“The Twitter buyout may be one of the worst acquisitions in the history of Wall Street, with something like $37 billion in value flushed pretty much as soon as the deal closed.”
— Via @WilliamCohan https://t.co/DkZkvM8dE7
— Bill Grueskin (@BGrueskin) June 19, 2023
Since Puck is distinctly a niche publication, thought I’d share this piece from ‘former restructuring and bankruptcy advisor at Lazard’ William Cohan, “Will Elon Lose Control of Twitter?”.
(Bad news first, probably not, assuming he still wants to keep it… )
Oh dear, what is going on these days with Elon Musk at Twitter? Let’s see: Twitter is being kicked out of its office in Boulder because—wait for it—Elon decided to stop paying the rent. He’s stopped paying the bills for Twitter’s use of Google Cloud and, according to my partner Eriq Gardner, for JAMS, the arbitration administrator that is adjudicating many of Musk’s legal disputes with his ex-employees. He’s also facing a lawsuit from the Wall Street P.R. firm, Joele Frank, which claims it’s owed more than $830,000 in fees for advice it provided during Musk’s campaign to buy Twitter last year.
As a former restructuring and bankruptcy advisor at Lazard, I can recognize the signs of a company in distress. After all, it’s a pretty obvious tell that there’s financial trouble brewing when a company stops paying its bills as they become due. That’s a recipe for financial disaster, or bankruptcy, or both. Last time I checked, if a company has more than 12 creditors—as Twitter does—then any three of them can join together to put a company into an involuntary bankruptcy proceeding. And Elon is in danger here. At some point, the creditors he is mindlessly stiffing on a regular basis are going to get sufficiently pissed to throw Twitter into bankruptcy.
But I don’t get it, dude. Elon is the world’s richest man, with a net worth of some $233 billion, according to Bloomberg, up an astounding $100 billion so far in 2023. Why is he not paying the people he owes money to? Why is he risking an involuntary bankruptcy filing? And then, of course, there is the upcoming interest payment of around $300 million due to the group of seven or so banks that still hold Twitter’s $13 billion of debt used to pay a portion of the $44 billion Twitter purchase price. I know Elon made the interest payments owed in January and in May. But will he make the next one, due in September? I suppose not paying those (metaphorical) nickels and dimes is one thing. But if he doesn’t pay the banks the $300 million he owes them in September, he will be asking for trouble in the form of a financial restructuring, or worse, a bankruptcy filing…
What’s as clear today as it was on October 27, when the $44 billion changed hands and Elon took control of Twitter, is that the $31 billion of equity that Elon ($24 billion) and his friends ($7 billion) put into the leveraged buyout of Twitter is gone. It’s a zero. In fact, the Twitter buyout may be one of the very worst acquisitions in the history of Wall Street, with something like $37 billion in value flushed—the $31 billion of equity and about half of the value of the $13 billion of debt, or another $6 billion—pretty much as soon as the deal closed.
Unfortunately for Elon, and his fellow equity holders and the banks still holding on to the $13 billion of debt (which should have been syndicated long ago), he has done nothing in the eight months since he’s owned Twitter to create value for his partners; in fact, just the opposite. He’s destroyed value for the equity and made it virtually impossible for the big Wall Street banks that still own the $13 billion of senior debt to sell it to other investors, unless they are willing to take a huge writedown—on the order of 50 percent—to move the debt off their balance sheets. At some point, the Federal Reserve, the banks’ prudential regulator, is going to force them to sell the debt, perfect their losses, or to take a serious impairment charge against the debt and perfect that loss…
So what is Elon’s game here? Perhaps, as I have written before, he is essentially cosplaying as a bankrupt entity—by not paying his bills as they become due—so that he can scare the big Wall Street banks that own Twitter’s $13 billion of debt to sell it to him at a steep discount, perhaps at a price even lower than the 50 cents on the dollar it would probably trade for now, if marketed to investors. Not that Elon necessarily wants to buy the debt, even at a big discount. But this may be the path of least resistance if he wants to prevent the company from falling into the hands of the voracious distressed debt community on Wall Street who are in the “loan-to-own” business.
Once that bank debt starts to trade, the Twitter fireworks will really begin. If Elon buys the debt, then he can keep control of Twitter for whatever perverse reasons he has for still wanting to own this pig. If the debt gets bought by the likes of DoubleLine Capital, or Apollo, or Oaktree Capital, then all bets are off for Elon and he will lose control of Twitter.
