Musk's Twitter Deal: Wall Street's Worst Buyout Since 2008 Crisis

The acquisition of Twitter by Elon Musk has been deemed the most problematic buyout for Wall Street since the 2008 financial crisis. This assessment comes nearly two years after the $44 billion deal was finalized, with seven major lenders, including Barclays and Morgan Stanley, still unable to offload $13 billion in debt financing.

An analysis by the Wall Street Journal reveals that this is the longest period major buyout loans have remained unsold since the collapse of Lehman Brothers in 2008. The poor performance of these loans has had significant repercussions, including a 40% reduction in bonuses at Barclays.

Musk acquired Twitter in November 2022, citing a mission to preserve free speech and combat what he termed the "woke mind virus." Since then, he has rebranded the platform as X and significantly reduced the workforce. However, the company's value has drastically declined, with X informing staff last year that it was now valued at $19 billion, less than half of the purchase price.

The company's financial struggles are further compounded by a sharp decrease in advertising revenue, partly due to major advertisers boycotting the service. This situation has put considerable strain on Musk's efforts to make the company profitable, with X paying approximately $1.5 billion annually to service its debt, nearly a third of its pre-takeover annual revenue of $5 billion.

"We tried peace for two years, now it is war."

Banks typically aim to sell large loans after providing financing for buyouts to protect themselves from market downturns and free up capital. However, in this case, they have held onto the Twitter loans to avoid incurring substantial losses. Reports indicate that the banks have marked down the values of these loans by hundreds of millions of dollars.

The Twitter deal's impact extends beyond the immediate financial consequences. Barclays, one of the world's oldest banks founded in 1690, reportedly cut compensation for top dealmakers by 40% last year, partly due to the Twitter loan situation.

Despite the risks associated with financing the deal, some banks viewed it as an opportunity to strengthen relationships with Musk, anticipating potential future transactions. His other ventures, such as SpaceX, Starlink, and xAI, are seen as promising candidates for Wall Street listings. Recently, xAI, Musk's artificial intelligence company founded in July 2023, raised $6 billion.

In response to the advertising challenges, Musk has taken legal action against the advertising body Garm (Global Alliance for Responsible Media), alleging an "illegal boycott." This move highlights the ongoing tensions between X and the advertising industry, which have contributed to the platform losing approximately half of its advertising revenue since Musk's takeover.

As the situation continues to evolve, MUFG, one of the lenders involved in the deal, has expressed optimism about reaching a positive outcome regarding repayment. However, the long-term implications of this buyout for Wall Street and the tech industry remain to be seen.