Twitter the company takes out a huge loan to pay the current shareholders a fortune (which is decided by those same shareholders, no conflict of interest there at all). But who the fuck would give them a loan like that (like you say, just to have Musk at the helm)?
Basically it seems like some people are doing some mental gymnastics to justify disliking or boycotting Twitter because Elon bought it and doesn’t seem to be going along with the program.
I find that train of thought very unconvincing.
This article explains: (a) how leveraged buyouts work, (b) how Musk's acquisition is different from a regular LBO, and (c) what debt Twitter now has due to the deal.
https://www.washingtonpost.com/business/elon-musks-twitter-d...
Edit: I must say that even after I read it I have trouble understanding how any of that happens except through well connected people moving money around to their own benefit.
The banks are on the hook, but it’s not really the banks because it’s not their money they are lending out.
So I really understand them.
And I agree with you. "Leverage" means multiplying both risk and reward. Given a system where losses are socialized, and wins are privatized, it makes complete sense to do LBOs as much as possible - the people with money win, and everyone else loses.
A syndicate of banks, including Morgan Stanley, Bank of America, Barclays, Mitsubishi UFJ Financial Group, BNP Paribas, Mizuho Financial Group and Societe Generale.
https://www.cnbc.com/2022/10/05/banks-financing-musks-twitte...
Banks usually do not care that much about clients or user experience. They look at a businesses financials and check whether it can take the extra interest payments. Apparently, Musk convinced them that with some job cuts, Twitter would be able to make the interest payments. We will see how this works out. There may be an advertiser exodus happening already and I do not think either the banks or Musk planned for that.
How do you think that debt ends up getting paid off? It'll be close to $1 billion every year just to service that debt.
Given that:
* Twitter has only ever made a profit in 2018 and 2019
* That the profits it made in those two years were $1.2bn and $1.4bn respectively (only just enough to service this new debt)
* That for 2020 and 2021 other tech companies were comparatively minting it, but Twitter burned ~$1.3bn
* The world is generally in the early phases of what is likely to a deep recession, with ad spend and consumer spending already well down
It feels like a bit of an interesting purchase, to say the least.
It should be noted that the plan to charge users $8 per month for a blue verification badge wouldn't even service the debt if 25 times more people bought it than currently have it for free.
> By himself musk may be no better or worse than the previous shareholders. But just for him to rule over twitter is going to cost twitter a lot of money that will probably reduce the quality of the service.
It seems to me that his product-focused ownership (remember, he's a big user of Twitter) will either make it better or he will run it into the ground (due to naïvety and incompetence in this domain). Both seem like a win/win situation to me.
I think he has very strong incentives to make Twitter better because it is his stage, both for marketing his companies but also to stay int he limelight (ego).
Their most profitable years would have been cancelled out by the new debt Musk brought, and that was before he tanked their ad sales.
When a leveraged buyout happens (this is true for most leveraged buyouts) a large cost is put into the business that wasn't there before. And this cost does nothing to help make the good or service better. It merely exists so that person B may own the business instead of person A.
So what is the difference between Musk and the previous shareholders? The main difference is that Musk put an enormous cost on the business which will be borne by twitters users and advertisers, and that cost brings twitter nothing more than having musk as an owner.
By himself musk may be no better or worse than the previous shareholders. But just for him to rule over twitter is going to cost twitter a lot of money that will probably reduce the quality of the service.
This is true of most leveraged buyouts and whenever a leveraged buyout happens to a company you use, it is always a good idea to look for alternatives. The official response of the leveraged buyout industry is that the new management is just so much better that it is worth to saddle the company with all this debt and all these costs to just change the management. And the customer will benefit from the better management.
It is yet to be seen whether Musk is such a great manager that he can run a social media company so much better than everybody else to make it worth taking the enormous debt, and do that without having any experience running a social media company and while running two (oh wait - three ) other companies simultaneously.
But generally speaking this is not the case. It might have been the case during the beginning of the LBO industry when there was some truly entrenched bad management in some US companies but not anymore. It is possible to change management of a publicly traded company without doing an LBO, and nowadays stockholders tend to be good about holding their managers to high standards.