NotMax
FYI. Cross-border hate.
bbleh
Fascinating post. (Not snarking. For once.) I am VERY glad that my retirement and investment funds are in the hands of people who spend their time thinking like this. (Ok that was snark.)
Baud
Thanks, Biden.
cain
There is no end game – the dude is making it up as he goes. But he’s enjoying the attention. I bet he sends dick pics to catturd2.
@NotMax – there is going to be a mass shooting at a pride parade – the GOP have really ratcheted up the hate rhetoric and someone not right in the head is going to start shooting. The worst part will be the completely lack of empathy of lives lost.
Baud
If he uses Twitter to elect Republicans, he’s expecting a big tax cut payday.
mrmoshpotato
And he deserved to lose every dollar.
Citizen Alan
So Elon Musk is the richest man in the world? Just how much of his assets are actually real assets as opposed to worthless paper that hasn’t been properly valued yet?
Anoniminous
@Citizen Alan:
His Tesla stock is valued at $236.9 billion, so I think that answers your question.
bbleh
@Citizen Alan: no financial genius, but my understanding is that the “paper” is not at all “worthless,” but for sure if he tried to sell it all at once — “liquidate” — he wouldn’t get NEAR its nominal value, not least because his own massive sell-off would depress the price.
OTOH if for some reason he decided to turn it all into cash (no reason at all to do that, because wtf do you do with all that cash except invest it, unless you’re Scrooge McDuck and want to fill a pool with it), and he planned carefully and did it over a period of years, then he probably could realize most of the nominal value — absent some external shock of some sort, and realizing that it would be a lot harder to unload a controlling share of, say, Twitter or Tesla than it would other less concentrated assets.
MattF
My Twitter TL is now full of low-life ‘promoted’ ads. I block a dozen of them and there are a dozen more of them the next time I look. It’s gone from circling the drain to being chopped up in the garbage disposal.
Gvg
@Baud: i don’t see how he can get as big a tax cut as he has lost on twitter. I wonder what he pays in taxes anyway. Bet its not as much as we would hope.
Viva BrisVegas
Tesla’s market capitalisation is about $870 billion right now. Last November it was about $1.2 trillion.
For comparison, Toyota’s is about $280 billion.
So Tesla has lost more than Toyota’s worth in the past 6 months.
Whether this is a trend or not I have no idea.
I seem to recall hearing that at least some of the bank debt used to buy Twitter was guaranteed with Tesla shares and that if the shares dropped below a certain value then the entire loan came due.
lowtechcyclist
@NotMax:
https://talkingpointsmemo.com/edblog/almost-like-its-a-pattern
dr. luba
@MattF: Mine is full of ads for granny bras. (Yes, this is apparently a thing.). I keep blocking them and new ones keep popping up…..
Who knew there were so many different purveyors of said bras?
dmsilev
@Viva BrisVegas:
And still massively overvalued. Near as I can guess, there is a large population of sufficiently gullible people that believe Musk’s claims that actual functional robocars are just around the corner and that hope is what’s fueling Tesla’s stock and keeping it inflated.
BeautifulPlumage
Does Tesla have a financing arm like GM? They had low sales at the end of last year when they lowered prices. I’ve read that Tesla makes money from carbon offsets, but won’t the income dry up as the other carmakers bring their EVs to market? The future seems to be more competition and less income for Tesla.
Jackie
@cain: “The worst part will be the completely lack of empathy of lives lost.”
Those who died or were seriously wounded at the queer bar in Colorado and Pulse nightclub in Florida prove you wrong. There was mass support and outreaching after both.
I ALSO HOPE YOU’RE 100% WRONG regarding a mass shooting.
Jay
geg6
@dmsilev:
Yeah, I’m no finance expert (unless you’re financing a college education). But I can’t imagine the valuation numbers for Tesla are anything like real value. Like, not even in the same galaxy.
bbleh
@dmsilev: or enough people believe that enough people so believe.
What Have The Romans Ever Done for Us?
@Viva BrisVegas: Makes absolutely no sense that Tesla is valued at 3x Toyota. Toyota’s Been a successful industry leader for decades. Tesla…has not.
cain
Me too, me too.
Regarding the lack of empathy – it will be organized lack of empathy – meaning the right wing will use things to trigger people.
Back then LBGTQ+ weren’t in the cross hairs as they are now. Now there will be messaging.
