Elon Musk had to delve deep into his accounts last year to secure a gigantic amount for the acquisition of the social media platform now known as X. In order to secure the funding for the acquisition, tech magnate found himself in need of a staggering $13 billion in loans from seven prominent banks to assemble the substantial purchase price of $44 billion, nearly a year ago.
Unfortunately, the aftermath of this ambitious acquisition has left these financial institutions reeling, as reported by the Wall Street Journal, attributing the platform’s declining value over the past 12 months to Musk’s leadership.
Struggling to unload the debt
The financial figures are nothing short of astonishing. The seven banks involved in the deal, including major names such as Morgan Stanley, Bank of America, and Barclays, now face the prospect of enduring losses of at least 15 per cent, totalling around $2 billion at least, just for this year.
This ill-fated wager on the world’s wealthiest individual has seemingly backfired in a spectacular fashion.
These banks had initially hoped to divest themselves of the debt by Labor Day, but the situation has not played out as anticipated. Instead, they are now preparing to offload portions of this financial burden, according to sources cited by the Wall Street Journal.
To compound their woes, if Musk’s social media platform receives a low credit rating, the banks may encounter even greater difficulty in shedding this financial load.
In essence, the longer they hold onto this debt, the more precarious the situation becomes, and regulators may intensify their scrutiny of the banks.
Hung deal
As outlined by the Wall Street Journal, the debt associated with X’s acquisition is currently one of the most extensive and long-lasting “hung” deals. Such arrangements often result in banks incurring significant losses when financing acquisitions fail to yield the anticipated returns.
In the midst of this financial turmoil, Musk’s seemingly incongruent decisions, including rebranding Twitter as “X,” tolerating the dissemination of misinformation, and implementing widespread layoffs, have prompted advertisers to withdraw, causing substantial deficits on the company’s balance sheets.
Resolute in the face of adversity
A recent study by marketing consultancy Ebiquity found that the vast majority of the platform’s largest advertising spenders have ceased advertising on it following Musk’s takeover.
Despite the bleak outlook, Musk and CEO Linda Yaccarino remain resolute in their belief that X will turn a profit as early as next year.
One certainty remains: the banks are undoubtedly hoping that their faith in this optimism is not misplaced.
from Firstpost Tech Latest News https://ift.tt/e2UoHYT
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