Sunday, May 01, 2022

Musk And Twitter

Why did Elon Musk buy Twitter? David Olive writes:

Some business deals eventually go bad. And some are failures from the start.

Elon Musk’s planned $44-billion (U.S.) purchase of social media company Twitter Inc. announced this week falls into the second camp.

Seldom has someone tried to pay so much money for something of so little value. 

When you look under the hood, Twitter looks like a lemon:

In 2016, Walt Disney Co., Salesforce Inc. and Alphabet Inc. each scrapped plans to buy Twitter after finding a lack of economic value in the company.

As a business, Twitter barely registers with its $5 billion in 2021 revenues, against the $118 billion in revenues posted by Meta Platforms Inc., owner of Facebook, Instagram and WhatsApp.

In its 15 years, Twitter has never been able to settle on a business model that generates sustainable profit growth.

Musk’s Twitter purchase is one of the biggest leveraged buyouts (LBO) in corporate history. In an LBO, the target company is loaded up with debt to finance its own acquisition.
To finance this deal, Musk has put up $21 billion of his own money. Another $12.5 billion is covered by bank loans secured by $62.5 billion worth of Musk’s shares in Tesla.

The remainder, about $13 billion, is debt that will be piled onto Twitter’s balance sheet.

Those numbers add up to more than $44 billion to cover the lenders’ fees.

Twitter’s new debt will stick it with annual debt-payment costs of about $1 billion.

With projected cash flow of only $1.9 billion next year, Twitter won’t have much free cash flow to finance a needed turnaround.

Musk is the richest man in the world. He knows how to make money. But this purchase doesn't fit the profile.

Is Twitter Musk's version of a Russian oligarch's yacht?

Image: The Toronto Star

10 comments:

zoombats said...

Well I know one thing about Elon Musk, the freedom of speech absolutist. He is like a petulant child with his freedom of speech relying on insults. When he got into a battle of one up man ship with the British rescue diver freeing the trapped Thai youngsters back in 2018. The comments made by the lawyers for the plaintiff in the liable suit against Musk were spot on in their foresight.

https://www.bbc.com/news/world-us-canada-50695593

Owen Gray said...

If past performance is the best predictor of future performance, we should be worried, zoombats.

Bill Malcolm said...

As a carnut such as I, one cannot escape Musk's musings on the various emags, blogs and auto sites these past 15 years. Nor can one not notice the legions of fawning fans, one might even say idolators, for whom dear Elon is a prophet, a shining beacon of light, no criticism allowed. The Tesla cars themselves are these days handily the best-selling EVs worldwide if one discounts reedy little GM Wuling runabouts in China. Indeed many new first time EV buyers will consider no other brand. The quality is however, so-so in terms of fit and finish. In the US, Tesla handily outsells regular Mercedes and BMW models in that class of "premium" cars. But add that to SpaceX and you have a fairly monumental industrial achievement, it must be said and cannot be denied. It's not fly by night. However, his solar panel company has been a complete bust, and the Boring Company is utter twaddle, although dumb municipalities blinded by the "light" so to speak, give it credence for silly vanity projects it doesn't deserve. Labour relations in the original Freemont CA Tesla plant have been awful, and racist if one examines the lawsuits resulting. Musk disregarded Covid measures at the beginning, thumbing his nose at county officials. He charmed the Chinese into allowing a new plant in Shanghai a few years ago building cars in bond, a customs-free zone, and is building a giant plant in Texas, almost completed, in which state rules and regs are nonexistent compared to California. His HQ moved there for that reason and lower taxes. His SpaceX launchpad there didn't bother to get FAA clearance for aviation height restrictions. he just went ahead and built it and let the FAA adjust to the reality. The building of his plant near Berlin in Germany ran roughshod over environmental rules, and the bully tactic amounted to "well do you want this plant and employment or don't you?" Then he worked out a way to pay 75% of the going German auto industry pay rate by using the EU laws that allow foreign workers, in this case Poles, to not observe borders and work where they like. He is a bombastic bighead, all things considered, your real capitalist in the flesh. But he's not a technical dimwit, and highly intelligent, that's obvious to an engineer like me. He's just a complete, to use a technical term, arsehole. "Off the beam, Cap'n," to misuse Star Trek utterings.

There is a pattern of megalomania here, and a total disregard of societal norms, not unlike the proverbial bull in a china shop. And the echo chamber crowd roared in approval. Thumbing his nose at SEC rulings with dumb tweets that affect stock prices is another manifestation of his ego. No red tape for Elon, he creates his own reality.

Buying Twitter and using starry-eyed loans from RBC and CIBC to assist, plus a bit of his own pocket change, we will now get to witness what untrammelelled ego thinks, and his idea of "free" speech. It'll likely be as free of logic as many of his other musings on various topics to which he can claim no particular expertise, but as a "genius" will be rammed down our collective throats. I think he rather regards himself as a modern Pharoah, in the style of Khufu (Cheops), a god on Earth type. But he is also weird, owns no house apparently, and sleeps at whichever of his jobsites he happens to be at that day. Goodness knows how his S.O. and daughter given a totally stupid name feel about that, given Musk is nominally the world's richest man.

Personally, I'm not impressed. I think Scripturient's assessment a few days ago here on ProgBlog is the best I've read anywhere about Twitter's future and Musk's version of illogic.

Trailblazer said...

Never underestimate Elon Musk.
As odd a character as he is , he defies comparison.

TB

John B. said...

When Musk trashes somebody he's aware that he has perhaps millions of sycophantic admirers awaiting his every imbecilic pronouncement. He doesn't accept the responsibility that should go with that amount of power. Children are carefree; they don't have to be careful. What's the point of being smart and rich if you can't use your money to purchase the childhood privilege that everybody else had to give up when they entered adulthood?

Owen Gray said...

Success in one kind of endeavor doesn't guarantee success in another, Bill. Unfortunately, it can inflate one's ego. And, clearly, the richest man in the world has an ego to match his wealth.

Owen Gray said...

I agree that he's an original, TB. But that does not mean that, in the final analysis, he should be emulated.

Owen Gray said...

A really good question, John. I suspect that Musk has no intention to answer it.

Menace the Dennis said...


A quote by Canadian born Harvard Economics professor (now passed), John Kenneth Galbraith, is quite fitting to this subject: Wealth, in even the most improbable cases, manages to convey the aspect of intelligence. DJF

Owen Gray said...

Galbraith was a very wise fellow, Dennis.