The fact that he was able to "buy" Twitter and yet transfer a significant amount of debt to the company rather than being liable himself is just another sign of how different "rich people accounting" is. He will walk away from this with a bit less theoretical money but no material impact to his life, while thousands of people are having their lives up-ended. How long are we going to keep letting shit like this happen?
Yeah I love it. I would like to "buy" a multi-million dollar mansion in the Bahamas with big bank money, but have the bank only encumber the property itself, and I get to live in it and pay service staff for my luxury, maybe the odd AirBnB letting to maintain the occasional pretense of repayment, up until the time 'it' can't sustain 'itself' and I walk away debt-free.
But apparently I'm not a rich person so that kind of accounting doesn't apply to me.
True, but the difference is all about what happens when you can't pay the 10% interest or get into significant negative equity. If you can just walk away, then you have "rich person accounting."
Fyi, if you live in the US, you might actually have access to that kind of financing. Non-recourse loans for retail clients do exist in many states in the US, including California and Texas, and they're the default for all government-backed mortgages in the US [0]. But globablly speaking, they're the exception, yes. I don't know what the situation in the Bahamas is like.
Leveraged buyouts are certainly a thing that sounds like it shouldn't be possible the first time you hear of it. It seems extremely odd that you can buy a company with money you don't have and then have the money take on that debt instead of having to take it on yourself.
As I understand it, this works by rounding up potential loans, approaching the board of the company and getting them to sign over ownership of the company for a pittance in return for the shareholders being paid out by the company using the loans you brought in. This feels more like an emergent property of the system (specifically, contract law and how publicly traded companies operate) than how the system is intended to function.
Intuitively this shouldn't be possible as it's acting against the company's own self-interest despite being in the interest of the shareholders (and the buyer), but I think "the company's interest" in practice is defined by "the owners' interest" (and the owners in this case are the shareholders, who sell the company). I guess corporations aren't people after all.
The question is who is left holding the bag? If the stakeholders get paid, they are happy. The new owner is debt free, and have an ownership, so that's good. It seems to me that it may go two ways: either the lenders will be left holding the empty bag, if they can't make the money back - and it's their fault for doing a bad due diligence; OR the company gets sold off piece by piece to satisfy creditors (if they can't make the business work), which again a good thing - what purpose serves a company that cannot produce a profit ?
This view is sufficient if you view corporations entirely as entities that serve to create profit. But this view ignores externalities which are not part of this mechanical description. Specifically, what perceived value the corporation provides that allows it to generate that profit. In Twitter's case its monetization has primarily been ads, so I'm referring to what makes people invested enough in the service to make it worth for advertisers to pay to show ads to these people.
But of course your view is what's reflected in law: the corporation exists to generate profit for its shareholders, so if killing and selling it for scrap (whether directly or by proxy in a leveraged buyout ending in a firesale) provides more benefit to its shareholders than keeping it operating at a small profit, that's the logical decision. The corporation is not really "a person", it's a vehicle for its stakeholders (or shareholders). A stable service puttering along without making big profits or losses is considered the bad ending.
> Intuitively this shouldn't be possible as it's acting against the company's own self-interest despite being in the interest of the shareholders (and the buyer), but I think "the company's interest" in practice is defined by "the owners' interest" (and the owners in this case are the shareholders, who sell the company). I guess corporations aren't people after all.
Or maybe they are too much like people. Right now there's a bunch of things that I should be doing, that would be in my best interest - continue with my TODO list, or do some exercises. Instead, I'm browsing HN. This shouldn't be possible, but it is, because I'm a human - what I want to do, what's in my best interest, and what I actually do are three different things, and rarely aligned.
(Ironically, in humans this is usually called an issue with executive functioning, whereas in companies, it's the reverse.)
You were not around during the period of highly leveraged take overs starting in the 80s, were you? That is classical hedge fund behavior, if done right. The fact that Musk lending banks only get around 60 cents on the dollar on the market for the loans they gave Musk shows that it might not have been done "right" when it comes to Twitter.
"Lenders that also include Bank of America, Barclays and Mitsubishi UFJ Financial Group committed to provide $13 billion of debt financing for the deal. Their losses would amount to $500 million or more if the debt were to be sold now, according to Bloomberg calculations."
There is Elon's private wealth, mostly in tesla stock from what I understand. The cash and assets from the companies at which he is (majority) owner, CEO or a combination thereof are not his, they belong to his companies, which are separate legal entities.
