Some people are giving Musk a pass for today’s layoffs because Twitter is unprofitable and needs to cut costs. But the real pressure for cost cutting and the layoffs is that Musk purchased Twitter via a leveraged buyout. He loaded the company with $10B of additional debt and now is facing annual $1B interest payments. The dramatic layoffs with no severance are thus the result of Musk’s decision to buy the company and the acquisition strategy of using a leveraged buyout.
> $10B of additional debt<p>$13 Billion actually.<p>> and now is facing annual $1B interest payments<p>Estimated to be 10% APY given where CCC Debt was in April. But the details are sketchy and I haven't been able to get a better estimate than that. I've heard rumors of 50% fixed + 50% adjustable, meaning some of that debt can be as high as 16% right now (today, CCC Debt is going for 16% APY).<p>So we're looking at $1.3 Billion to $2 Billion in interest payments alone (let alone principal) by my estimate. I've been curious if anyone out there has been able to get a better estimate on Twitter's LBO debt.<p>--------<p>In short, this buyout turned Twitter from a $200-million lost-per-year company into a $1500-million to $2200-million lost-per-year company (pending anyone's better estimate).
>[t]he dramatic layoffs with no severance<p>They don't appear to be without severance[1].<p>>Today is your last working day at the company, however, you will remain employed by Twitter and will receive compensation and benefits through your separation date of February 2, 2023.<p>>Within a week, you will receive details of your severance offer, financial resources extending beyond your Non-Working Notice period.<p>[1] <a href="https://www.businessinsider.com/read-blunt-email-telling-twitter-staff-jobs-axed-layoffs-2022-11" rel="nofollow">https://www.businessinsider.com/read-blunt-email-telling-twi...</a>
I am actually curious how Musk is going to pull this off. Twitter is actually in a way worse financial situation than it was two weeks ago due to the massive amount of debt incurred in the buyout process (and the associated payments). Layoffs are a must and cutting infrastructure costs is also crucial, however it's critical that twitter starts generating some serious revenue.<p>Some advertisers have paused buying, and the $8 blue check thing could help a little but there is major ground to make up and I don't know how it get's done in the short term. I'll be getting some popcorn, but I am rooting for Musk to figure this one out.
Seems like a big win for the general public: a company responsible for a toxic cesspool goes under while one of the most obnoxious billionaires gets their ego checked.<p>Sucks for the employees that are collateral damage though.
Leveraged buyouts tend to be a great way to turn a struggling company into a payout for the current ownership and a dead company in 5-10 years. Usually there's not such huge cost cutting in the days after closing though.
This matches the "cut infra cost by 1` billion" demand he made as well - <a href="https://www.reuters.com/technology/musk-orders-twitter-cut-infrastructure-costs-by-1-bln-sources-2022-11-03/" rel="nofollow">https://www.reuters.com/technology/musk-orders-twitter-cut-i...</a>
Looks like Twitter will get sold off at a huge loss in a couple years.<p>Is there anything like old twitter out there? Twitter with an open API during the Arab Spring was kind of an amazing time. I guess really it's all about TikTok at this point for that sort of thing.
> <i>But the real pressure for cost cutting and the layoffs is that Musk purchased Twitter via a leveraged buyout</i><p>You think that if he paid completely up front he wouldn't care about cutting costs? Why? The pressure would still be there -- it would just be in the form of pressure to recoup his investment
Agreed. And his response to Stephen King about “we gotta pay the bills somehow” is best read as “I gotta pay off this moronic purchase I made”. It’s really bothersome that people like Musk and Trump are able to so consistently and effectively over market their successes while turning around their complete failures to be successes in the mind’s eye of their followers.<p>Musk is a walking contradiction of his yesterday’s self.
Good point. Also whenever Musk talks about making sacrifices to “make ends meet”, one should point out that Twitter was a perfectly profitable company with all those employees before the buyout.
What's a scenario in which Musk will at least recoup his acquisition cost? Even if 10% of Twitter users (and that's a lot) will get on the 8$ plan, revenue is only roughly (100*20M?) 2B$ per year.<p>As I make that napkin calculation I cannot imagine actually 20M people being active enough on Twitter to justify paying 100$ per year for it. Especially if the price won't be catered to regional purchasing power.
> Musk’s decision to buy the company<p>A more accurate version might be "Musk's inability to get out of a bad decision to buy the company".<p>None of this surprises me. For all of Elon's recent bravado about "free speech", he is a capitalist first and foremost. When it became clear he couldn't get out of it, I predicted he'd just follow the private equity playbook: cut costs, fold or sell-off non-core assets, saddle the company with complicated debt and then sell it off while claiming victory.<p>He'll probably retain all the power with a Silicon Valley share structure.<p>None of this is surprising.
As someone relatively new to finance, I have a newbie question - how do you know these details? I assume the leveraged buyout made some noise (how else did Musk get the funding?). Is this public information in some SEC filing somewhere or is this an inside scope/from some journalistic investigation?
of course it was a leveraged buyout. no single person has $44 billion burning a hole in their pocket, especially not musk, who has most of his net worth tied up in the equity of his various ventures. and that equity is too valuable to trade for a mediocre company like twitter, so it must have been debt, and you don't raise that much debt from the local credit union.<p>musk has access to debt and is experienced enough to know how to employ that access to limit his (and his investors') risk exposure. this is literally finance 101.<p>with that said, should financial systems be tilted this way to favor the wealthy and their capital? no, probably not. while musk is an outlier, in general there's a weak correlation between successes if you take out this skewed access to capital. instead of a few hundred billionaires, we could have hundreds of thousands more of entrepreneurs founding and leading useful companies.
It is mind blowing how such unprofitable companies got away for so many years.
VC and startup incubators nowadays only want to hear about profitability, but they have poured $$$$ into unprofitable businesses for the last decade ad so. And created billionaires out of thing air.<p>I hope we cam go back to a more sane financial/investing world.
An absolutely non-finance-guy here.<p>Why does Twitter owe money to the banks, that was used to actually buy Twitter?<p>Anyone here who can explain this to me?<p>I would love to know the magic behind this. The next thing I will do is going to the Porsche dealer, finance a car and happily watch the monthly rate beeing paid from the dealer's account.
Totally agree with you. Much made an unsolicited bravado bid, but it bit back.<p>But having said that, I think if anyone can turn this around financially it's Musk. Hell put everyone through hell though.
<a href="https://www.ft.com/content/d1879d0c-c52e-4f48-82f0-09458add4aee" rel="nofollow">https://www.ft.com/content/d1879d0c-c52e-4f48-82f0-09458add4...</a> (or <a href="https://archive.ph/phHTi" rel="nofollow">https://archive.ph/phHTi</a>)
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Banks that lent $12.7bn to Elon Musk for his $44bn Twitter takeover are preparing to hold the debt until early next year as they wait for the billionaire to unveil a clearer business plan they can market to investors, according to three people with knowledge of the plans.<p>Barring an unexpected rally in credit markets this year, the group of lenders, led by Morgan Stanley, Bank of America and Barclays, have conceded they will be stuck holding the debt on their books for months or even longer and will probably end up incurring huge losses on the financing package.
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I'll just remind everyone that Twitter's management team sued Elon to make this happen. They had full knowledge of the details of the offer and its financing.