Following Elon Musk's purchase of Twitter, the social media platform's stock and value have plummeted, a recent report claimed. Major financial institutions, such as Fidelity, that invested in Musk's acquisition are suffering as a result of their choice.
According to the New York Post, numerous financial institutions and investors that aided Elon Musk in his $44 billion acquisition of Twitter in October 2020 are losing money on their shareholdings and loans to the social media site. As per the report, the initial share that Fidelity Investments acquired in Twitter had to be written down from $19.66 million to $8.63 million, a drop of more than 56%. According to sources, the discount on Twitter's stock worth may be substantially higher.
Numerous sources say that Musk's $13 billion loan against Twitter to fund the acquisition would be worth less than 50 cents on the dollar if sold. This is a big concern since Morgan Stanley handled the group of banks that supplied the $13 billion credit for the October 27 transaction. Banks including Bank of America, Mitsubishi, BNP Paribas, Mizuho, and Societe Generale were among them. However, Morgan Stanley has not attempted to syndicate the loan, according to two trustworthy sources, because there is a very little market for the paper and it is severely underwater.
One source claims that “No one is touching this debt until a new CEO is hired and people can get clarity on the revenues.” One of the major secondary loan buyers said, “I don’t think they could sell it at 50 cents on the dollar if they tried.” According to a different source, it's so terrible that one source who arranges leveraged loans and monitors the situation believes these loans should be marked down by 70% of their original value. This is a significantly more dramatic assessment than the Reuters-reported 20% markdown Morgan Stanley would apply to reflect the loan's current value when the firm reports profits on January 17. Morgan Stanley has not commented on the issue.
The fact that the interest on the loans is around $1.3 billion per year adds to the loan's high risk. Furthermore, because debt is senior to equity in the capital structure, debt holders would get payment before equity holders in the case of bankruptcy. This has led lenders to believe that another reason not to acquire Twitter debt is the possibility of bankruptcy. According to a lender, they are not interested in competing with Elon Musk in a reorganization.
Musk paid $54.20 per share for Twitter and is thus immune from disclosure laws outside of his banks. According to one of the sources, Twitter's income is likely to fall to $1 billion in the following 12 months from $5 billion in 2021. Musk has sent contradictory messages about Twitter's current valuation. The internet magnate indicated that he was trying to sell his Twitter stock at the same price he purchased in early December, demonstrating that the company's worth had not fallen. Although, on December 18, he stated in a tweet that the platform “has been in the fast lane to bankruptcy since May.”
Since Musk took control, Twitter has faced increased scrutiny, cut hundreds of workers, fought with advertisers, and modified its account verification methods.
According to Odeon Capital Group analyst Dick Bove, Morgan Stanley has not yet commented on the loan but will most certainly be questioned about it on the results call. Morgan Stanley, according to Bove, should focus more on manufacturing, military, and natural resources.
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