The acquisition of the social network Twitter by Elon Musk, the richest and most successful businessman in the world, is worth looking at calmly, because several fundamental trends in the evolution of markets, ideas and politics meet .
Mr. Musk is a serial entrepreneur. Before you buy Twitter, he had already managed a large number of successful companies, such as the online payment system PayPal, the electric car manufacturer Tesla, which is today the most valuable automotive company in the world, SpaceX space rockets or The Boring Company, dedicated to building tunnels to solve the chaos of urban transport; as well as the launch of various non-profit initiatives dedicated to the development of implantable brain-computer interfaces (Neuralink) and the extension of the use of artificial intelligence (OpenAI).
But his purchase of Twitter has angered many users of this social network and has raised great controversy. In his time, Musk had opposed the policy of “moderation” and censorship of content that led those who ran Twitter at the time to shut down various accounts, including that of former President Donald Trump, after he posted some dubious tweets in January 2021. during the assault on the Capitol. Additionally, in the two weeks he ran the company, Musk, an Asperger sufferer, followed a somewhat erratic behavior, also committing several errors and numerous verbal incontinences, above all through Twitter itself, a network of which he is an assiduous user and in which he has 115.3 million followers (18 million less than Obama but 11 more than… Cristiano Ronaldo). For example, a few days before the last US election, despite being a Democratic voter, he asked to vote for Republican candidates and echoed fake news stories about Mrs. Pelosi’s husband.
All this has generated a serious crisis of confidence. Fleeing the controversy, some advertisers have paralyzed their advertising on Twitter and are waiting for the new management to stabilize the course and specify its moderation policy, which has officially remained unchanged for now. His reservation is logical, but it is also in tune with the needs of more radical activism, which wants to see the hated Musk out of power. I am Chirping.
After taking over, what Musk did was fire key managers. After a few days, he also stopped telecommuting and laid off half the workforce, a measure aimed at reducing the losses the company suffered, which, at the rate of four million dollars a day, They quickly bring her close to bankruptcy. It’s not the only tech company in trouble. The layoffs announced by Facebook a few days later confirmed this the entire industry is facing cost overruns. These have come to the fore as, as interest rates rise, many investors are turning to more established companies, even though they offer fewer growth options than tech ones, causing the price of the latter to plummet. However, Facebook has not laid off half but 13% of its workforce, a percentage more in line with the adjustments of other tech companies.
In this context, the acquisition by Musk and the delisting of Twitter open up new possibilities but carry considerable risks. For now, it ensures that, at least for a while, Twitter doesn’t have adequate revenue. If it overcomes the current crisis, not listing on the Stock Exchange, not only should it be less subject to reputational blackmail, but its strategy would be mediated by the imperative to repay the large amount of debt contracted by the company (about 13,000 million dollars) to finance part of the 44 she paid. With or without failure, the pressure to maximize its value is now maximumtherefore it is foreseeable that it will be less accommodating towards internal rentiers.
But the risks are great. Musk reluctantly ended up buying Twitter, obliged by rules which, in fact, oblige whoever submits a purchase offer (OPA) a give a put option to shareholders for as long as the beneficiary company decides. Consequently, if the price falls in the meantime, as it did in this case, he has to pay the previous price, which is notoriously excessive.
“It remains to be seen how solid Twitter’s core business is; and even if half of the firing squad were really superfluous»
Originally, Musk intended to leverage synergies with his other companies to boost the application of artificial intelligence on Twitter; and most importantly, turn it into a more general platform. Inspired by his past at PayPal, he aspired to provide them with additional commerce and payment services, which would take the competition to the next level, where the network would be more useful to its users.
This development strategy now faces two difficulties. The purchase was structured as a leveraged buying, a “leveraged” purchase with those 13,000 million debt guaranteed with Twitter assets. The pressure generated by this debt is sustainable when there is a solid corporate core and it is sufficient to get rid of the marginal assets to get out of it. Given the decline in advertising revenue, it remains to be seen how robust Twitter’s core business is; and even if half of the fired staff were really superfluous.
For now, Moss he seems determined to keep burning cash having already squandered a fortune. To cap the leaks that have been popping up on Twitter, he just sold $4 billion in Tesla stock, adding to the $27 billion he’s already personally invested in the purchase. It is likely that, one way or another, bankruptcy or not, Musk intends to restructure the debt and provide the company with a more stable capital structure. Much will depend on how much more money he’s willing to spend to become, as his detractors fear, the Citizen Kane of the 21st century.
