Twitter operating income for 12 m/e 31 Dec 2021 was negative. For the q/e 31 Dec 2021 it was $0.167B. Why he thinks Twitter is worth $45b is beyond me. What would Warren Buffett do? Well, he wouldn't buy Twitter, that's for sure.

* Time will tell, of course. I've been wrong before. But the whole thing seems like madness to me.

Wealth has diminishing returns; he’s just trying to get more value for his exceptional personal wealth. Status is his drug of choice, Twitter his platform. If you crave validation (Biden admin not mentioning him until recently, people buying ads in time square “say their [Tesla] name”), buy it if it isn’t given freely.

Some things are actually more important than money -- Twitter can offer enormous power in setting a national narrative even if little economic benefit for Musk.

I'd take the 2020 "craziness" generated by the media vs the actual craziness of this current domestic and foreign policy.

It's hard to put a price on the propaganda machine and it's network effect.

It's not really about making money with Twitter.

Trump didn't own any media back in 2015-2016. He won because he sucked the air out of the room by making hyperbolic statements and riffing off the huge news cycle generated by his hyperbolic statements.

A good and effective PR team and a charismatic deliver is all you need and it comes for much less than 40B.

This is what kids learn in nightclubs fairly early: if you want to command the club you want to be a DJ. Owning the club will leave you with both a huge hole in your pocket and in the shadow of the DJ every given Friday.

  > "To finance the Proposed Transaction or a Potential Offer, entities related to the Reporting Person have received commitment letters committing to provide an aggregate of approximately $46.5 billion as follows:"

"A debt commitment letter"

"A separate debt commitment letter"

"An equity commitment letter"

Am I understanding it correctly that effectively $0 is coming out-of-pocket for purchasing Twitter?

Why can't anyone do this? I'll promise you a bunch of debt and equity, too.

You can promise all you want, but you have to get the bank to be willing to pony up the money - but what you're describing can and does happen - leveraged buyouts were common in the past. https://en.wikipedia.org/wiki/Leveraged_buyout

You find a company with no debt (say, TLSA) and you believe it is undervalued, so you convince banks to loan you enough money to buy TSLA and pledge TLSA itself as the collateral. If the purchase goes through, you now own TLSA and a TLSA sized debt. If it doesn't, nothing much happens.

I don't have a million dollars, but I can buy a million dollar house. A bank promises to lend me a million dollars contingent on buying the house and then the loan will be collateralized by the house, which I don't own yet.

If it ends up not being profitable, the bank takes back the house (or Twitter, or more likely the TSLA stock Elon put up as collateral)

If you can buy a valuable asset for $1 and have a bank cover $9 and it yields 10% return, you're making $1 from $1 invested (minus interest) compared to someone that bought it outright (making $1 on $10 or 10% return). The bank has no upside. If you invest in something bad though or the rate is too high the math changes and you lose 100% if the asset ends up being worth <= $9. That's leverage

I wonder what Tesla shareholders think about all this ;-)

> Tesla has a policy in place of letting directors and officers only borrow up to 25% of the value of their stock. And Elon Musk has already pledged about 88 million shares against indebtedness, according to Tesla's 2021 proxy filing. That leaves him with only another 85 million shares to raise debt with.

https://www.barrons.com/articles/tesla-ceo-elon-musk-twitter...

Any sort of hedging strategies we can expect a lot of money to flow into?

A cursory Wikipedia search shows the baseball team owner referenced above put up significant real estate as collateral.

1- Saudi company borrows $7B from Turkish banks to buy 55% of Turkey's largest internet and telephone provider.

2- Drive the provider into $4B debt (it was debt free when bought)

3- Pay the new holding company $9B in dividends

4- Don't pay the initial money borrowed to purchase the company.

5- Somehow borrow another $4B from Turkish banks to pay the new debt, and pocket that money as well.

6- Government creates a consortium of banks to bail the provider because its too big to fail.

