Elon Musk takes over Twitter

These were some of my posts in April when this thead began.

When this was announced, the Fed hadn't done a series of 75 basis point hikes and cheap money was still flowing relative to the environment right now. When I said that I could make a good argument that the fair value of the company was $15 a share max as the business existed, that wouldn't have put the valuation at somewhere around $12 billion at the time, I believe. In the cheap money distortions we were just starting to come out of, there were a lot of people (who I think have been clueless) who would have disagreed with me. Ultimately, something is worth whatever someone else will pay for it.

The difference now is that Musk loaded up the balance sheet with an insane amount of debt in order to buy it, which the company can't even come close to servicing with its cash flow. So if I was valuing it today, I would value it even lower.

Those investment banks that committed to lending him the money had gone more than a decade loaning into even riskier situations than that, and because interest rates were being kept so artificially low (robbing people of yield), they were able to package whatever dog crap they wanted and sell it. Just the little bit of incremental yield was enough to make people do riskier and riskier things. Now? That environment has completely changed with yields rising. And they are stuck holding the bag on that debt. 60 cents on the dollar isn't going to be enough to induce buyers. They are going to have to take way more of a haircut than that to find anyone who sees the value given the risk.

None of this is because of Elon Musk or his craziness, though, as much as people want the narrative that he came in and is destroying something that was fine. Yes, he way overpaid for it and created his own problems. There is no way out. As for the money he borrowed, the environment has completely changed. Almost overnight. That is due to Jay Powell, not Elon Musk.

 

I don't understand what you're saying.

 

The lack of impulse control happened when he made a binding offer for probably three or four times what the company was worth, which forced him into leveraged debt financing that comes with a more than a billion dollar a year interest payment for a company that doesn't generate anywhere near that amount of cash.

He was fucked before he ever stepped foot in the building.

He is doing massive structural and personnel changes because SOMETHING will have to change for him to get out of the hole he dug. He might not have the answers (there are none unless he can magically morph it into a different business that earns way more than it does) but he's acting the way panicked people who have screwed up act.