Dressed in white tie at the prestigious Met Gala held in New York over the weekend, Elon Musk, the apparent new owner of Twitter gave a glimpse of his plans for the company whilst on the red carpet, accompanied by his Mother and former super model, Maye Musk. He explained rather vaguely that he wanted his new social media platform to be "as inclusive as possible", and "a bastion of free speech".
Musk's raid on Twitter was carried out with his usual style of chaotic panache. Originally claiming to only take a small, passive stake in the company, he then reversed this course when he accepted a board seat, again changing direction a few days later with an unsolicited takeover bid. Whilst the purchase is still awaiting approval from the relevant US regulators, if the the deal does go through, Musk will become the most indebted CEO in US history.
In this latest newsletter we examine Musk, his potential motives and how he pulled off purchasing one of the worlds largest social media sites.
Firstly, who is Elon Musk?
Musk was named Time's Person of the Year for 2021 and has a net worth of circa $250 billion. He is currently the wealthiest person on the planet and is widely regarded as the entrepreneur of our era, foremost a great innovator and secondly a prolific 'tweeter'. Since bursting onto the scene in Silicon Valley, Musk has repeatedly kept the public captivated with his untraditional way of operating in the public eye. Find a link to some of his most famous stunts here.
Musk was born in South Africa and first made waves by founding X.com in 1999, later becoming PayPal, which he sold to eBay for $1.5 billion. Ever the entrepreneur, Musk decided that this would be only the beginning, and not the end of a very short and even more profitable career. He then went on to launch SpaceX in 2002 with the intention of commercialising space travel and developing reusable space rockets. It wasn't until a year later, in 2003 that Musk set up arguably his most famous company to date, Tesla Motors, with the desire of completely changing the car industry for good. Tesla now makes up around 2.5% of the overall automobile market in the US, and 79% of the electric car market.
Why did he buy Twitter?
Back to the object of Musk's desires - why is he buying Twitter? Well, unlike almost every other leveraged buyout, Musk's motives, at least the ones that he has stated, are not financial. Since emerging as a shock buyer, he has repeatedly stressed that buying Twitter is to help enable free speech. "Twitter is the digital town square where matters vital to the future of humanity are debated". Musk has made it clear that he wants the micro-blogging site to be the central hub for free speech in the world, which he believes is the bedrock for society.
Interestingly however, the same argument was identified as the driving force behind the creation of Twitter's right-wing clones Parler, Gettr and Truth Social. The last of these, Truth Social, was set up by former President Donald Trump. As shown in the graph below, these copy-cat social media platforms are never likely to catch Twitter in userbase. However, these new smaller companies have a tendency to create far-right echo chambers and hotbeds for islamophobic, anti-semitic and right-wing content. Specifically, Truth Social is no longer listed in the Google and Apple App stores for download since it was implicated in the planning of the US Capitol Riots on January 6th 2021.
Musk has been critical of Twitter in the recent years, and perhaps feels the right wing clones of the site are as a result of some users feeling their voices weren't heard. He has also started to propose changes to the platform that might entice back some of the users who left for the new competitors. These include relaxing the content restrictions and re-activating some of the high profile accounts that have been suspended in recent years, such as Donald Trump's...
How did he buy twitter?
Twitter announced on Monday, following weeks of speculation that it had reached an agreement with Musk to sell the company to him in an all cash deal worth $44 billion. This includes a staggering $25.5 billion in debt, backed, at least in part, by his ownership in Tesla. This deal will be one of the largest 'leveraged buyouts' in history.
So what is a leveraged buyout...
This is a way one company can purchase another company, funded, usually to a large extent, by borrowed money. Usually, a combination of the buyers own assets and the target companies assets, are used as collateral to secure the loan. Like any normal loan leveraged buyouts need paying off, and like a very, very large mortgage Musk plans on using Twitters revenues to make these repayments. Why was the loan needed - Clearly, $44 billion is a rather large amount of money, but Musk is worth $260 billion dollars. He *could* afford it, right?
Even at that level of wealth, most of Musk's wealth is tied up in stock of the companies he owns, such as Tesla, SpaceX and others. Just like the portfolios we hold for you, his investments in these companies are to be held over a long term time horizon, and it is never a good idea to cash in long term investments with short notice. Another reason Musk plans to make use of this loan is that, when you are the richest person in the world, unsurprisingly you get very good credit, and I imagine quite a high Experian score.
It is unlikely we will really know his true intentions for some years. However, when it only takes a few weeks to raise enough capital to purchase one of the largest social medial platforms in the world, it is possible Musk's attentions are distracted by something else in the near future, and the changes made to Twitter, especially for sporadic users of the app, is minimal.