Outcome: Provider is in debt, banks lost all the money, banks needs to spend unknown amount to get the provider back into a functioning state.

If you are stock-rich and you can buy stuff on the collateral for that: normal people can't really do that. Ordinary people have a much harder time buying more stuff than they have the cash for. Or at least on worse terms when they do take out a loan.

Being rich is cheaper than being poor. Is it really so awful to change that?

Suppose there is a company with 200 shares, half of which you own. The last trade price was $1 per share, meaning you have $100. But you can't necessarily dump your shares for $100 because the $1 was based off the last trade. So on the margin you can sell a share for $1, but you won't necessarily be able to sell all 100 shares for $100.

Imagine you own a home that went from being worth $1 million to $2 million. Did you MAKE $1 million? Should you pay taxes on that delta as soon as the home's value became $2 million? It makes more sense to wait until you sell it and pay taxes on the net you made. Otherwise it's more complicated and you could end up paying taxes on $1 million when you end up selling it for a lot less. You could have a tax credit I guess but you're unlikely to have the IRS cut you a check for the money you paid that turned out to never be actualized.

I imagine there’s a reason people feel more comfortable lending to Elon than to people with a smaller amount of assets, and that it’s not “lol fuck poor people”.

High level, it closes a financial engineering loophole (buy, borrow, die [1]). The taxable event is when you get liquid, and a loan is liquidity. The tax code requires a patch, that’s all.

[1] https://youtu.be/8pBPZMUcsh0

Nobody disputes that it’s a nice idea to make life easier for the poor. The mechanics of how you actually do it are the hard part.

What you are talking about is reputation and it will always be a part of the dynamic. It happens at the poverty level too. In any poor community there are people you trust and people you don't.

They do it with homes all of the time, what are you talking about?

Of course, this tax increase could be offset by also allowing unrealized losses to act as a tax deduction.

a) $21 billion of Elon's ("Reporting Person"; see item #1) own money

b) $12.5 billion in margin loans arranged by Morgan Stanley

c) $13 billion in debt from Morgan Stanley

The major feature of a margin loan versus other types of loans collateralized by assets is that the value of the underlying security (collateral) is tracked and depending on the terms of the margin loan, the lender has the right to issue a "margin call" demanding additional collateral or cash if the underlying securities have declined in value. These rules, called "house requirements," vary from lender to lender.

On top of that there will probably be “imaginary money” where a bank will give him money to buy Twitter with Twitter as collateral, but not the whole thing, just part. I.e. loans against his personal capital will provide a kind of down payment for loans against the value of Twitter.

In this scale it’s called leverage, banks loaning you a multiple of assets you’re willing to risk.

It is quite common for people with extreme net worth to take loans out against assets instead of selling them.

Especially when selling those assets would require paying capital gains taxes.

If the interest paid is tax deductible, then the selling of the stock won't result in a tax needing to be paid.

Reed Hastings would currently being losing a lot under this scheme.

Musk is putting up some of his Tesla stock as collateral on the loans. The effect of this is pretty similar to if Musk had sold his Tesla stock and used the money to buy Twitter, but avoids some of the tax and regulatory consequences of doing that.

Thank you.

Most of the ultra-wealthy live on debt. Here's the basic scheme:

- Let's say I own $10B in startup.com stock, but haven't sold it. My income tax burden is $0.

- If I sell the stock, and taxes are 40% in my country, I get $6B, and the government gets $4B.

- If I keep the stock, and borrow against it, I pay no taxes, but I do pay finance fees (e.g. interest). The finance fees work out to less than taxes.

The trick is to never realize gains or income. Debt lets you do that.

One more trick is that a lot of purchases are "investments." If I buy a mansion, yacht, and Picasso on debt I can use them. When I'm bored of them, I sell them, and pay off that debt. I've probably made money on the mansion and Picasso, and lost money on the yacht.

