Now that the deal is done, let's take a look at the math of owning the company.
It's not just an exercise. The health of a service called the world's town square will be determined by Mr. Musk's ability to make the numbers work. If the financial case is bad, any plans to invest in the company may have to be put on hold.
The numbers are difficult to comprehend. The technology company was acquired for a record amount of money. In order to do the deal, Mr. Musk loaded the company with $13 billion in debt, which had not turned a profit in a decade. The deal was signed before the global economy appeared to be in danger of a recession. Digital advertising has been falling at social media companies.
The senior lecturer of finance at Cornell University said that technology companies should be able to pay for new research and development. Flexibility is completely eliminated by this buy out.
A representative for Mr. Musk did not reply to questions.
About $50 million was spent on interest last year. The deal will add about $1 billion a year to that. The company generated $630 million in cash flow last year.
That means that the company isn't making as much money as it needs to. The company doesn't seem to have a lot of money on hand. The company had $6 billion in cash before Mr. Musk bought it.
He said that Mr. Musk has little wiggle room. He said that they were going to take all the financial resources of the company and use them to service the debt.
The deal was a big one. Musk made an offer worth $44 billion for the social media platform, saying he wanted to turn it into a private company and allow people to speak more freely. The battle that followed lasted months.
There was a move. The price Mr. Musk agreed to pay for the company in April was proposed on October 4. The purchase of the company was completed on October 27th.
Mr. Musk might have to cut costs by a lot. He was said to be ordering job cuts on Saturday. The investor said he was told by the head of Mr. Musk's family office that 50 percent of the employees would be laid off.
Mr. Musk could lay off many people. A large part of the company's sales and marketing expenses go to employees' salaries, benefits and other compensation. He is at risk of getting rid of employees who have relationships with advertisers if he cuts those costs.
There is a lot of money spent on research and development by the company, which is mostly used for employee compensation. There could be more job cuts by Mr. Musk. He wants to create new ways to manage content and combat fake accounts on the site. The kind of engineers Mr. Musk would like to hire are expensive.
Money spent on rent, data centers, and additional expenses, which collectively cost the company more than $1 billion a year, is one of the ways to cut costs. Like a struggling division, there is not clearly a specific business that is going to be shed or downsize.
Eric Talley is a professor of corporate law at Columbia Law School. It's important that you don't sell off part of what you need to run a profitable business. You put your hands behind your back.
Mr. Musk might need to raise more money from outside investors within a year.
Mr. Musk has $13 billion in debt from banks, while other investors, like the venture capital firms, contributed $7.1 billion in cash. It is not known whether Mr. Musk gathered more investors to help lighten the load or not.
It will be difficult to find new investors for the company if they need more money in a year. Mr. Musk admitted that his initial investors in the deal were paying too much. Many social media companies have seen their stock prices fall this year as they navigate the same problems as the rest of the economy.
The net worth of Mr. Musk is more than 200 billion dollars. He could try to buy out some of the company's financiers.
Most of his wealth is tied up in his company's stock price, which has plummeted this year. At one point, Mr. Musk tried to back away from buying the company, but he might not do it again.
It's not the same as investing in a fast-growing start-up like his rocket-making company, when you put more money into a slow growth company. The banks only care about getting paid their interest on the day they are owed, so the risks are higher at the micro-blogging site. Unlike a real estate company, Twitter does not have a lot of assets that can be used as security.
billionaires have tried to help deal before. Eddie Lampert spent billions of his own money to keep Sears alive after its failed merger with Kmart in 2000. Sears filed for Chapter 11 protection.
Seemingly doomed businesses like manufacturing electric cars have been taken over by Mr. Musk. It may benefit from fixing its business out of the glare of the public markets. New product ideas could be brought to Mr. Musk by hiring engineering experts who might not have been interested in working for the social media company before.
Chamath Palihapitiya, a venture capitalist who was an early Facebook executive, said that Mr. Musk would make a lot of money in Twitter. I don't think it fits my risk profile. He is going to be very successful.
Some warn against the ebullience that initially drove investors to Mr. Musk's deal, as global economic fears have mushroomed in recent months.
Robert Bruner, a professor at the University of Virginia and author of the book "Deals From Hell," said that at the height of a market boom, appeals work more easily than they do now.
The worst deals are usually struck at the peak of the market. He offered a worst case scenario for the company. Mr. Musk wouldn't be able to get the expenses down to the level needed to cover the debt burden. He is unable to find more equity investors.
What is the final result? Mr. Bruner said that the social networking site would soon collapse.
Farrell reported.
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