I did see a lot of politically-motivated salivating which I thought was woefully premature. That said, I see 2 outcomes now:
1. Generally, with large, complex systems like this, everything works, until it doesn't. All the big boys have major outages periodically. I just can't fathom how Twitter is going to handle the eventual certainty of a major outage when, as the author notes, in some cases there are teams that have 0 people left.
2. More than the technical issues, betting that Twitter will go bankrupt is the easiest bet one can make. Musk saddled Twitter with a shit ton of debt - even if things worked as they did before he had to cut tons of people due to the debt burden.
The issue I see is that #2 directly works against #1. Musk has said it will be lots of intense work adding new features to try to raise revenue. But making a ton of changes, probably with lots of shortcuts to get them out the door quickly, especially when so much institutional knowledge has walked out the door, will make keeping the site stable even that much harder.
"Chapter 7 of Title 11 of the United States Code (Bankruptcy Code) governs the process of liquidation under the bankruptcy laws of the United States, in contrast to Chapters 11 and 13, which govern the process of reorganization of a debtor. Chapter 7 is the most common form of bankruptcy in the United States."
Airlines get free government money though. Will twitter? If not, Twitter will need to borrow more money and at higher interest rates compared to market rates if they go through with bankruptcy.
Funny thing about the bankruptcy hypothesis is that the owner of Twitter is the richest man in the world and could literally pay old twitters expenses for decades even if it never made a penny. If we are just talking about the debt payments, he has a 200 year runway.
Actually be probably can't. Musk's wealth is largely on paper, as Tesla stock. Which is enormously overvalued and has been plummeting since he bought Twitter. If Twitter needs cash injections, he has to sell more Tesla, which will depress the price further.
A billion dollars a year of stock sales is a huge amount of guaranteed supply to the market. And it's non-optional: it has to be a billion dollars a year. But Tesla isn't worth anywhere near it's current market capitalization either.
I think that share quantity and value are very separated concepts. At some point Elon loses control of Tesla and that's it: Tesla's price has been tanking, and it's still on its way down to a sane valuation.
3 Renault Nissan Mitsubishi Alliance 7,680,014 (same) -1.3%
4 Hyundai Motor Group 6,667,085 +1 +5.0%
5 Stellantis 6,583,269 +1 +5.2%
6 General Motors 6,291,000 -2 -7.9%
7 Honda 4,121,000 (same) -6.5%
8 Ford Motor Company 3,942,000 (same) -5.9%
9 Suzuki 2,763,000 +1 12.9%
10 BMW 2,521,514 +1 +8.5%
Notice who's not in that list?
Now let's look at market capitalization[2]:
1 TeslaTSLA $568.87 B
2 ToyotaTM $202.86 B
3 PorscheP911.DE $101.44 B
4 BYD002594.SZ $86.39 B
5 VolkswagenVOW3.DE $84.30 B
6 Mercedes-BenzMBG.DE $69.28 B
7 General MotorsGM $57.48 B
8 BMWBMW.DE $57.39 B
9 FordF $56.60 B
10 StellantisSTLA $48.87 B
There is no possible way Tesla is worth more then double what Toyota is, while shipping about 1/10th of the vehicles. The Price-Earnings ratio is 56, vs Toyota's 9.
By every possible metric, it is vastly overvalued compared to it's profitability, and there's no reason on the horizon to think it will suddenly catch up since all those automakers are moving directly into it's space.
If you want to compare companies by 'how big' they should be, you need to compare enterprise value, not market capitalisation.
If you think Toyota's stock (or bonds etc) will increase in market price relative to Tesla, for a fee financial markets will let you bet on that conviction and make money, if you are right.
It's borderline a meme stock at this point. Tesla is valued as if it will forever be able to sell every car they make, on earnings calls Elon blows off any questions about demand. In the last few months though used car prices for Tesla have plummeted, I think they're finally about to run into demand issues as they get more supply online
I also want to add a #3: the crew that's left is probably on-call 24/7. My thoughts are with the poor souls on that rotation (if your team even still has a "rotation")
It’s quite bad for the business as a going concern and its ability to serve customers and employ employees when it suddenly, and for no obvious reason, takes on tons of debt. Money isn’t free and loans demand payment.