I've paid a little bit of interest and a little bit of tax, but much less than I would have otherwise.

"The rich have all of the money and pay none of the taxes. The middle class pay all of the taxes and have none of the money. The poor are there just to scare the shit out of the middle class so they keep going to those jobs."

—George Carlin, 1937-2008

UPDATE:

As some replies have pointed out mortgage interest on a primary residence is permitted in some form in six countries: The Netherlands, Switzerland, the United States, Belgium, Denmark, and Ireland. If you live in one of these six countries, my comment does not apply to you. If you live in any of the nearly 200 other countries in the world, it does.

YMMV: "Your Mortgage-interest-deductiblity May Vary."

What a strange example to pick. That's, like, THE major write-off that most people have. It just gets obfuscated by the fact that most people don't go over the standard deduction.

Up here, home mortgage interest is only deductible if the home is used to generate income, so it does not apply to people who use a home as their primary residence. But what if you have a home office? What if you use it as an AirBnB some of the time?

If you ask a tax accountant whether Canadian home mortage interest is deductible, they will answer "a definite maybe." But it's actually "no" for most people who don't structure their home ownership around qualifying for a deduction.

> The Netherlands, Switzerland, the United States, Belgium, Denmark, and Ireland allow some form of the deduction.

That's six out of roughly 195 countries in the world. Perhaps you live in one of them, but billions don't.

I'm taking a broad definition of "trust" that includes "we can sue you and recover the money."

He was once talking to an ambitions entrepreneur about funding a buyout with junk, and the entrepreneur asked, "This is a lot of money. How do you know I'll replay it?"

Milkin says he replied, "Because if you miss even a single payment, I'll call your debt and take not just the company, but every single asset you own."

———

* That would be presidentially pardoned convicted felon Michael Milkin. The rules for "righting injustice through pardons" are very different for the rich than the comfortably well off, much less those living paycheque to paycheque.

By that logic though -- if you're a billionaire, could you try to buy every profitable company on borrowed money?

Eventually you'd make the money back and since you don't have to pay anything out of pocket, you effectively have $INFINITY dollars to bargain with.

Musk has 100 billion of TSLA say.

He mortgages it to buy TWTR. Now he has 100 billion of TSLA, -40 billion loan against it, and 40 billion of TWTR. He could mortgage TWTR and buy something else, but it would have to be smaller, because the banks won't loan 100% of the value of the thing.

Or he'd have to make another $40 billion and pay off the first loan to mortgage it again.

Think of it as trying to use mortgage properties in monopoly to continue buying other properties.

Unless you're on robinhood: https://www.bnnbloomberg.ca/robinhood-traders-discover-glitc...

Maybe we'll see a wallstreetbets post "Musk couldn't take TWTR private but I did via robin hood bug"

He has no "infinity" of anything. It's called leverage and it probably maxes out around 60-70% of everything he owns.

however, I'm not confident "anyone" could secure the funding, so they can't "do this"

he has a net worth over 200B, why couldnt he raise 40B?

https://www.bloomberg.com/opinion/articles/2022-04-20/elon-c...

The long and short of it is that the people who would lend him money may not trust him due to his previous (and erratic) statements.

I feel Elon Musk could literally mint NFT of his face and sell them to raise the cash

people are conflating Musk's personal balance sheet with Twitter's. it's not clear to me whether any debt would be recourse to Musk—but in all likelihood, it wouldn't be. "recourse" is a term used to describe what collateralizes the loan. if the loan is recourse to Musk, he'll have to cover the cost if Twitter isn't spitting off enough cash flow to service the debt. if it's non-recourse, then the only collateral available to the creditors is Twitter and its assets (potentially subject to certain carve-outs). most rich people don't do recourse transactions as a risk mitigation measure. however, non-recourse debt is costlier because the universe of collateral available to the lender is slimmer

why can't anyone do this? because Musk has been deemed a better sponsor / steward of capital than your average joe

Those are legit. Banks don't sign notes without some intent. They can back out, but they are not meaningless.

