The loans used by Elon Musk’s Twitter takeover have become the worst merger-finance deal for banks since the financial crisis of 2008-09, according to a report.
The seven banks involved in the deal, including Bank of America and Morgan Stanley, provided around $13 billion to take the social media giant private in 2022.
Typically, banks that lend cash for takeovers attempt to sell the debt to other investors quickly. However, this has not been possible with the Twitter deal due to the company’s poor financial performance since Musk’s takeover.
As a result, the loans have remained “hung,” or stuck, on banks’ balance sheets.
Elon Musk’s Twitter takeover is record-breakingly awful
The value of the loans declined after the completion of the $44 billion Twitter acquisition, now renamed X. The deal is now in “historic territory” for poor performance, according to the report from The Wall Street Journal.
Citing data from PitchBook LCD, the Twitter loans have been hung longer than every similar unsold deal since the 2008-09 financial crisis.
Some of the banks involved in the loan have marked down the value of the loans by hundreds of millions of dollars.
Despite receiving large interest payments on the X loans, the poor performance has impacted the banks’ overall results, contributing to some falling down the ranks in investment banking league tables.
Compensation impacts are not to be overlooked
The Twitter loans and other hung deals have also affected compensation for some bankers. Top investment bankers on Barclays’ mergers and acquisitions team were told last year that their compensation would be cut by a minimum of 40 percent from the prior year, with X being one of the largest contributors to this drop in performance.
X has faced numerous challenges since Musk’s takeover, including a fraught relationship with advertisers, who provide the majority of its revenue. The company filed a lawsuit against an advertising coalition and some of its members earlier this month, alleging a conspiracy to boycott the platform that cost the company billions of dollars.
How much money did Elon lose on Twitter?
As of 2024, Elon Musk’s investment in Twitter (now X) has resulted in significant financial losses.
While the exact amount is difficult to quantify due to ongoing legal proceedings and fluctuating market conditions, estimates suggest that Musk has lost billions of dollars on the acquisition.
Several factors have contributed to these losses, including:
- Decreased advertising revenue: Advertisers have reduced their spending on Twitter due to concerns about content moderation and potential brand damage.
- Increased costs: Musk has implemented significant changes to the platform, including layoffs and new features, which have increased operational costs.
- Debt obligations: The acquisition of Twitter involved a substantial amount of debt, which has added to Musk’s financial burden.
It’s important to note that the situation is still evolving, and the final financial impact of Musk’s ownership of Twitter may change over time.
Why are Twitter employees suing Elon Musk?
Twitter employees are suing Elon Musk for several reasons, primarily related to his actions since acquiring the company in 2022.
Here are some of the main reasons for the lawsuits:
- Mass layoffs: One of the most significant issues is the mass layoffs that occurred shortly after Musk’s takeover. Many employees were fired without warning or severance pay, leading to legal challenges.
- Work conditions: Employees have also complained about deteriorating work conditions, including longer hours, increased workload, and a more hostile work environment.
- Stock options: Some employees have sued over the cancellation of stock options, which were a significant part of their compensation packages.
- Age discrimination: There have been allegations of age discrimination in the layoffs, with older employees disproportionately affected.
- Retaliation: Employees who have spoken out against Musk’s policies or filed complaints have alleged retaliation, including demotions, firings, and other adverse actions.
These lawsuits reflect the significant changes and challenges that Twitter employees have faced under Musk’s leadership.
All these ongoing issues combined have further contributed to the poor financial performance of Twitter under Musk’s ownership.
Featured image credit: Ravi Sharma/Unsplash
