Elon Musk said he could crack down on board and executive pay at Twitter in a push to slash costs, and would devise new ways to monetize tweets. He said that in a discussion with banks that agreed to help fund his $44 billion acquisition of Twitter Inc (TWTR.N), three people familiar with the matter said.
After submitting his offer to Twitter on April 14, Musk made the pitch to the lenders as he tried to secure debt for the buyout, according to the sources. It was fundamental that he submitted bank commitments on April 21 for Twitter’s board to accept his “best and final” offer.
Musk had to assure the banks that Twitter generated enough cash flow to service the debt he sought. Finally, he clinched a $12.5 billion margin loan tied to his Tesla Inc (TSLA.O) stock and $13 billion in loans secured against Twitter. For the remainder of the consideration, he agreed to pay with his own cash.
The sources said that Musk’s pitch to the banks constituted his vision instead of firm commitments, and the precise cost cuts he will pursue once he owns Twitter remain unknown. The sources added the plan he outlined to the banks was thin on detail.
Where Is Twitter Spending Excessive Money?
He has tweeted about knocking out Twitter’s board directors’ salaries, which he said could result in about $3 million in cost savings. For the 12 months ending December 31, 2021, Twitter’s stock-based compensation was $630 million, a 33% increase from 2020, corporate filings show.
Musk also pointed to Twitter’s gross margin in his pitch, which is much lower than peers such as Pinterest (PINS.N) and Meta Platforms Inc’s (FB.O) Facebook. He stated that this scenario leaves plenty of space to run the company in a more cost-efficient way.
Since the matter is confidential, the source requested anonymity. A representative for Musk declined to comment.
As part of his pitch to the banks, Musk specifically mentioned job cuts, Bloomberg News reported earlier on Thursday. Until Musk assumes ownership of the company later this year, he will not make decisions on job cuts, one of the sources said. Despite lacking access to confidential details on the company’s headcount and financial performance, he went ahead with the acquisition.
Musk also told the banks his intentions to develop features to increase business revenue, including new ways to make money out of tweets that go viral or contain important information, the sources said.
He suggested ideas such as charging a fee when a third-party website wants to insert or quote a tweet from verified organizations or individuals.
Musk, in a tweet earlier last month that he subsequently deleted, suggested a raft of changes to the social media giant’s Twitter Blue premium subscription service, including banning advertising, slashing its price, and giving an option to pay in the cryptocurrency dogecoin. Currently, Twitter’s premium Blue service costs $2.99 a month.
Musk wants to reduce Twitter’s dependence on advertising for much of its revenue, he said in another tweet he deleted.
The sources said that Musk, whose net worth is fixed by Forbes at more than $246 billion, has indicated he will back the banks in marketing the syndicated debt to investors, and that he may disclose more details of his business plan for Twitter then.
What Changes Might Come To The Platform?
Declining to reveal the identity of that person, one of the sources added, Musk has also lined up a new chief executive for Twitter. Earlier this month, he told Bret Taylor, Twitter’s chairman, that he does not have confidence in the management of the San Francisco-based company.
Until the sale of the company to Musk is completed, Parag Agrawal, who was named Twitter’s chief executive in November, is expected to remain in his role.
One of the sources said offers from potential equity partners to join him in the Twitter deal have overwhelmed Musk, and in the coming weeks, he will decide if he teams up with someone. Given that the deal is not structured as a traditional leveraged buyout, it is unlikely that Musk would partner with a private equity firm, the source added.
Buy Crypto NowLast week, Musk disclosed that he disposed $8.5 billion worth of Tesla shares, a move likely aimed at helping fund his deal with Twitter.
Tesla’s chief executive also told the banks that the moderation policies he will seek on the social media platform will be as free as possible within the legal constraints of each jurisdiction Twitter operates, a position that he has repeated publicly, the sources said.
Twitter’s 2022 projected earnings before taxes, interests, amortization, and depreciation is one-seventh of the $13 billion Twitter loan. This was too risky for some banks who decided to take part only in the margin loan, the sources said.
Additionally, according to the sources, some banks opted out as they feared Musk’s unpredictability could prompt an exodus of talent from Twitter, harming its business.
A spokesperson for Twitter failed to respond to a request for comment.
