Well, the benefit of hindsight says "yes" given TikTok's success. As much as everyone is making fun of Meta's metaverse plans, it's certainly possible it'll be important in the future. We really just don't know. I remember everyone saying the iPhone was a silly toy and people would want to keep their Blackberries and Windows Mobile devices with keyboards. We can literally see the future and say, "nah, that'll never happen."

If Musk cuts engineering too much, does the service just become mediocre?

As you say, it's hard to cut deep enough to come up with $1B.

Half right: Cash comp is unlikely to be that high, and that's the GP's point. They could only very optimistically cut payroll to cover $1-2 billion.

Half wrong: Cash comp isn't the whole story, you have to use total comp as equity the acquisition of Twitter also included employee equity plans, so as they vest the company will owe employees a cash value. I'm not sure if Twitter RSUs are dollar denominated (fixed cost, $X/quarter) or share denominated (e.g.: Y shares/quarter). The latter will be more costly because Musk paid a premium.

Half again as wrong: total comp is not the all-in cost of an FTE. Benefits and other associated costs, I don't know enough about payroll to even begin to estimate that.

Also most of those folks on levels also get compensated with stock or equity, so it's more than base. Going private means that goes away and their comp also gets slashed. Is he going to take it back public, what beyond base does twitter offer as comp.