The Wall Street Journal recently reported that the loan used to fund Elon Musk’s $44 billion acquisition of Twitter (now renamed TwitterX) was the worst merger-financing deal for a bank since the 2008-2009 financial crisis.
Seven major banks, including Bank of America (NYSE: BAC), Morgan Stanley (NYSE: MS) and Barclays (LON: BARC), have loaned Musk’s holding company about $13 billion in preparation for the acquisition in 2022. Typically, banks aim to quickly sell such debt to other investors, but this wasn’t possible with the Twitter deal due to the company’s poor financial performance under Musk’s leadership.
Are you saying buying a platform that was struggling to break even at a price well above market value, and then destroying its main source of revenue, wasn’t a smart financial decision? pic.twitter.com/jCzU5FbuE2
— Oliver Alexander (@OAlexanderDK) August 20, 2024
According to data from PitchBook LCD, these loans have remained “stuck,” or stuck, on banks’ balance sheets for an unprecedented 22 months — the longest period for any similar unsold transactions since the last financial crisis. This has forced some banks to write down the value of their loans by hundreds of millions of dollars, significantly impacting their financial position and operations.
The impact of the deal has been widespread, with some banks dropping in investment-banking rankings and others being forced to limit their involvement in other mergers and fundraising deals.
The impact is also spreading to individual bankers’ pay, with some of Barclays’ top M&A bankers reportedly facing pay cuts of at least 40% compared to last year.
Despite heavy interest payments on the X loan, lenders are expected to post losses of around $2 billion. This bleak outlook is compounded by X’s ongoing financial woes: the company’s value has fallen about 55% since Musk’s acquisition, and revenue for the first half of 2023 is reportedly down 40% compared to the same period last year.
Musk’s controversial management of X, which has included public spats with advertisers and a recent lawsuit against an advertising coalition, has contributed to the platform’s financial woes.
Elon’s tweet proved one thing: the idea that billionaires can run things better than anyone else is foolish.
— Luke Zaleski (@ZaleskiLuke) August 21, 2024
Information in this article was obtained from WSJ, Business Insider, and sources and companies mentioned. The author has no securities or affiliations with any organizations mentioned herein. It is not a recommendation to buy or sell. Always conduct additional research and consult with an expert before purchasing any security. The author is not licensed.