Elon Musk, in his first address to Twitter Inc. employees since purchasing the company for $44 billion, said that bankruptcy was a possibility if it doesn’t start generating more cash, according to a person familiar with the matter.
The warning occurred amid a turbulent beginning to Musk’s leadership at the social media business, which spanned a two-week period during which he dismissed half of Twitter’s personnel, ousted the majority of the senior executives, and ordered the remaining staff to stop working from home. Yoel Roth and Robin Wheeler, two executives who up until today had appeared as members of Musk’s new leadership team, are also on their way out, according to people with knowledge of the situation.
While the acquisition has shielded Twitter from public market scrutiny, Musk also saddled the firm with over $13 billion in debt, which is presently held by seven Wall Street banks but has been unable to be sold to investors.
According to Bloomberg News on Thursday, investor confidence in the company has plummeted so quickly that some funds were offering to buy the loans for as little as 60 cents on the dollar, a price typically reserved for businesses considered to be in financial distress, even before Musk’s bankruptcy comments.
Musk repeated several somber cautions in his speech to the workers. Expect 80-hour work weeks, employees. There won’t be as many workplace benefits, including free lunch. He also put an end to the flexibility that permitted workers to work from home during the pandemic.
“If you don’t want to come, resignation is accepted,” he said, according to a person familiar with the matter.
When he was asked about the prospect of attrition, Musk said, “We all need to be more hardcore.”
In discussing Twitter’s finances and future, Musk said the company needed to move with urgency to make its $8 subscription product, Twitter Blue, something users will want to pay for, given a pullback by advertisers who are concerned about harmful content.
Musk has in the past used the threat of financial ruin in an attempt to motivate workers, according to a person familiar with his management style. He’s trying to convey the notion that if people don’t work hard, Twitter will be left in a very difficult spot, this person said.
Additionally, he made suggestions for goods he’d like to launch, such as interest-bearing checking accounts, conversational marketing, and payments. According to him, the Twitter app’s onboarding process ought to be easier than it is for TikTok.
Earlier Thursday, Twitter’s chief information security officer, chief privacy officer and chief compliance officer departed, raising concerns about the company’s ability to keep its platform secure and comply with regulations. Twitter is currently bound by a consent decree with the Federal Trade Commission that regulates how the company handles user data, and could be subject to fines for violations.
According to one estimate, Twitter’s interest expenses as a result of the debt it took on to finance Musk’s takeover will reach $1.2 billion annually.
Some advertisers have pulled back from the social network because they are worried about Musk’s intentions for content policing.
Additionally lacking in confidence are debt investors and credit rating agencies. The company’s banks have been subtly approaching asset managers and hedge funds to inquire about their interest in purchasing a portion of the company’s debt.
Discussions so far have centered around the $6.5 billion leveraged loan portion of the financing, people with knowledge of the talks said. Banks had seemed unwilling to sell for any price below 70 cents on the dollar, according to one of the people. Even at that level, losses could run into the billions of dollars, Bloomberg calculations show.
Meanwhile, Moody’s Investors Service just lowered Twitter’s credit rating even further into the junk category. Twitter’s governance risk is extremely bad, according to Moody’s, which reflects the company’s anticipated aggressive financial policies and Elon Musk’s concentrated ownership.
Musk cautioned employees of “tough times ahead” in an email sent late on Wednesday, adding that there was “no way to sugarcoat the news” regarding the company’s economic future. He prohibited remote work for his staff members, unless he personally approved it.
Business Standard