It's important so that the current shareholders and the board know that Musk's bid is legitimate, and not something he's just making up.

In order for the banks and others to back him in this bid, he will have had to provide with with a lot of info.

This could be a big PR move, but Musk will have had to hire very expensive bankers to actually go through this as if it were a real thing.

"Why can't you do this?"

Because Goldman and other Private Equity firms won't back you (well, assuming they won't). And they won't give you a letter to the board of Twitter saying they will.

2. elon uses this money to buy twitter

4. Interest is cheaper than tax Elon would pay if he sold those shares instead of borrowing against them.

The vast majority of money is "imaginary" in the sense that it's just liabilities on some bank's balance sheet, AKA bank deposits.

> Why can't anyone do this? I'll promise you a bunch of debt and equity, too.

Anyone can do this. Nothing is stopping you from writing me a note for $1,000,000 and me writing you a note for $1,000,000. This leaves us both a million richer in assets and a million poorer in liabilities. At that point even hinkier stuff can happen like me using your note as collateral on a loan to further expand my balance sheet. The tricky part is getting third parties to accept our IOUs. US Banks have no such trouble thanks to their membership in the Federal Reserve system. This is one major reason why a banking license is such a huge deal.

But if you don’t have sufficient collateral your broker will just tell you to get fucked.

Everyone can do this. Just call your bank and get commitment from them to issue you a $40B loan! Those "commitment letters" are contracts. It's a known bank with known assets saying it's promised to issue a loan in the stated amount for the stated purpose.

It's the same thing that happens when you make an offer on a house. You don't generally come to them with the money "out of pocket", you show them documentation from your bank that details your mortgage contract. But the mortgage doesn't actually exist yet because you don't own the home. It will execute at the same time as the purchase, generally through some kind of escrow process.

Things aren't any different, fundamentally, even five orders of magnitudes higher.

No it isn’t, the financially illiterate don’t tend to have much savings anyway. The point of controlled inflation is to prevent the financially literate from hoarding cash as an appreciating asset and provide tooling to alleviate economic crisis. Considering your quote I’d question just how financially literate you yourself is.

Hint: It doesn't - you just stated a completely separate fact as if it is logically incompatible with the original argument.

It's supposed to be safe but if it has zero risk, then it has zero return.

Inflation is a bit like maintaining the pressure in the pipe of the flow of money.

Inflation also has the effect of discounting debt, which means it is good for borrowers, not lenders. Most people are borrowers, in terms of things like house mortgages and other debts. That's a good thing, but you also don't want wages to have to grow too fast with prices.

Well, nobody contradicted that statement, as that is generally accepted. The contradicted statement is "The whole idea of today's currencies is for the financially illiterate people to get robbed of their savings.", which as (i parse it) is a statement about purpose of such properties of today currencies, so it is contradicted by a different statement about purpose of these properties: "The point of controlled inflation is to prevent the financially literate from hoarding cash as ..."

Watch how fast it falls when people realize how absurd it is for Tesla to be the sixth largest company in the world by market cap, with a trillion dollar valuation. The meme voting era of stocks is coming to a close. The weighing portion of the cycle is coming and it will not be kind.

But if Musk is successful taking over twitter, my intent is to get a twitter account and start posting the most grotesque and offensive things to see if Musk really is a free speech absolutist. My suspicion is that he is mostly interested in his free speech, not mine.

Some people think it's fair game to retaliate gainst your own employees because there is no free speech at a company, I would counter that it's a very narrow margin for someone who declared themselve "free speech absolutist" and didn't implement it in their own kingdom.

I don't get why people are so worked up about this. If you see Twitter, as Elon and millions of other people do, as the "public digital town hall", it is not unreasonable to verify people's identities and let them comment whatever they want so long it is legal.

