Musk needs commitment from banks
Musk had to convince the banks that Twitter was generating enough cash flow to service the debt he wanted. In the end, he secured $13 billion in Twitter-backed loans and a $12.5 billion margin loan tied to his Tesla Inc stock. He agreed to pay the rest of the consideration with his own cash.
According to the sources, Mr. Musk’s speech to the banks was a vision rather than a firm commitment, and the exact cost reductions he expects to achieve once he owns Twitter remain unclear. The plan he presented to the banks was sketchy, the sources added. Musk tweeted about cutting salaries for Twitter board members, which he said would save about $3 million. Twitter’s stock-based compensation for the 12 months ending Dec. 31, 2021 was $630 million, a 33% increase from 2020, according to company filings.
In his speech to the banks, Musk also pointed to Twitter’s gross margin, which is much lower than peers such as Meta Platforms’ Pinterest and Facebook, arguing that this leaves plenty of room to run the business. in a more profitable way. Musk told the banks he also plans to develop revenue-enhancing features for the company, including new ways to profit from tweets that contain important information or go viral, the sources said. Among the ideas he mentioned is charging a fee when a third-party website wants to quote or embed a tweet from verified people or organizations.
Earlier this month, in a tweet which he later deleted, Mr Musk proposed a series of changes to the social media giant’s premium subscription service Twitter Blue, including reducing its price, banning advertising and the ability to pay in dogecoin, a cryptocurrency. Twitter’s premium Blue service currently costs $2.99 per month. In another tweet that he deleted, Mr. Musk said he wanted to reduce Twitter’s reliance on advertising for a large chunk of its revenue.
Musk has also found a new chief executive for Twitter, one of the sources added, declining to name that person. He told Twitter Chairman Bret Taylor earlier this month that he had no confidence in the management of the San Francisco-based company. Parag Agrawal, who was named chief executive of Twitter in November, is expected to stay on until the company’s sale to Musk is finalized.
Bloomberg News reported earlier this Thursday that Musk specifically mentioned the job cuts as part of his speech to the banks. One of the sources said Mr Musk will not make a decision on the job cuts until he owns the business later this year. He made the acquisition without access to confidential details about the company’s financial performance and workforce.
Musk, whose net worth is estimated by Forbes at $246 billion, said he would help banks market syndicated debt to investors and could then reveal more details about his business plan for Twitter, the sources added.
The sources requested anonymity as the matter is confidential. A representative for Musk declined to comment.
Too risky for some banks
Musk has been inundated with offers from potential financial partners to join him in the Twitter case, and he will decide in the coming weeks whether to partner with someone, one of the sources said. Musk is unlikely to partner with a private equity firm given that the deal is not structured like a traditional leveraged buyout, the source added. Musk revealed on Thursday that he sold $4 billion worth of Tesla stock, a deal likely to help fund his takeover of Twitter.
The Tesla CEO also told the banks that he would seek to implement moderation policies on the social media platform that are as free as possible within the legal constraints of each jurisdiction in which Twitter operates, the sources said. sources, a position he repeated publicly.
The $13 billion loan to Twitter is equivalent to seven times the earnings before interest, taxes, depreciation and amortization projected for 2022. This was too risky for some banks that decided to participate only in margin lending, the sources said. Another reason some banks pulled out was because they feared Musk’s unpredictability could lead to an exodus of talent from Twitter, which would hurt its business, the sources said. A Twitter spokesperson did not respond to a request for comment.