Seduce Banks To Borrow Money, Elon Musk Submits Savings Proposals And Lays Off Twitter Employees

Elon Musk asked his creditor banks to help him fund the acquisition of Twitter Inc. (photo: doc. between)

JAKARTA - Elon Musk asked his creditor banks to help finance the acquisition of Twitter Inc. worth 44 billion US dollars. He also assured he could reduce the salaries of executives and Twitter boards at social media companies in a bid to cut costs. He also promised to develop new ways to monetize tweets.

Musk made the offer to the lender as he tried to secure the debt for the social media purchase days after making his offer to Twitter on April 14. His submission of bank commitments on April 21 was key to getting Twitter's board to accept his "best and last" offer.

Musk had to convince the bank that Twitter was generating enough cash flow to pay off the debt he was seeking. In the end, he secured a $13 billion loan guarantee from Twitter and a $12.5 billion margin loan tied to Tesla Inc shares. He also agreed to pay the remaining balance with his own money.

"Musk's offer to the bank represents his vision rather than a firm commitment", a source familiar with the matter told Reuters. But the exact cost-cutting plan that he will pursue once he owns Twitter is still unclear according to sources. "The plans he outlined to the bank are very thin in detail", the source added.

Musk has tweeted about removing Twitter's board of directors' salaries, which he said could result in cost savings of around $3 million. Twitter's share-based compensation for the 12 months ending December 31, 2021, is $630 million. This number is an increase of 33% from 2020.

In his address to the bank, Musk also pointed to Twitter's gross margins, which are much lower than peers like Facebook Meta Platforms Inc and Pinterest, arguing this leaves plenty of room to run the company more cost-effectively.

Bloomberg News reported earlier on Thursday, April 28 that Musk specifically mentioned the layoffs as part of his promotion to the bank. One of the sources said that Musk will not decide on termination until he takes ownership of the company later this year. He proceeded with this acquisition without having access to confidential details about the company's financial performance and several employees.

Musk told the bank that he also plans to develop features to increase business revenue. "This includes new ways to monetize tweets that contain important information or go viral", the source said.

The ideas he came up with included charging a fee when a third-party website wanted to quote or embed a tweet from a verified individual or organization.

In a tweet earlier this month that he later deleted, Musk suggested a series of changes to the premium subscription service at social media giant Twitter Blue, including cutting its price, banning ads, and giving the option to pay in the cryptocurrency Dogecoin. Twitter's premium Blue service now costs $2.99 per month.

In another tweet he later deleted, Musk said he wanted to reduce Twitter's reliance on advertising for most of its revenue.

Musk has indicated he will also support banks in marketing syndicated debt to investors, and that he may reveal more details of his business plan for Twitter at that time.

According to this source, Musk has also appointed a new chief executive for Twitter. However, this source refused to reveal the identity of the person. He told Twitter chairman Bret Taylor earlier this month that he had no confidence in the management of the San Francisco-based company.

But Parag Agrawal, who was appointed Twitter's chief executive in November, is expected to remain in office until the sale of the company to Musk is complete.

Musk has been inundated with offers from potential equity partners to join him in the Twitter deal, and he will decide in the coming weeks whether he works with those partners. But it seems impossible for Musk to partner with a private equity firm given the deal isn't structured as a traditional leveraged buyout.

Musk revealed this week that he sold $8.5 billion worth of Tesla stock, a move likely aimed at helping finance his deal for Twitter.

Tesla's chief executive also told the bank that he would seek a mode of rationing policy on the social media platform that is as liberal as possible within the legal constraints of each jurisdiction Twitter operates. It's a position he repeats publicly.

“Twitter's $13 billion loans are equivalent to seven times Twitter's 2022 projected earnings before interest, taxes, depreciation, and amortization. It's too risky for some banks to decide to only participate in margin lending", the source said.

Another reason some banks are opting out is that they fear Musk's uncertainty could result in an exodus of talent from Twitter, hurting his business. While a Twitter spokesman would not respond to requests for comment on this report.