Sure Lurkalot
“At some point” is carrying a lot of baggage here. Seems like generally accepted accounting rules would apply here and his lenders have downgraded (or will have to downgrade) the debt. Oh silly me. Accounting rules. Ha ha ha ha.
lowtechcyclist
@Viva BrisVegas:
That’s insane.
Within a few years, there will be robust competition in the electric car business, and when that happens, Tesla’s going to be just another player. There’s no way it’s going to have a market cap bigger than Toyota’s or GM’s then, let alone three times Toyota’s market cap.
cain
@What Have The Romans Ever Done for Us?:
It’s all speculation – but one thing Tesla has done that Toyata has not – is that they not only built the EV – but solved the long distance problem. Building out that electrical charging network was one of the primary reasons of Tesla’s success.
At the time that Tesla came out – those charging networks were free. I could drive all the way from Portland to San Francisco and pay nothing for charging and they were growing at fairly fast rates.
I think that’s a pretty amazing achievement. The service was also really good – it felt like Apple compared to the low brow stuff that the dealers were doing. You were treated quite well. Of course in those days, it was all enthusiasts and we are a much different crowd than the current entitled Tesla owner.
NotMax
@dmsilev
In some ways put in mind of Daewoo, which was the kickass, hot stuff, gonna take the world by storm, sky’s the limit auto maker, until it wasn’t.
Bill Arnold
@Jay:
I love these stories about Combat Mosquitoes.
I mean, stealth drone Mosquito Carriers, launching squadron after squadron of weaponized, hungry hungry mosquitoes, with no detectable payload.
cain
My wife just came back after being attacked for two hours for the social science curriculum she put together. The “community” attacked her, took pictures of her, took videos and god knows what the fallout is going to be after today. It’s a good thing she is leaving the school district but there is an organized effort to come after everyone.
I’m not sure how we fight this.. this.. pestilence. These people are living pestilence – I hope that the arc of the universe zaps them in the ass.
The good thing is that just about everyone they could focus on as a target is gone. There is no one to target. But it could easily follow them to her new job.
lowtechcyclist
Has the latest news about Sam Alito been discussed yet downstairs? Apparently a ProPublica story about his corruption is on its way, and Alito published an op-ed in the Wall Street Journal to try to get ahead of the story. He says billionaire Paul Singer is just one of many people who’ve introduced him once or twice when he was giving a speech, and Singer offered him a seat that would otherwise have been unoccupied on his private plane flying to Alaska.
https://twitter.com/MatthewSchafer/status/1671298165704646657
Just ordinary ‘personal hospitality,’ no need to report it in his ethics filings.
https://twitter.com/MatthewSchafer/status/1671298930615648256
Apparently Alito forgot that he’d spoken about this or a similar trip with Singer at a Federalist Society gathering, and it went a lot further than merely accepting a free seat on a plane, involving a fishing trip deep into the wilderness.
https://twitter.com/DermotMCole/status/1671312893835620352
This is gonna be fun.
Scout211
That’s horrible. I feel so bad for her.
I’m glad she is leaving the district. I hope her new district is more supportive and has her back.
bbleh
@cain: recognizing that this is kind of macabre speculation, not to mention having a personal interest in the matter, I would say that a hostile or openly unsympathetic reaction to such a terrorist event, while no doubt reaffirming their MAGA/fundamentalist credentials and giving like-minded people an opportunity to nod in agreement, would NOT be to their advantage generally.
They are — and have been for a long time — painting themselves into an ever-tighter corner. I happen to believe that their spasmodic hatred of Trans people is an act of desperation, an attempt to find some small and poorly-understood group somewhere that they can demonize, having recognized that they’ve mostly lost their fight against the larger LGBTQ community.
And alas for them, they’re losing this one even faster.
Suzanne
OT, but informative, I think…. From the Pittsburgh Post-Gazette, on the good behavior of Taylor Swift’s fans at her two sold-out concerts at the Steelers stadium:
Go Swifties, way to be properly toilet trained.
Contrast that with poor Bebe Rexha, who had a concertgoer purposely throw a phone at her face, landing her in the hospital with stitches and a black eye.
sdhays
@lowtechcyclist: Tesla is also proving to be a one trick pony. They’ve spent years and millions of dollars on Elon’s batshit stupid truck that will never go to market; Ford and Rivian (are there others?) are already out with trucks.
I understand that Tesla has some industry-leading battery technology. I’ve read that their charging technology is better than the standard that other automakers have released – this is probably a driver behind Ford and GM switching to Tesla’s standard.
