The Twitter Buyout: Debt Fallouts and Peculiar Deal Structures

Background

It comes as no surprise that Elon Musk is next in line to steward the Twitter (now X) platform, as Musk escalated his political involvement in 2017 and championed an objective to foster unconditional free speech.

From January 2022, Musk began acquiring shares until early April 2022, at which he became Twitter’s largest shareholder with a 9% stake. Musk’s en masse purchase foreboded a hostile takeover, which prompted resistance from Twitter’s board who attempted to ward off Musk via a “poison pill” strategy - a common M&A shareholder defense tactic.

However, the board ceded to Musk’s initial offering due to a combination of Twitter’s slowing revenue growth, particularly in advertising, and high operating costs, partially due to an emphasis on content moderation which comprised an estimated 5-15% of total operating expenses pre-2022. On April 25th, both parties agreed to the terms of Twitter’s buyout at a $44 billion valuation.

The Deal

Although the deal was a leveraged buyout (LBO) at its studs, it deviates from many conventional LBOs as the deal’s capital structure tailors to Musk's acquisition as the majority equity holder.

To be exact, Musk’s equity contribution is ~$31 billion (70% of the total acquisition) with $20 billion coming from Tesla (TSLA) shares and other personal assets. Originally, the deal included a margin loan collateralized against Musk’s TSLA shares to finance the remainder of Musk’s equity, however, this portion was cancelled to reduce exposure to the volatility of TSLA stock. Instead, $7 billion of equity was funded by a consortium of external investors including Sequoia Capital, Binance, Andreessen Horowitz, and Saudi Prince Alwaleed bin Talal, while the remaining $4 billion was committed by existing Twitter equity holders who rolled over shares.

The remaining $13 billion was financed through a structured debt package, secured against Twitter's assets, and underwritten by a syndicate of banks: Morgan Stanley, Bank of America, Barclays, Mitsubishi UFJ, BNP Paribas, Mizuho, and Societe Generale. The debt facility included a $6.5 billion term loan (2029 maturity), $6 billion in bridge loans, and a $500 million revolver.

The banks’ faith that they could promptly offload the debt post-transaction rested on Musk’s reputation and investor confidence in TSLA stock as a form of implicit reassurance, while they structured-in high high-yield debt tranches (SOFR+9.75%) to capitalize on Twitter's precarious financial position. Further, the majority of the debt - the $6.5 billion term loan - was senior secured which prioritizes lender repayment in the case of bankruptcy.

However, investor confidence tumbled post-buyout due in response to Musk’s polarizing management strategy and sharp downturn in advertising revenue. These unsavory investor conditions collapsed demand for Twitter’s debt, leading the bank consortium to hold the debt on their balance sheets until many began selling the debt at a discount to reduce exposure.

Early February 2025, investors submitted $12.5 billion of orders for X’s outstanding debt securities from banks, including Morgan Stanley who offloaded ~$5 billion at 97 cents on the dollar. Significant portions of the debt continue to change hands to institutional investors such as Pimco, Citadel, Apollo Global Management, Diameter Capital Partners, and Darsana Capital Partners. Debt in this latest syndication round sold between 101 to 102 cents on the dollar which signals a strengthening in demand.

The banks still hold a collective $1.3 billion, primarily unsecured bridge loans, which are riskier due to an absence of collateral backing. Until recently, the deal has been characterized as the “worst merger-finance deal for banks” since the financial crisis as per the Wall Street Journal.
On the other hand, X is saddled with its highest-ever debt levels with an interest expense of over $1 billion per annum, which offset the majority of their $1.2 billion of revenue in 2024.

Analysis

Musk’s Twitter deal is far from another blockbuster buyout; it sets precedent for future Big Tech acquisitions. This unconventionally high personal backing by a single high net-worth entity paired with multilayered lending may be the birth of a trend in the M&A megadeals landscape.

Typically, private equity (PE) firms are constrained to source funds from a pool of limited partners (LPs) in addition to undertaking significant leverage to generate a high enough IRR to satisfy LPs. Under this structure, deals like Musk’s Twitter acquisition are more difficult to execute due to the high-risk nature of imposing such extreme conditions on the target company (i.e. the remodelling of the platform in accordance with Musk’s free speech and high-efficiency agenda). Further, PE firms usually perform tech LBOs with a 70:30 debt-to-equity ratio, leaving lenders with more power to negotiate terms and dampen the radicality of the acquirer's strategic moves.

Although Musk’s last-minute increase in funding from equity backers may have been portrayed as conditions that reduce lender risk in a frothy environment, the underlying effect was an unprecedented degree of deal autonomy for a leveraged acquirer. This freedom unshackled Musk and his coalition equity backers to implement measures to make structural changes that tangibly reshape the organization’s identity, rather than solely relying on operational moves, cost-cutting, and strategic divestitures under a unidimensional PE model.

It is no secret that Musk also employed a cost-cutting model to the extreme by reducing the company’s headcount to a fifth of its original size in April 2023, from 7500 to 1500 employees. These measures spurred panic among advertisers and active users, leading revenue to drop nearly 50% and monthly users down 15% one year following the buyout.

Despite the media’s divided fanaticism towards Musk’s idiosyncratic management style, it appears that - from a core fiscal perspective - these changes yielded improvement. Twitter’s pre-buyout EBITDA was $672 million, while X reported an EBITDA of $1.25 billion at the end of 2023. Not only did major headcount reduction contribute to this boost, but so did major reductions to Twitter’s ~$1 billion in CapEx that pulled their free cash flow into the red pre-buyout.

After an initial nosedive in ad revenue and user metrics, Musk’s remodeling of the Twitter brand under X’s libertarian “global town square” expanded the company’s global reach by over 2% (~12 million users). The strategic, yet speculatory, bet on the post-election shift in America’s political climate that is antagonistic to heightened bureaucratic oversight has paid off for Musk: Bloomberg estimates that an additional ~$1.5 trillion was priced into the value of Musk’s tech companies.

Other platforms have begun to adopt a similar approach to content moderation, with Mark Zuckerberg, Meta CEO, recently announcing the termination of their own team of fact-checkers to be superseded by a community notes approach following X’s model.

It is possible that the platform’s financials have reached an inflection point following the extreme expenditure reductions, as it now seeks to raise equity at the same $44 billion purchase price, while debt begins to break even for the deal’s underwriters. Time will tell if the market favors Musk’s drastic Twitter makeover and synergies with xAI, Tesla, and SpaceX. Else, X will remain bound by the very capital structure that shaped its existence for the foreseeable future.