{"id":47,"date":"2023-03-27T20:33:17","date_gmt":"2023-03-27T20:33:17","guid":{"rendered":"https:\/\/wrinkledworld.com\/?p=47"},"modified":"2023-03-27T20:33:18","modified_gmt":"2023-03-27T20:33:18","slug":"elon-musk-and-twitter-smart-like-a-fox","status":"publish","type":"post","link":"https:\/\/wrinkledworld.com\/fr\/elon-musk-and-twitter-smart-like-a-fox\/","title":{"rendered":"Elon Musk and Twitter \u2013 Smart like a Fox?"},"content":{"rendered":"
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The world has berated Elon Musk for his ruthless and apparent ignorance – firing much of the Twitter staff even from critical positions or creating a work environment where they quit.<\/p>\n\n\n\n

Why would anyone do this?<\/p>\n\n\n\n

 In my last 30 years in business, I have known or interviewed several successful business turn-around consultants brought in to improve or rescue failing businesses. Three were Sanford Sigoloff, Andy Galef, and Tom Holce.  Turn-around consultants are professionals who specialize in helping struggling companies improve their financial performance and return to profitability, notorious for aggressive cost-cutting and the reputation for firing large numbers of employees<\/p>\n\n\n\n

Sanford C. Sigoloff <\/strong>was a turnaround consultant at Wicks Home Furnishings in the mid-1980s. He was so brutal he was sometimes called \u201cMing the Merciless\u201d \u2013 the evil master enemy of Flash Gordon. He incorporated radical methods of selling off inventory, closing stores, selling real estate, and firing workers and management. Why did he do this? To get an efficient company, renegotiate debts with creditors on more favorable terms, and begin generating positive cash flow and profitability again. Wickes emerged from bankruptcy a few years later.<\/p>\n\n\n\n

Tom Holce <\/strong>of Oregon was canonized when the Oregon Entrepreneurship Awards were named after him. While a gifted and brilliant engineer founding several companies, I asked him his secret to success when taking over a new company. He said it was his Parking Lot Party. \u201cWhat\u2019s up Parking Lot Party?\u201d I asked. \u201cI call everyone into the parking lot and tell them they are fired,\u201d he answered. \u201cAll company positions will be open for hiring tomorrow, and we will interview you and your past performance for your job.\u201d.My obvious question was \u201dWhy would you do that?\u201d He answered, \u201cbecause there\u2019s always underperforming people and excess positions that do not provide core value in every company – it develops over time.\u201d When management changes and the management style changes, many people do not fit in \u2013 and are fired or quit.<\/p>\n\n\n\n

Andy Galef <\/strong>of Galef & Grisanti Consultants had similar turnaround skills and used them to become an Leveraged Buy Out (LBO) investment bank, purchasing companies and creating new value. It was a successful strategy.<\/p>\n\n\n\n

So how was Twitter doing before Musk?<\/h2>\n\n\n\n

Twitter\u2019s revenues have continued to climb and turned its first profit in 2017. <\/p>\n\n\n\n

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Source:https:\/\/www.statista.com\/statistics\/274568\/quarterly-revenue-of-twitter\/?locale=en<\/a><\/p>\n\n\n\n

But profits have not been consistent and are now negative or dropping. <\/p>\n\n\n\n

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Source:https:\/\/www.statista.com\/graphic\/1\/299119\/twitter-net-income-quarterly.jpg<\/a><\/p>\n\n\n\n

It is important to note that this purchase was an LBO, so Musk acquired Twitter with some equity and a significant amount of debt. A recent article leads, \u201cElon Musk says his $44 billion Twitter takeover<\/a> might result in a bankruptcy filing<\/a>. But there could be other options.\u201d Here is a link to the full article that nicely sums up Twitter\u2019s failing performance –  How Elon Musk\u2019s Twitter Faces Mountain of Debt, Falling Revenue and Surging Costs by Mark Maurer Nov. 21, 2022, 9:48 am ET https:\/\/www.wsj.com\/articles\/how-elon-musks-twitter-faces-mountain-of-debt-falling-revenue-and-surging-costs-11669042132<\/a><\/p>\n\n\n\n

Twitter\u2019s Potential Bankruptcy<\/h2>\n\n\n\n

So is Elon Musk a turnaround person like Sigoloff, Galef, or Holce? His past as a start-up genius doesn\u2019t suggest that. As noted, turnaround consultants can appear ruthless and a new company culture alienating existing employees, shareholders, customers (e.g., ad companies), and users (the public).<\/p>\n\n\n\n

But do some of the LBO and bankruptcy rules apply here?<\/strong><\/p>\n\n\n\n

Absolutely. <\/p>\n\n\n\n

And what happens if Musk drives Twitter to bankruptcy as a result of his changes?<\/strong><\/p>\n\n\n\n

First, when a company goes bankrupt it often gets to renegotiate its mountain of debt. That usually means better debt terms such as lower interest rates payable over a longer period of time. These improve the company\u2019s future prospects and a chance to generate positive cash flow and profits. <\/p>\n\n\n\n

Secondly, in general, shareholders of a bankrupt company are likely to experience dilution (see sources below). This means that existing investors’ Ownership Shares of a company decline as new money and new investors come into the company to \u201crescue\u201d it. The company may issue new shares or securities to creditors and\/or investors as part of a bankruptcy reorganization process. <\/p>\n\n\n\n

This means Musk\u2019s Saudi equity sources who helped Musk acquire Twitter may end up owning less of Twitter than they anticipated\u2026and if Musk invests more, he can own more.<\/p>\n\n\n\n

Here are some sources that further discuss the issue of shareholder dilution in bankruptcy:<\/p>\n\n\n\n