Elon Musk’s decision to take Twitter off the stock market should allow him to make big changes quickly, but it would require the company to take on significant debt, a risky choice for an unprofitable company. .
The practice is old and has had some famous predecessors, from computer maker Dell (a success) to Toys ‘R’ Us toy stores (a failure), but Twitter’s example “is a different -different from a classic acquisition with delisting, says Steve Kaplan, a professor at the University of Chicago. Most of these acquisitions are related to profitable companies, the academic explains, while it loses the social network. The activity of Twitter is clearly in short supply in the first two quarters of 2022.
The equation was made more complicated by the loans taken by Elon Musk, in the amount of 13 billion dollars, which had to be paid not by the entrepreneur, but by the San Francisco company. According to a calculation made by AFP, it will be necessary to disburse less than one billion dollars in the first year for interest and principal, a very high amount for a group whose turnover does not reach five billion dollars in 2021.
“There will be a lot of pressure to cut costs and increase revenue so they can meet debt maturities,” warned Steve Kaplan. Otherwise, Elon Musk will have to hand over the wallet, as the main shareholder, to avoid bankruptcy. On Friday, the entrepreneur laid off nearly half of Twitter’s employees. It is also looking for new sources of income, especially in offering users the possibility to subscribe to a paid subscription for eight dollars per month.
The development of the blue bird social network, as envisioned by the boss of Tesla and SpaceX, should require significant investment and probably new money, which is more difficult to raise, in theory, by an unlisted company. “I don’t think he can borrow more,” Judge Erik Gordon, a professor at the University of Michigan. “The only way is to raise capital. Normally, that would be very difficult. (…) But there is the Musk factor. You make a few tweets and the money comes in. »
Another big difference with the acquisition of Twitter, “most transactions of this type are initiated with financial or industrial reasoning”, while Elon Musk “has nothing”, he said. “He was unhappy with the way Twitter was handling the issue of free speech and thought the company was mismanaged and he could have done better,” Erik Gordon said.
Delisting is often followed by “radical changes” for the company concerned, recalls Sreedhar Bharath, a professor at Arizona State University, which are often invisible, because the company no longer has an obligation to communicate with the public.
“Society is protected from the punishment of the financial markets if they don’t like the changes,” he said. Wall Street “sometimes focuses too much on quarterly results”, whereas in an unlisted company, “leaders can prioritize long-term goals, without short-term setbacks.”
“But with the visibility of Twitter, important decisions will filter and keep the group more in the public space, the anger of Jagadeesh Sivadasan, professor at the University of Michigan. This has been verified for the first decisions made after the takeover . »
“Musk is one of the most creative people in the world,” having built three completely different companies, PayPal, Tesla and SpaceX, all of which reached more than $100 billion in valuation, Steve Kaplan said. “And it’s going to attract (to Twitter) real talent that hasn’t been there for a long time. (…) I wouldn’t bet against him. »
Elon Musk’s decision to take Twitter off the stock market should allow him to make big changes quickly, but it would require the company to take on significant debt, a risky choice for an unprofitable company. The practice is old and has several famous precedents, from computer manufacturer Dell (a success) to Toy stores…