It does not mean that you or anyone have to subscribe or listen to their crap.

Then, open source the algorithms. Do people really not want to know why Twitter chose to show you X information? Wild.

  "Starlink has been told by some governments (not Ukraine) to block Russian news sources. We will not do so unless at gunpoint.

  Sorry to be a free speech absolutist."

https://twitter.com/search?lang=en&q=absolutist%20(from%3Ael...

From what I understand, a large reason the US switched from the Articles of Confederation to the US Constitution was to help resolve inter-state conflict. I wonder if we can resolve inter-national conflict with our current confederation of nations.

You KNOW Musk has no intention on converting unvested RSUs to cash. He'll either get rid of them completely while giving everyone a 10% raise (common Twitter TC is 50% cash 50% RSU) or keep everyones cash the same, and tell them their RSUs are now amazing options that will be worth soooo much when Twitter gets relisted in the future

I guess I can only speak for myself at Google which has a similar high percentage of pay as RSUs, but if they suddenly took away everyone's stock grants, nearly everyone would quit.

Is that possible? I guess it is but wow, I would be beyond livid if my compensation changed due to this.

But the scenario that you KNOW is going to happen doesn't seem likely.

Anyone have a sense of what might happen?

Edit: And as best I can tell Levine has been wrong on this situation at every step…

Perhaps when it comes to the sincerity of Elon's actions, but I'm not aware of when he's been wrong when it comes to Elon's legal options.

This is effectively the same as giving away shares.

The offer is extended to existing shareholders.

So if you own 10 stocks you will be allowed to purchase 10 more stocks at a vastly reduced cost.

Something like that.

This way you can screw over the corporate raider without screwing over existing stock holders.

In reality, this poison pill is more complicated - from Matt Levine: "The main mechanism of the pill is that if Musk or anyone else acquires more than 15% of Twitter's stock, then every other Twitter shareholder will have the right to pay $210 to acquire $420 worth of Twitter stock (at then-current market prices)."

He also points out that this is moot except in the highly unlikely event that it is triggered - in which case, someone screwed up really badly.

Trust is a big part of stock value, if you don't trust the board is time to sell...

I wonder how many will accept the offer - about 30% of ownership have said they're not interested at that price, if he let a few large holders stay on it could be successful - but this would be a kick in the teeth for smaller investors and his retail fans.

> Most years they lose money

Absolutely grotesque.

It's also very likely that if Musk takes TWTR private he then privately sells portions of it to people who would like to be in on it with him. SpaceX is private, for example.

The key is that TSLA is not buying TWTR (which stranger things have happened), it's Musk.

https://twitter.com/pacday/status/985314558775410688/photo/1

I’m joking, but I’m kind of not… We will see who is actually behind the package, but MUFG and friends have a habit of financing foreigners’ adventures while keeping Japanese companies under-capitalized and starving. (For those not aware, MUFG owns a large part of Morgan Stanley, hence the photo above.)

whenever something like this happens you have to ask yourself why now and what’s in it for Musk (let’s be real: nobody spends this much without an agenda). My fear is that Musk’s endgame is to reinstate a specific account that was banned after some specific events around a specific election. If this is what’s happening he can frack off.

This will elevate the level of discussion to be more like the highly praised philosophy forum known as 4chan.

I'm sure all the users will appreciate it and not leave immediately.

But it's not good enough, we must be forced to listen to hear how the COVID vaccine is a mind control weapon and why we must fight (((globalists))).

1. Twitter is totally open free speech 2. This scares people away and user counts drop 3. Twitter censors and users come back

But this didn't happen. Twitter and other, at the time, free speech platforms like Reddit were experiencing rapid user growth throughout their free speech phases. The "this will scare away users" justification for censorship is used entirely as an ex post facto justification.

