Corporate Value Halves After Musk Acquisition
Bond Value Also Drops... Hundreds of Millions Lost but No Buyers
Musk Prefers Interest Payments Over Principal Repayment
Elon Musk, CEO of Tesla, is facing what the Wall Street Journal (WSJ) reported on the 20th (local time) as the worst loan by banks since the 2008 financial crisis, related to the funds lent for acquiring Twitter.
According to WSJ, when Musk acquired Twitter in October 2022, the loans provided by banks amounted to $13 billion (17.32 trillion KRW). Nearly two years after the acquisition, the banks have been unable to recover the loan principal. This is because the corporate value shrank to $19 billion as of last year after Musk rebranded Twitter to X. Musk purchased Twitter for $44 billion. X has struggled to generate revenue due to advertiser departures caused by owner risk and other factors. A massive layoff affecting two-thirds of the entire workforce also took place.
Banks lend funds necessary for one company to acquire another, create bonds representing rights to that money, and then sell these bonds to other investors to recover the funds. However, according to market research firm PitchBook LCD, the loan provided for the Twitter acquisition has become one of the longest unrecovered acquisition loans since the 2008-2009 financial crisis.
The banks that have not recovered the Twitter loan are under significant burden. Some banks have written down the value of this loan by hundreds of millions of dollars, greatly reducing their profits. Some banks have also reduced the scale of funds available for other mergers and acquisitions due to the unrecovered Twitter loan.
Additionally, the rankings of investment banks have changed due to loans provided for the Twitter acquisition. Seven banks, including Morgan Stanley, Bank of America (BoA), and Barclays, lent to Musk's holding company for the Twitter acquisition. JP Morgan and Goldman Sachs did not participate. Before Musk's Twitter acquisition, in 2021 and 2022, BoA and Morgan Stanley ranked first and second among U.S. financial investment banks, but in 2023 and 2024, JP Morgan and Goldman Sachs, which did not finance the Twitter deal, took the top spots. Steven Kaplan, a finance professor at the University of Chicago, said, "This loan has been a burden on banks for much longer than other deals."
Earlier this year, banks discussed with Musk's side a loan restructuring plan involving partial repayment of the loan by X and a reduction in bank interest rates, but sources said X did not follow this plan. WSJ explained the reason as "repaying the loan does not help X's financial soundness."
However, banks seem to hope to continue doing business with Musk, who is one of the world's richest individuals owning six companies. WSJ reported, "Banks see the potential IPOs of space company SpaceX and the Starlink satellite business as revenue opportunities they do not want to miss."
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