Ignoring all the other things that are wrong with this whole situation... if they can make it $1B more efficient, how is it a waste even given the loans? Presumably the plan is to get rid of the debt eventually, and then you'll have a much more financially healthy company, assuming it can actually get $1B more efficient.

If they can, that's great, if not then they're setting up Twitter for bankruptcy, or asset sales, if they have any.

Generally speaking, loading up a company with debt is corrosive to good management. If you have to cover your interest payments each month, and that's hard, it focuses the business on short term survival rather than investing in growth in the longer term.

Definitely, the debt is a burden. I don't see how it's a waste to save money though. Maybe the cuts are so dramatic it damages the business, but reducing wasted money is generally good management.

It's like surgery: making cuts is part of the job, but the more drastic and indiscriminate the more likely the patient dies.

Given that Musk has just arrived, how can these cuts be carefully considered? He burst through the door and started slashing from what anyone can tell.

Even if Twitter is heavily bloated, the cuts may be fatal anyway on that basis.

Cutting costs is good, quickly slashing 50% doesn’t seem carefully considered and may cause actual problems.

Seems like a pretty massive “if” there. An extra one billion in efficiency without detriment to the service?

You've captured my sentiments exactly...

Why a waste? Sounds like a smart move?

Buy a company, drastically reduce unnecessary expenses.

>Buy a company, drastically reduce unnecessary expenses.

This famously works out very well for PE firms.

It seems very naive to assume Twitter was casually spending 1B/yr in "unnecessary expenses". Maybe the previous CEO/CTO was a baffling moron, but I tend to have more faith in people absent of evidence otherwise. I'm going to be surprised if Twitter is around in year - I'm just they have the capital to keep the lights on but it will be a very different story if advertisers start to abandon the platform because the adops infrastructure was gutted as an "unnecessary expense".

Weren’t they spending almost half a billion a year on r&d?

That usually just means regular engineering staff

Twitter has expenses of $5B per year.

https://finance.yahoo.com/quote/TWTR/financials/

So just view this as "A 20% reduction in expenses". Doesn't seem quite to scary huh?

All those unnecessary expenses like content moderation and robust fault tolerant infrastructure.

It's an app for billionaires and journos to crank out viral memes, not a pacemaker. The world will be ok.

Not really the point here. If you spent tens of billions purchasing Twitter you presumably don’t want the world to be without it. You have a very active interest in making it a success.

Unless you're so beyond caring and vindictive that you're willing to do that just to screw over the shareholders who forced you to buy the company.

Screwing them over how, exactly? As far as I can tell most of the shareholders got cashed out at a valuation way above market. I'd love to be similarly "screwed over" given the opportunity.

Then that’s a sign Musk has absolutely lost it. Writing off tens of billions for petty revenge is insane.

(also the shareholders just cashed out, they don’t care)

From the buyer’s perspective the only result that matters is the profit.

Twitter going down occasionally wouldn’t be the worst thing in the world.

Or gigantic offices in expensive down town areas, all the coworkering space rent, food served at said office buildings, and personnel.

This was my thought. Or at least move HQ somewhere else. Although he’ll probably end up doing that anyway.

Except "content moderation" is a euphemism for banning accounts that e.g. question the effectiveness of the pfizer covid vaccine (which ended up being rather justified).

And team that communicates with advertisers for advertisers.

would have been smart if you bought it for a good deal.

Wait, what debt has Musk made Twitter take on? (being at the helm mere days, I really doubt there's any, debt like that takes longer to raise)

Musk himself took on ~$12 billion to finance the deal, that debt isn't on Twitter's books.

It was a leveraged buyout

Ok, so what if it was a leveraged buyout? All buyouts are. How did Twitter get "saddled" with debt?

No, all-cash buyouts are also a thing.

This was an all-cash buyout. It does not mean it was not leveraged.

All-cash buyouts are those buyouts where the acquirer pays with cash and not their own stock. In this case, Musk used only cash.

But some of that cash (about $12.7 BN) was borrowed from banks. So, it was leveraged.

In principle some buyer like Musk could buy without any help from banks, but why would they do that? You don't get to be a multi-billionaire without getting familiar with financing.

In any case, leveraged or not, Musk did not saddle Twitter with any debt. Maybe he will do it in the future, but for the time being he didn't, because he did not have time to do it.