There's a reason why none of the other purported full free speech platforms ever taking off and it's because they end up so odious that advertisers never go near them and the userbase stalls out. Personally I think most of the people that believe full freedom of speech is possible have never been a moderator of even a small social media platform. If you have two users and one of them is harassing, stalking etc another user you eventually have to make a decision which of the two you want to keep around, and it inevitably involves you censoring one of them.

For me, this is the thing that bothers me the most: if he thinks it is the closest we have to a public square, why does he think that the richest private individual in the world should decide how it is run?

It seems he's saying "the oligarchy is not running this well so we should make it a dictatorship, not a democracy," which is in his right to say or believe, I just wonder how much we have lost faith in democracy if we agree.

I don't claim that the current oligarchy is doing it well, I don't claim that a Musk monarchy would not do it better, and I don't claim that even a democratic structure would do it well.

I was merely trying to point out the difference governance structures and question our collective faith in democratic structures.

what experience does musk have to make twitter better and why is this expensive unique so that twitter itself cannot make the changes?

twitter back in the day was awesome until they turned hostile to the 3rd party developers.

Bringing back the accounts that spew stuff which pushes advertisers away will not make Twitter more financially successful than they are today.

Hell, maybe that's his intent. What if it turns out that rather than being a free speech absolutist, he thinks social media is destroying the world and the best way to solve that is to crush it out of existence, starting with Twitter.

That wouldn't work, of course, but it would be entertaining.

ask yourself: why were those accounts banned?

Money. If your advertisers flee, meeting payroll gets exponentially more difficult.

what’s the ideology that’s being “suppressed”?

Without an engagement-maximizing algorithm that promotes the most divisive content, those accounts would just be preaching to their own choirs. Meanwhile other people could pop in and see just how unhinged and ridiculous they are.

Maximizing engagement means maximizing dishonest trolling, hate, fear, controversy for the sake of controversy, and catchy tabloid bullshit. The most engaging content is basically an adversarial attack on higher human cognition. It typically works by bypassing the rational mind and shooting for the amygdala.

Make it a simple timeline again. Nix recommendations in favor of search. Make it just a forum, not an inherently biased Skinner box that sucks out peoples' brains.

I'd support that regardless of who he lets back on the platform, because algorithmic social media is the real problem. Algorithmic social media is what got Donald Trump into the presidency, among many other things.

why spend time actually educating people and giving them the tool of critical thinking when you can create a cesspool that enables and amplifies xenophobia, racism, sexism, you name it.

why call out certain behaviors that are horrendous when you can normalize them and pretend this is part of the normal public forum?

Person A tells you about a new discovery at NASA. Person B tells you the Earth is flat and bombards you with "irrefutable" proof. Which maximizes engagement?

I really do think engagement maximizing algorithms explain much (but not all) of our collective descent into insanity since about 2010-2012 when they became popular.

Of course, he may just do the opposite, and start banning people on the left. That would align more closely with how he runs the companies he is currently in control of.

how many times would you try to debate that person before deciding it’s a waste if time?

Free speech is measured by the tolerance for speech that you hate.

It's not hard to defeat bad ideas with good ideas. Or you can just ignore it by turning off the channel. That's always an option.

That's a load of crap. You cannot debate with conspiracy theorists. Debates only work when both sides are acting in good faith.

I'll pass. And I'm sure many others will too.

we don’t have unlimited time an unlimited attention spans. we also deal with uneducated, easily manipulated people that will just discard anything that does not match their world view and just amplify the bs.

Sending Flat Earthers off to their own dark corner is how they become entrenched. Leave them on twitter, in broad daylight, so they are exposed to evidence to the contrary. That's how you defeat bad ideas over time.

Clearly, the cabal is not interested in losing control of the public narrative.

Fiduciary duty is very much a thing. The Twitter board with such a tiny amount of equity may incur risk from "honest services fraud," if they block shareholders from recieving the material and obvious value of the offer.

https://en.wikipedia.org/wiki/Honest_services_fraud