How I understand the parent post: Twitter has cost Musk a lot of money. Musk will now have to get a lot of value from twitter, and that will probably be bad news for the user.

It has cost Musk a lot of money, but the critical point here is that it has also cost Twitter a lot of money: Because it is a leveraged buy out Twitter owns the $13bn debt that was raised to buy it out.

Just because the new owners paid price X doesn’t mean the previous owners weren’t extracting profits that were based on the value X of the business.

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.

Because Musk is known to increase the value of companies by taking from users and giving back crappy products and services?!

I find that train of thought very unconvincing.

> I’m afraid I don’t understand how Twitter can end up with debt from Musk buying it. How does that even work?

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...

Thanks! I’ll give it a read.

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.

I worked on Wall Street for years, a long time ago when leveraged buy-outs first really got going.

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.

"But who the fuck would give them a loan like that (like you say, just to have Musk at the helm)?"

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.

There was $13 billion of debt used to finance the buy-out. It's a leveraged buy-out, so the target company owns the debt, not the buyer.

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.

It's also playing a role in his shareholders of Tesla view Musk. A recent Opening Arguments podcast explains how they could actually sue him for irresponsible behaviour that goes against his fiduciary responsibility to the shareholders. He basically tanked Tesla shares raising money for the Twitter deal. That's not maximizing the value of the shares, it's the opposite.