The seven major banks that offered to finance Elon Musk’s acquisition of Twitter in 2022 are still owed $13 billion, breaking records of outstanding debt not seen since the collapse of the Great Recession in 2008. Think about it!
When news broke in July that Twitter/X was moving out of its San Francisco headquarters and closing its offices there, owner Elon Musk made the bizarre claim that the move was prompted by California relaxing some of its laws regarding transgender youth attending public schools. Now, it may be more significant that the company is experiencing historic financial losses.
Musk bought Twitter in October 2022 for $44 billion, but you’ll remember that it quickly began losing users and advertisers. Renaming the platform to “X” was probably not a smart branding strategy, and it didn’t help that Musk publicly admitted to drug use at work and used the company’s name to make a pedophile joke. Musk also told fleeing advertisers to “fuck you.” [them]Last year they ran an ad headlined “We Do It Ourselves” and recently sued a couple of them for refusing to advertise on their site, so maybe they’re not doing too well in this space.
But Musk didn’t pay the entire $44 billion himself: About $30 billion came from Musk and individual investors, and the remaining $14 billion came from investment banks. With most of those banks still to be repaid, The Wall Street Journal is reporting that Musk’s acquisition of Twitter is the worst bank merger financing deal since the 2008 financial crisis.
The $13 billion that Elon Musk’s X borrowed to buy Twitter is the worst bank merger loan deal since the 2008-09 financial crisis, weighing on banks’ loan books and putting loans in “stuck” https://t.co/4EcetSih1B https://t.co/4EcetSih1B
โ The Wall Street Journal (@WSJ) August 20, 2024
When banks make these loans, they actually try to quickly sell them to another lender to reduce their exposure. But if the bank can’t sell the loan, it’s considered a “hung loan.”
The Wall Street Journal reports that “Twitter’s loans have stayed in the books longer than similar unsold deals since the 2008-09 financial crisis for which the research firm has complete records, according to data from Pitchbook LCD.” The chart below shows how long banks have kept the (for now) non-performing Elon Twitter loans on their books compared to other leveraged buyout deals since 2008.
And some bankers have personally lost huge amounts of pay simply because their bosses decided to lend to Elon Musk.
“At a dinner in New York early last year, the top investment bankers on Barclays’ mergers and acquisitions team were told that everyone there would have their pay cut by at least 40 percent from the previous year. The bank had several pending deals that had hurt its performance, but X was by far the biggest of them all,” reports The Wall Street Journal. “After the bankers were paid their bonuses for the year, about 50 of Barclays’ more than 200 managing directors left the firm.”
The Twitter deal was such a bad deal for investment banks that some have had their annual pay cut by nearly half because they can’t get the loan off their books without taking huge losses. pic.twitter.com/co8gZOMLNj
โ Rat King ๐ (@MikeIsaac) August 20, 2024
A January report from Fidelity Investments cited by The Guardian estimated that X/Twitter’s value has fallen by around 71% since Musk took over the company.
Still, the banking industry will be happy to put up with Elon’s nonsense because they want to ingratiate themselves with Elon when his other companies, SpaceX and Starlink, IPO. Other big banks holding Musk Twitter’s bad loans include Bank of America, Morgan Stanley, Mitsubishi UFJ, BNP Paribas, Societe Generale, and Mizuho.
And while it’s easy to forget that Musk didn’t want to pay $44 billion for Twitter, he was simply backed into a corner and forced to do so. Musk first hinted at a $44 billion hostile takeover in April 2022, and while he enjoyed the attention, he was on the fence about whether he would go ahead with the deal within a month, as he claims it was because he had better visibility into the financial situation. The deal was declared dead in July when Musk tried to back out, but Twitter shareholders sued him, and Musk lost in a Delaware court and forced the sale.
So maybe this was an attention-grabbing ploy by Elon Musk, but it’s the bank lenders who are having a harder time at the moment than Musk.
Related: Elon Musk’s Twitter/X sues advertisers for not placing ads on Elon Musk’s Twitter/X [SFist]
Image: SAN FRANCISCO, CALIFORNIA – JULY 26, 2023: The outline of the iconic blue Twitter bird logo can be seen on a sign in front of X headquarters in San Francisco, California. A day after San Francisco police blocked the demolition of a Twitter sign at Twitter headquarters, a blue bird and three letters were gone. CEO Elon Musk has officially rebranded Twitter to “X” and changed the bird logo, the biggest change since he took over the social media platform. (Photo by Justin Sullivan/Getty Images)