He could try to issue a huge amount of debt later, and pay himself an extremely fat dividend, so he can turn a quick profit. But in the current market environment, that does not seem even remotely likely. Who is going to buy newly issued Twitter bonds? At what yields? A one year US Treasury yields 4.8%, what type of yield would one require for a bond issued by Twitter? 10%? 15%? If investors get a hint that Musk is just trying to run Twitter into the ground and get himself a nice exit, they won't invest even at 30%. After the whole saga with Musk repeatedly changing his mind on the deal (and before that the $420-for-sure Tesla buyout), how many investors do you think would fall for a get-rich-quick scheme perpetrated by a guy who can't actually climb the richest man ladder anymore?

You do not seem to know what you're talking about. The 12.7bn that was borrowed is going on Twitter's books. Their debt load prior to this leveraged buyout was 5.5bn; it's now 18.3bn[0], with yearly interest payments of roughly 1bn.

[0]: https://www.barrons.com/articles/tesla-stock-twitter-debt-51...

>yearly interest payments of roughly 1bn

This is on top of the principal? They pay 1bn every year and none of it counted against their debt?

Yes, that's just for the interest.

That's about right.

1bn/18.3bn = 5.4%

"Risk free" treasury bond yields are ~4.x%

1% premium for the risk seems reasonable given that Twitter is not known for making profits. Presumably some of the debt were incurred before the rate hikes so it's kind of on the low side.

You may need to change your username. The debt is assumed by Twitter and it is liable for $1bn a year in interest payments:

https://www.nytimes.com/2022/10/30/technology/elon-musk-twit...

Haha, I'll give that serious consideration.

Now, I read that NY Times article, and I guess the crucial sentence that you are referring to is

  To do the deal, Mr. Musk, the world’s richest man, loaded about $13 billion in debt on the company, which had not turned a profit for eight of the past 10 years.

Now, I'm not privy to the deal's details, but since you appear to be more informed, maybe you can clarify something for me.

How could Musk load with debt a company that he did not own yet? Legally, how does this work? In the end someone has to sign a piece of paper. Can I sign a piece of paper making you owe some money to someone else?

I can see how this could work. The then shareholders decided (indirectly via the board of directors) to borrow the cool $12.7 BN so Musk can use his own money and that debt to buy them all out at twice the fair market price. But then was it Musk who loaded Twitter with debt, or the outgoing directors?

You go to a bank and tell it "I would like to buy this company. It has assets worth $N, which could be put up as collateral for a loan of $(.60 x N)." The bank says "Yes, those assets are worth that much. We will sign a contract with you where we will give you $(.60 x N) and in return, once you successfully purchase the company and it is your property, those assets will act as collateral for that loan."

You take the loan (and probably some other money, since by definition the loan is less than the total value of the company's assets), and you go buy the company. You now own the company, therefore you own the assets, therefore you can use them as collateral, and so: the debt that was yours is now on the company's books. You bought out the company with extra leverage provided by the assets you were acquiring: leveraged buyout.

It tends to fail; LBOs tend to target companies that are struggling somehow, and loading an already-struggling company with a shit load of debt frequently results in a bankruptcy. You're probably familiar with companies that dies this way. (My favorite example for fellow millennials is Toys'R'Us.) If you find this troubling: you are correct. But you have forgotten the really important thing: you (or, in most LBOs, a bunch of private equity ghouls) have gotten very wealthy killing a company, and isn't that reward enough?

So let me recap: you (Musk) get a loan ($12.7 BN) from banks, with the idea that the company you buy will be used as a collateral. Before the sale is closed, you can't put it on the company's balance sheet, because you don't own it. But after that you can.

Wait a second. It's true that Musk now owns the company, but transactions between the company and its (sole) owner are still at arm's length, arent's they?

As a pure coincidence, today I received in the mail the bankruptcy ruling for a preschool that went bust and where we have paid $3000 in advance to enroll our daughter. The judge ruled we'll get $1400. But during the lawsuit it transpired that the owner gave himself a nice loan of more than $100k. He had to give the money back (I don't know all the details, although I can find out; I think he settled for a somewhat smaller amount).

Maybe I'm naive, but I think that should happen with larger companies too. Just because you are the sole owner of a company does not mean the company can just lend you money on whatever terms you decide. It's the ultimate conflict of interests.

On the other hand, if the prior shareholders cooperated with Musk, I can see how the debt could be on Twitter's books. But then, it's them who saddled the company with debt, isn't it?

Please read up on the concept of Leveraged Buyouts (LBOs), which were a thing since the 70s and 80s. Private equity LBOs have been a thing precisely because of credit available from banks. Last I checked, PE firms such as KKR are still prosperous, in spite of conducting an LBO of similar scale (RJR Nabisco), after saddling the company with extremely high amounts of debt (for the 80s).

And please don't drive the discussion to tangents and anecdata, even though your analogy is flawed.