Musk Warns Twitter Bankruptcy Possible If Cash Burn Doesn’t Stop

(Bloomberg) — Elon Musk, in his first address to employees at Twitter Inc. after buying the company for $44 billion, he said bankruptcy was a possibility if it didn’t start generating more cash, according to a person familiar with the matter.

Most Read by Bloomberg

The warning came amid a tumultuous start to Musk’s reign at the social media company — a two-week period in which he laid off half of Twitter’s staff, laid off most of its top executives and ordered remaining employees to stop working from home . Two executives who have so far emerged as part of Musk’s new leadership team, Joel Roth and Robin Wheeler, are also on the way out, people familiar with the situation said.

While the acquisition has removed Twitter from the control of the public markets, Musk has saddled the company with nearly $13 billion in debt that now sits in the hands of seven Wall Street banks that have been unable to offload it to investors.

Confidence in the company has eroded so quickly that, even before Musk’s bankruptcy comments, some funds offered to buy the loans for as little as 60 cents on the dollar — a price usually reserved for companies deemed in financial distress, he said. Bloomberg News. Thursday.

In his speech to staff, Musk issued multiple warnings. Employees should prepare for 80-hour work weeks. There will be fewer office perks, such as free food. And it ended the pandemic-era flexibility that allowed workers to work from home.

“If you don’t want to come, the resignation has been accepted,” he said, according to a person familiar with the matter.

When asked about the prospect of attrition, Musk said, “We all have to be tougher.”

Discussing Twitter’s finances and future, Musk said the company needed to move urgently to make its $8 subscription product, Twitter Blue, something users will want to pay for, given the move away from advertisers who worry about harmful content.

Musk has used the threat of financial disaster in the past in an effort to motivate workers, according to a person familiar with his management style. It’s trying to convey the idea that if people don’t work hard, Twitter is going to be in a really tough spot, this person said.

Information and Platformer earlier reported Musk’s bankruptcy filing.

He also hinted at the products he would like to introduce, including payments, more conversational advertising and interest-bearing checking accounts. Integration into the Twitter app should be smoother, as it is with TikTok, he said.

Earlier Thursday, Twitter’s chief information security officer, chief privacy officer and chief compliance officer stepped down, citing 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.

Roth had since taken over all of the social network’s trust and security efforts, while Wheeler, vice president of sales, had recently stepped up to oversee relations with angry advertisers.

The debt Twitter took on to finance the Musk buyout leaves it with an estimated $1.2 billion a year in interest costs.

The social network has been pushed back by some advertisers worried about Musk’s content moderation plans.

Debt investors and credit assessors also show little confidence. The company’s banks have been quietly courting hedge funds and other asset managers for interest in buying a portion of the company’s debt.

Discussions so far have centered around the $6.5 billion leveraged loan financing, people with knowledge of the talks said. Banks appeared reluctant to sell for anything 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.

Moody’s Investors Service, meanwhile, recently downgraded Twitter deeper into junk. “Twitter’s governance risk is highly negative, reflecting Moody’s expectations of aggressive financial policies and concentrated ownership by Elon Musk,” the rating agency said.

Musk in an email late Wednesday warned employees of “difficult times ahead,” with “no way to get the message out” about the company’s financial outlook. It ended employees’ ability to work remotely unless they personally approved it.

–With assistance from Davide Scigliuzzo, Gillian Tan, Claire Ruckin, Jill R. Shah, Lisa Lee and Katie Roof.

(Adds investor loan offers on Twitter starting in the fourth paragraph.)

Most Read by Bloomberg Businessweek

©2022 Bloomberg LP

Leave a Reply

Your email address will not be published. Required fields are marked *