When entrepreneur Elon Musk purchased Twitter for $44 billion, it was thought that it was going to be another slam-dunk investment for the person who founded other companies such as Tesla and SpaceX.
But, according to a Wall Street Journal report, the entire deal is proving to be the worst buyout that’s happened since the global financial crisis for the seven big financial institutions that ponied up debt to make the deal happen.
According to the report, the deal has amassed $13 billion in what’s referred to as “hung debt.” This is money that banks are owed that hasn’t yet been sold, at least partly because the underlying asset’s value has declined so significantly because it has performed poorly.
The Journal’s report cited data provided by Pitchbook, which shows that Twitter is the worst-ranking “hung deal” since the financial crisis began 16 years ago when Lehman Brothers collapsed. It’s also been ranked as one of the worst “hung deals” of all time, according to the outlet.
The seven financial institutions that lent the money that was used by Musk to purchase Twitter — which he has since renamed X — are Mizuho, Societe Generale, BNP Paribas, Mitsubishi UFJ Financial Group, Barclays, Morgan Stanley and Bank of America Corp.
These banks have all raked in interest on their loans, of course, and the rates on this type of loan are usually much higher than the averages on the market because the deals are usually riskier for tech buyouts.
The problem is that Musk paid $44 billion for Twitter, and the company disclosed at the end of last year that it’s valued at only $19 billion.
The Journal’s report cited people who were familiar with details of the deal. They said all of these banks have accumulated losses on paper that have reached the hundreds of millions of dollars — for each one.
To compensate for these massive losses, the banks have had to cut back on how much capital they have available to finance different deals.
A Mitsubishi UFJ spokesperson commented for the Journal report that they have had “constructive conversations” with Musk. He added they expect those conversations will lead to “a positive outcome regarding payment.”
This all comes, of course, after Musk initially agreed to the deal to buy Twitter, only to try to back out, saying that the sale price was too high. He tried to argue that the valuation was inflated due to the fact that there were so many bot accounts on the platform
Musk tried to back out of the deal, but the Twitter board threatened to sue him if he did that. Eventually, he went ahead and purchased Twitter, took the company private and renamed it X.
Banks flocked to provide some financing for the deal because Musk and some of his backers contributed $30 billion of their own money, which served as a cushion had the deal turned sour, the Journal report said.
