“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.”
— 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.