The Wall Street Journal reports that Elon Musk is a historic flop.
The $13 billion that Elon Musk borrowed to buy Twitter has turned into the worst merger-finance deal for banks since the 2008-09 financial crisis.
The seven banks involved in the deal, including Morgan Stanley and Bank of America, lent the money to the billionaire’s holding company to take the social-media platform, now named X, private in October 2022. Banks that provide loans for takeovers generally sell the debt quickly to other investors to get it off their balance sheets, making money on fees.
The banks haven’t been able to offload the debt without incurring major losses—largely because of X’s weak financial performance—leaving the loans stuck on their balance sheets, or “hung” in industry jargon. The resulting write-downs have hobbled the banks’ loan books and, in one case, was a factor that crimped compensation for a bank’s merger department, according to people involved with the deal.
The value of the loans to Musk quickly soured after the $44 billion acquisition was completed. But new analysis shows how their persistent underperformance has put the deal in historic territory.
I’m slightly sympathetic. I too was in debt to the Bank of America, but then I paid off my mortgage last month. If I’d been able to take out a $13 billion loan I wouldn’t be paying it off, either.
I wouldn’t be able to take out that loan anyway, because I lack “allure”.
The banks that agreed to underwrite a deal that even Musk said was overvalued did so largely because the allure of banking the world’s richest person was too attractive to pass up, according to people involved in the deal.
You’d think banks would be hard-headed and practical about this sort of thing, but no, they fell for “allure”.