But everything else isn’t special – everything is electronic and driven by how “cool” it sounds to Musk (a person who hates people) rather than safety or usability. Autopilot is total shit and always will be. Their build quality is shit. And they’re death traps. Any car can catch on fire, but only Teslas will lock you in to your doom because the electronic locks have fried/lost power.
The only thing propping Tesla up is that a disproportionate portion of Elon’s fan base have big positions in the market and still believe he’s Tony Stark when he’s actually just a very good flim-flam man.
Scout211
@lowtechcyclist: I wondered what the story was with Alito. I saw the opinion piece listed on memeorandum but I didn’t read it because it was the Wall Street Journal. It was entitled, Justice Samuel Alito: ProPublica Misleads Its Readers. Then I still didn’t read it because Samuel Alito.
So thanks for reading so I don’t have to.
bbleh
@cain: @Scout211: that’s terrible. It’s one step away from terrorism. I guess one question I’d have is, where were the other Board members or administrators of the district? Were they there, and did they denounce the actions of the borderline-terrorists?
Sounds like it’s good she’s getting out of that situation. And more generally regarding fighting this sort of thing, it can’t be done by single courageous individuals or even by a small group of them. Unless the broader community — very much including their colleagues — stands up for them and doesn’t sit quietly by, then the Nazis will take over, and it’s best to get out of Germany while the ships are still sailing.
Anne Laurie
Boomer babes still wanna look perky… or so the manufacturers hope!
sdhays
@lowtechcyclist: “Offering a seat that would otherwise be unoccupied”
Umm…I’m guessing that billionaire’s private jets often have unoccupied seats. Being empty doesn’t make their value zero.
We mock Trump for claiming he didn’t return his boxes of classified information because he had golf pants or whatever mixed in with them, but the excuses these highly trained lawyers – supposedly the most brilliant legal minds in the country! – come up with are no less pathetic and insulting.
Burnspbesq
@cain:
Until very recently, you could also have argued that the Supercharger network was an antitrust violation (a tying arrangement).
I don’t mind admitting that the Supercharger network beats the heck out of almost everybody else in terms of convenience and reliability. But I will only use it in a dire emergency, because I refuse to enrich an evil man more than I already have (our solar installation includes a Tesla Powerwall).
Jackie
@Scout211: Saw the same. Assumed the WSJ is paid subscription, so didn’t bother. Anything that gets Alito’s panties into a twist is great news!
cain
@Scout211:
@bbleh:
There is an activist there that is whipping these people into a froth (he ran for the board and lost). One of the worst attacks came from some Indian man who objected to the use of colonialism – and said that he grew up in British India and they never talked about colonialism. WTF.
There was another white woman who was mad that ‘Black’ was capitalized and ‘white’ wasn’t and then demanded to know why that was. She claimed she had two doctorates and have never heard of my wife saying that it’s set that way because the American Psychriatric Association) (I think that’s them) determined that is how you write it in curriculum.
Wife has a commanding memory of facts and figures. They insulted her work. Deporables is the correct word for them.
But blown away by the Indian man defending the British Raj.
cain
@Burnspbesq: You could – but not having that network is what was holding back EV and no one else was willing to put that kind of commitment to solve the distribution issue. So I’m not sure you could argue in that fashion.
Sure Lurkalot
@lowtechcyclist:
Huh. Sam Alito is just your common Clarence Thomas. Huh.
Sure glad that obscene amounts of dark money in our political process “do not give rise to corruption or the appearance of corruption”, Justice Kennedy. Still hoping I learn why you retired when you did before I croak.
Burnspbesq
@Jackie:
it’s not hard to imagine Alito having a cow when he heard that Princeton was giving Rhiannon Giddens an honorary degree.
https://www.princeton.edu/news/2023/05/30/princeton-awards-five-honorary-degrees
sanjeevs
@lowtechcyclist:
This was a very, very close watched case. Either Alito just writes for the WSJ and never reads it or this is a lie.
Jackie
@Burnspbesq: Ha! And congratulations to her!!!
counterfactual
Let me stipulate that Musk was never “Tony Stark,” and that what remained of his brain melted two years ago. However, the stock evaluation of Tesla has some real foundation.
Tesla has low debt for a car company, and they’re not going to have to write off billions of dollars worth of internal combustion engine factories.
