“Possible Bankruptcy”
Musk relies on blackmail
By Jan Ganger
11/11/2022, 7:20 p.m
Elon Musk follows suit. First he causes chaos on Twitter, fires a large part of the workforce – and now even holds out the prospect of bankruptcy for the company. Why does he do this?
If the pressure is not enough, even more pressure will help. That should describe Elon Musk’s leadership style quite well. When the new Twitter boss turns to the remaining employees for the first time after firing half of the team, he has other unpleasant messages in his luggage: The rest of the crew must be prepared to work up to 80 hours a week, that Home office has been canceled and there is also a risk of bankruptcy if Twitter does not quickly make a lot more money.
Not only the employees will find this unpleasant. Even the investors who helped finance the $44 billion takeover should be irritated – to put it mildly – when Musk announced bankruptcy a few days after taking power.
The warning is at least consistent. She continues the chaos days Musk is throwing on Twitter. Within just two weeks, he fired top management, fired most of the employees via email, scared off advertisers and tried to force users into a subscription model.
Meanwhile, top executives have left the company, including Yoel Roth, who was responsible for filtering out objectionable content, and information security chief Lea Kissner. According to media reports, Robin Wheeler, who is responsible for relations with advertisers, submitted her resignation. She only recently joined Twitter. Musk persuaded her to stay.
Musk has had less success getting key advertisers to return. Here, too, he relies on the method of maximum pressure and threatened the big corporations with “thermonuclear” retaliation by publicly pillorying them on the Internet. It is doubtful whether this will persuade the pharmaceutical giants Pfizer or Volkswagen to return. After the takeover, numerous companies announced that they would put their advertising activities on Twitter on hold. They fear that hate speech and disinformation may increase under Musk’s rule and do not want to book advertising in such an environment.
Enormous mountain of debt
This is a big problem for Twitter and for Musk. The company is already deep in the red and relies on advertising revenue. Musk also funded the takeover with $13 billion in loans, among other things, and passed those on to the company. It is estimated that Twitter has to pay more than a billion dollars a year to service these loans alone.
Creditors are seven Wall Street banks. They want the loans off their books and try to pass them on to investors such as hedge funds. But they politely decline because the risk is too great for them too. According to the financial news agency Bloomberg, the banks are serving the loans at a discount of 40 percent. Such a low price is normally only agreed if the debtor is in serious financial difficulties.
Meanwhile, Moody’s has downgraded Twitter’s credit rating even lower than before. The rating agency expects Twitter’s debt to rise significantly and the company to burn even more cash.
In light of this, it doesn’t necessarily seem like a good idea for the boss to hold out the prospect of the company going bankrupt. But according to Bloomberg, Musk has often built up such a threatening backdrop to encourage employees to do better. The unmistakable message: If you don’t work hard enough, Twitter will die – because of you.
But Musk isn’t just asking for sacrifice from what’s left of Twitter employees. It looks as if he also wants to persuade his financiers to make sacrifices. After all, he has burdened the company with an enormous mountain of debt that it can hardly handle. It’s entirely possible Musk is already trying to negotiate better terms behind the scenes. The threat of bankruptcy can then be understood as a warning to creditors. Musk sold nearly $20 billion worth of Tesla stock to fund the Twitter deal. He doesn’t want to waste any more money.