Elon Musk’s multi-billion dollar acquisition of Twitter (now TwitterX) is being described by experts as the worst bank acquisition since the 2008-09 financial crisis.
Seven banking groups, including Bank of America and Morgan Stanley, loaned Musk $13 billion to take Twitter private in October 2022.
Typically, loans are sold quickly, but in X’s case, the loans become “stuck” and result in large losses for the lender.
The loan has been stuck in the market longer than all similar unsold transactions for which the research firm has complete records since the financial crisis, according to The Wall Street Journal.
A University of Chicago finance professor went so far as to say Twitter is the biggest hung deal in history, in terms of value. “The loan has been weighing on the banks for a lot longer than any other hung deal we’ve seen,” Steven Kaplan told the WSJ.
According to the article, Company X pays interest on the loan, but the interest is high because sub-investment grade debt has a larger interest rate spread than investment grade debt.
The bank may still be able to repay the full amount if X makes the interest payments and repays the principal at maturity of the loan, but the company is rumored to be suffering heavy losses.
Advertisers have been abandoning the platform in droves in recent months, and Alex Wilson, senior strategist at London-based ad agency Pitch, told City AM that the unregulated nature of the platform makes it difficult to convince clients to part with their financial spend on the site.
“The verification system is a mess, half of your followers have become sexbots, the most interesting people have gone elsewhere, the ones that are still there are posting less, and the timeline is a mess,” he said.
“How do you explain the benefits of advertising on such a platform?”
In its most recent publicly available data, for the second quarter of 2022, before Musk’s acquisition, Twitter’s revenue was $661 million, Fortune reported.
But when you take inflation into account, that represents a whopping 84 percent decline in revenue in today’s dollars.
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