Elon Musk’s promise to banks before $61.4 billion Twitter gamble

Elon Musk made a key pitch to the banks that agreed to help fund his $61.4 billion Twitter gamble as he tried to secure money for the buyout.

Elon Musk told banks that agreed to help fund his $61.4 billion ($US44 billion) Twitter gamble he would crack down on executive and board pay at the social media company in a push to slash costs, according to a new report.

The SpaceX and Tesla boss made the pitch to lenders as he tried to secure debt for the landmark buyout, three people familiar with the deal told Reuters, days after submitting his offer to Twitter on April 14.

His submission of bank commitments on April 21 — which also included a promise to develop new ways to monetise tweets — were “key” to the platform’s board accepting his “best and final” offer earlier this week.

Musk had to convince banks that Twitter — which, in comparison to Meta’s $140 billion a year in revenue takes in just $7 billion annually — produced enough cash flow to service the debt he’d sought.

“[Twitter’s] not generating anywhere near as much revenue as they should be for the amount of people using it, and the amount if time that they spend on it,” Steve Johnson, the co-founder and chief investment officer of fund manager and Twitter shareholder Forager, told The Sydney Morning Herald.

“The other massive thing was an extraordinary ramp up in staff-based compensation and the expenses side of the business, that was again supposed to drive all of these improvements, and we weren’t seeing a lot of evidence of it.”

Elon Musk told banks that agreed to help fund his $61.4 billion Twitter gamble he would crack down on executive and board pay at the social media company in a push to slash costs, according to a new report. Picture: Brendan Smialowski/AFP

In the end, Musk — whose net worth stands at about $374 billion — clinched $18.3 billion in loans secured against Twitter, and a $17.6 billion margin loan tied to his Tesla Inc stock, Reuters reports. He agreed to pay the remainder of the consideration with his own cash.

While sources told the publication that his pitch to the banks “constituted his vision rather than firm commitments” and was “thin on detail”, Mr Johnson is confident in the power of the world’s richest man to turn things around.

In a statement on Tuesday, Musk said he wants “to make Twitter better than ever by enhancing the product with new features, making the algorithms open source to increase trust, defeating the spam bots, and authenticating all humans”, adding that the platform has “tremendous potential”.

“[Musk] has a track record of doing difficult things and doing them well, effectively forcing or incentivising or driving people to achieve those outcomes, and that’s probably what Twitter needs from a business perspective,” Mr Johnson said.

Elon’s goal of creating a platform that is “maximally trusted and broadly inclusive” is the right one. This is also @paraga’s goal, and why I chose him. Thank you both for getting the company out of an impossible situation. This is the right path...I believe it with all my heart.

— jack⚡️ (@jack) April 26, 2022

“There are people building very, very valuable businesses off the back of Twitter’s shortcomings. It should be Twitter building those things.”

Twitter’s co-founder and former CEO, Jack Dorsey, has echoed the vote of confidence in Musk in recent days.

“I don’t believe anyone should own or run Twitter. It wants to be a public good at a protocol level, not a company,” he wrote on the platform in the wake of the acquisition.

“Solving for the problem of it being a company, however, Elon is the singular solution I trust. I trust his mission to extend the light of consciousness.”

Musk has previously tweeted about eliminating the salaries of Twitter’s board of directors — which could result in about $3 million in cost savings — and argued that Twitter’s gross margin leaves plenty of space to run the company in a more cost-efficient way.

He also — much to the concern of current employees — specifically mentioned job cuts as part of his pitch to the banks, Bloomberg News reported on Thursday.

While a source said that he will not make decisions on job cuts until he assumes ownership of the company — and takes it private — later this year, Twitter chief executive Parag Agrawal was grilled during a company wide-meeting on Friday, where furious employees questioned how managers planned to handle the anticipated “mass exodus”.

“I’m tired of hearing about shareholder value and fiduciary duty. What are your honest thoughts about the very high likelihood that many employees will not have jobs after the deal closes?” one worker asked Mr Agrawal, in a question read aloud during the town hall.

Twitter chief executive Parag Agrawal was grilled during a company wide-meeting on Friday, where furious employees questioned how managers planned to handle the anticipated “mass exodus”. Picture: Oliver Douliery/AFP

He responded by declaring the social media platform has always cared about its employees and would continue to do so.

“I believe the future Twitter organisation will continue to care about its impact on the world and its customers,” he added.

Others voiced concerns that Musk’s “erratic” behaviour could destabilise Twitter’s business, questioning whether there was “a strategy in the near-term on how to handle advertisers pulling investment”.

The company is working to communicate frequently with advertisers, chief customer officer Sarah Personette said, and to reassure them “the way that we service our customers is not changing”.

Off the back of the meeting, one employee told Reuters that there was little trust in what the executives had to say.

“The PR speak is not landing,” they said, noting that compensation for non-executive staffers is now capped because of the deal.

“They told us don’t leak and do a job you are proud of, but there is no clear incentive for employees to do this.”