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Twitter investors needs to be very careful about trusting Elon Musk


Back in July, just after Elon Musk announced to the world he was bailing on his $44 billion purchase of Twitter, he was asked if he was merely searching for a option to renegotiate his deal for the ever-present social-media platform because markets had soured. 

“Do you wish to buy at a lower cost or walk away?” one adviser inquired. Musk’s answer was unequivocal, I’m told: For all his whining about just discovering all those fake accounts (aka bots), its bad management, etc., he loved the property, loved its relevance, and was an addicted user. 

He also thought he could make something out of a fairly lousy business (no money flow, sputtering earnings) by taking it private and never answering every day to shareholders. But he was beginning to look pretty dumb by overpaying while shares of his famed EV company, Tesla, together with all the things else in tech (Twitter shares included) were collapsing. 

He wanted the corporate but desired to pay less — regardless of what he was saying on his Twitter feed about seeking to call it off, sources tell me. 

Granted, attempting to decipher what Musk really means at any given time is commonly like nailing Jell-O to a wall. 

Possibly that’s the key to his success. Recall how he convinced lenders and stockholders they need to cut him slack when concerns grew over his accounting practices and EV production. Nonsense, Musk said: Tesla’s problems were being overblown by evil short sellers seeking to drive its value down. 

Only later did he admit that for all his attacks against the bad old shorts, Tesla was indeed poised for Chapter 11 bankruptcy just a couple of short years ago. 

Musk overcame all that, in fact. Tesla became a stock-market darling and the world’s foremost electric-vehicle manufacturer. Musk is now value an estimated $220 billion. 

Twitter shares closed on Friday at $49.18.Twitter shares closed on Friday at $49.18.AP Photo/Seth Wenig

Pulling a quick one 

That doesn’t mean it at all times pays to follow Musk’s lead if you happen to’re an investor. Yes, Tesla — not less than until the tech correction — was a market darling. But in 2018, Musk pulled a quick one. He said he was prepared to take Tesla private at a big premium of $420 a share. The funding for the large buyout was totally “secured.” 

Those investors who cut him the slack rejoiced, and shares of Tesla surged. However the celebration didn’t last long. Not long after, the “secured funding” turned out to be one other one among Elon’s alternative facts and the stock cratered. 


Because of this it strikes me as odd that so many smart investment-types look like buying his latest yarn that he’s once more seeking to buy Twitter and at his initial offer of $44 billion, which is about $40 billion greater than any rational investor would offer for this dog with fleas. 

Twitter shares closed Friday at $49.18, pretty near Musk’s offer of $54.20. Most of the original banks seem like they’re coming back to the table to offer debt financing. Initially, Musk enticed friends like Larry Ellison of Oracle and VC superstar Marc Andreessen to throw in some equity and so they haven’t said they’re not interested. 

The query I still have is: Why? Musk got here back to the table only after Twitter sued him for reneging and the case was about to be heard by the Delaware Court of Chancery. And it wasn’t going well for him. Discovery made Musk seem like he fabricated the entire bot concern. (Surprise!) In actual fact, he was talking concerning the must weed out the fake accounts — before he even bid. 

Also, Twitter’s business model of no real money flow and sputtering earnings is getting worse, analysts say. Yes, Musk turned out to be the one person on this planet wealthy and crazy enough to wish to fix the corporate’s business while promising to deprogram the progressive bias of its algorithms. 

Musk's reversal on his Twitter offer came as he was about to head to court with the tech company.Musk’s reversal on his Twitter offer got here as he was about to move to court with the tech company.AP Photo/Eric Risberg, File

You’ll be able to see why people like ­Ellison (one among the few Silicon Valley Trump supporters) and Andreessen (himself a libertarian free-market-type) initially liked Musk owning what is taken into account the worldwide town square. Ditto for the banks that decided to lend to Musk based on the indisputable fact that his currency for the deal was his then-high-flying Tesla stock. 

But Tesla stock is down greater than 30% since Musk first announced his bid (along along with his net value). With higher rates of interest, banks needs to be more reticent to pony up money for a depreciating asset that may lead to tons of of tens of millions of dollars of losses when they appear to unload the dangerous debt from their balance sheets. 

Musk’s own bashing of management and bots, most of it via Twitter, no less, shouldn’t instill confidence in Twitter’s future with those that checked out putting their very own skin into the sport. It’s just one other excuse for advertisers to chop their rates and further squeeze the corporate’s weak money position. 

Are banks locked in? 

Possibly these really smart investors will come to their senses and officially bail on Elon in the approaching days. Also, the banks might be largely locked into their financing due to the prior commitment in order that they can’t easily escape. Or possibly Elon is spinning one other tall tale to delay the court case (it’s now being pushed out to not less than the ultimate days of ­October amid the brand new talks) and pressure Twitter to just accept a lower bid. 

One thing I do know is that getting people to imagine his BS is an element of how Elon got so wealthy.

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