Their business model means they get all of the profit for each cars sold since they don’t have to split with dealerships. Until the Great Twit Breakdown, every single car produced was already sold. The big choke point on producing electric vehicles is the supply of batteries, and GM’s problems have shown that you really want batteries in-house. Tesla owns all or part of the biggest auto battery plants in the world (and they have lithium mining concessions that should provide all the lithium for their North American production for the next decade).
In contrast, Toyota is in deep shit. For reasons of Japanese industrial policy, they invested heavily in hydrogen cars. They’re frantically trying to get battery plants going, but they may not have enough EV cars to sell in California in 2035.
Now, if I were a Tesla stockholder, I’d be writing the board to shove Elon in a closet and get a replacement CEO. I’ve been thinking since 2020 that he can’t run a company past start up stage.
Ken
No, that would be Colin Pratt. You can hear his story over at Crypto Critics Corner, episode 69. The short version:
He admits that he would have some slight difficulties getting full value for all his tokens. But on paper, he is the richest man on earth.
Analogies with other people whose wealth relies on market value of an asset are left to the reader.
Steeplejack
Did Fox News air the second part of Bret Baier’s interview with Trump tonight? I haven’t seen anything about it.
Another Scott
@lowtechcyclist: Competition is coming very fast.
I dunno how much of this is hype to get clicks, but one can easily imagine Chinese manufacturers cranking out cars to get incentives from the government even when they don’t have buyers for them.
(repost) Reuters (from June 16):
There was a worldwide glut in auto manufacturing in the Before Times. (One could argue that US manufacturers were only making a profit because of the Chicken Tax making imported light trucks too expensive.)
There’s a lot of money to be made selling electric cars, bikes, etc., to speed the transition from burning fossil liquids, but soon economics are going to take over – China cannot subsidize everything forever.
Cheers,
Scott.
Jackie
@Steeplejack: He did. It wasn’t as explosive as last night, but there were moments… esp re his version of J6. Jack Smith undoubtedly took notes😁
Steeplejack
@Jackie:
Thanks. Surprised I haven’t seen any video clips or coverage. Maybe all the good stuff was front-loaded on Monday.
Scout211
@Burnspbesq: who needs a Tesla charge.
Now you can charge your EV at a Walmart or Sam’s Club near you.
Ken
Though as they’ve shown, they can subsidize a few things for long enough to destroy most of the foreign competition.
Jackie
Anyone thinking RFK Jr will be on the Democratic ticket after the primaries…
https://twitter.com/Moms4Liberty/status/1671270540667940864
Lyrebird
@cain:
Wish I had any answers! Failing that, I am sending wishes of PROTECTION as well as success for Mrs. Cain.
Jackie
@Steeplejack: TIFG seemed to lose gas the second half – plus Bret mostly reverted to snowball questions. I’ve already deleted future Bret Baier recordings – which I only set for this event. Back to the Faux blackout.
NotMax
@Scout211
Before the electric company shuttered the walk-in payment counter at their HQ I used to swing by there once per month as part of my go to town regimen.
Several automotive charger kiosks installed in front of the building. Over the course of my trips there during a year, maybe 8 out of 12 times there were “Out of Order” signs taped on each of the chargers.
The Pale Scot
@Bill Arnold:
Maybe they’re De Havilland Mosquitos
Another Scott
@cain: It’s terrible that she, and you, are going through that.
Strength to her, you, and her colleagues. The work she’s doing is important, and it’s always easier to destroy than to build.
Best wishes for the future,
Scott.
cain
@Lyrebird: Thank you!
cain
@Scout211: I used to charge my Tesla at the PGE chargers and they are free too. You just need to an adapter to the industry standard.
cain
@Another Scott: It is – but it’s tough going through 2 hours of being screamed at, and treated like your worse than dirt – the looks my wife described in the way they looked at her.
All of this is of course is coached, rehearsed and so on. They got a male guy whipping white women.
Ken
@Jay: Sounds like the Russian military may be suffering from more than cholera, and are trying to get ahead of any questions about competence.
different-church-lady
Because he’s an asshole.
different-church-lady
@What Have The Romans Ever Done for Us?: It’s because of all the NFTs of Tesla.
different-church-lady
@Ken: Ah. So he’s broke.
frosty
@The Pale Scot: Just awesome aircraft. The US didn’t have any equivalent. Light bomber, recon, fighter. Could outrun German fighters. And a whole lot of them were built by piano factories!! The Wooden Wonder!
Shows what can happen when you strap two Merlin engines on a lightweight plane.