In Twitter’s case, its $13B in new debt on the balance sheet means that, every year, they have to come up with $13B times the interest rate in additional revenue and/or reduced cost merely to be in the same place profit/loss-wise. Elon already massively overpaid what Twitter’s business-as-usual can generate even before accounting for that $13B; as a result, the post-acquisition Twitter has to try a bunch of negative-expected-value moonshots in the unlikely hope that one of them hits against the odds and the others don’t turn out fatal, because doing nothing or iterating sustainably kills the company via debt service.
In a lot of cases the best solution would be for the company to declare bankrupcy, reorganize, and discharge the debt by convincing creditors to take pennies on the dollar and a share of the resulting smarter-run healthier company, and a judge that the plan is reasonable. However, Elon both poisoned that well by firing people, angering advertisers, and bumbling around product-wise, and also staked a bunch of $TSLA that would need to be liquidated to go through with the bankruptcy.
Yeah, it's private equity 101. I can't believe it happens. A bunch of MBA sharks get loans to buy something with some chop shop plan or other ruthless scheme to carve up or spitshine a company.
The loans are then assigned to the company they bought, rather than the core sharks ... uh investors. The "investors" then repackage/selloff/spit shine as necessary to get it resold to some sucker. The investors get THEIR money back with a profit, leave the debt to the company and the sucker who buys it, and look for the next victim/target.
Musk likely went the rapacious route because he made a dumb move, and this is the only way he's getting the money he committed to the deal back.
Oh yeah, and when they buy the company, they are in charge of it. So they can pay themselves whatever they want in executive bonuses / etc.
Why is that possible or legal? It feels like a loan for purchase of a company necessarily should belong to the purchasers of the company and be paid by the sale of the equity they bought or profit. This way just feels… rigged.
The people who buy the debt know what they are getting into. (And if those 'suckers' don't know, honestly, they shouldn't be investing in junk bonds etc.)
It is not a bad thing as such. The main problem comes when a business is stripped of all its assets and/or weighed down with more debt than it can repay and fails as a consequence, leaving employees out of a job and communities without a formerly productive enterprise.
It is more that it tends to beat raw deal for the purple who lose their jobs for no good reason. The Twitter people will likely mostly land on their feet but most leveraged buyouts aren't affecting highly compensated employees with highly in-demand skills.
> Yeah, it's private equity 101. I can't believe it happens.
Why not? It's pretty good for all the stakeholders that have a say.
The old shareholders sold for a nice price.
The new ownership didn't have to pay for the whole thing.
The lender gets to charge a pretty good interest rate because there's a good chance of default. If they're lucky, they get repaid; if not, maybe they made enough in interest to make it worthwhile; maybe when it defaults, they'll be able to make something worthwhile out of the wreckage they got at a nicer price.
Leveraged buy outs aren't great for stakeholders that don't have a say. Employees usually get new terms worse than the old ones; in this case, there's been some severance at least. Customers get a promise of a big bang bankruptcy in the near to medium term, rather than a slow fizzle. Sometimes companies with a large payment they can't make can restructure, and sometimes they shutdown with little notice. As a private company without public accounting reports, there will be a lot of guessing about revenue and debt service.
Which goes to demonstrate the very sorry state of our society, a society where employees are not (anymore) part of the "stakeholders that have a say" group.
Because at the end of the day, as you mention, it's the employees and their families that will suffer the most. But as long as those employees don't have board seats while strikes and labor-related physical protest movements have become a thing of the past then I guess this is the reality we'll have to live on for the foreseeable future.
No he did not. It was initially proposed but there's no margin loan against his TSLA holdings in the final deal. For the debt that Twitter took on in the buyout the collateral is the company itself. There's zero connection to Tesla in the actual financing.
1. Generally, with large, complex systems like this, everything works, until it doesn't. All the big boys have major outages periodically. I just can't fathom how Twitter is going to handle the eventual certainty of a major outage when, as the author notes, in some cases there are teams that have 0 people left.
2. More than the technical issues, betting that Twitter will go bankrupt is the easiest bet one can make. Musk saddled Twitter with a shit ton of debt - even if things worked as they did before he had to cut tons of people due to the debt burden.
The issue I see is that #2 directly works against #1. Musk has said it will be lots of intense work adding new features to try to raise revenue. But making a ton of changes, probably with lots of shortcuts to get them out the door quickly, especially when so much institutional knowledge has walked out the door, will make keeping the site stable even that much harder.