• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Stocks

Dear Elon, Please, Oh Please, Walk Away From Twitter

A plea for the head of Tesla not to put at risk his other projects by proceeding with a deal that doesn't seem to make financial sense.
By JIM COLLINS
Apr 28, 2022 | 10:00 AM EDT
Stocks quotes in this article: TWTR, TSLA, GS, JPM, MS

An open letter to Elon Musk:

Don't do this. Twitter (TWTR) is not the hill to die upon.

I always have felt a kindred spirit with you. We were both born in 1971, both have devoted an important part of our lives to the automotive industry (I was a sell-side autos analyst for a decade) and both of us realized long ago how much the auto original equipment makers needed a kick in the pants. You are giving them that in spades with Tesla (TSLA) . We both also care about the tyranny of Big Tech. Tweeting the Pregnant Man emoji at Bill Gates was awesome, by the way.

I agree with your recent tweet. What Twitter did to the New York Post story on Hunter Biden was unconscionable, and I noted that at the time in my Real Money column. But, pointing out TWTR's flaws and taking over the company are two very different things.

Leveraged deals suffer in rising interest rate environments. That Twitter's board would agree to sell to you at a price that is 26% below where it was one year ago might show how clueless they are, though it also could how little faith Twitter insiders have that the financial situation at the company will improve. They had time to shop this thing via Goldman (GS) and J.P. Morgan (JPM) . Why did no other bidders emerge at such a steep discount to recent highs? Ask yourself that question. Please.

You are being fed a line of b.s. by Morgan Stanley (MS) . The deal, as currently constructed, cannot possibly work, especially in an environment of rising interest rates. The numbers simply don't add up.

You can read all the details in my latest report for OHM Research, but the math is unquestionable. Even if we omit the $766 million charge to earnings that Twitter took in the fourth quarter for settling litigation stemming from management, led by @jack, lying to investors about user engagement, Twitter's 2021 EBITDA was only $832 million. Twitter's capex was just over $1 billion last year.

But with a $12.5 billion margin loan and $13 billion (including the revolver) in new debt -- all of which have variable interest rates that will jump next week after the Fed meeting and will keep jumping all year -- I calculate the annual interest burden for X Holdings at just under $2 billion. So, under $1 billion in annual EBITDA, over $1 billion in annual capex and $2 billion in annual interest expense. That's more than $2 billion in annual cash shortfall.

Guess who they will come to in order to plug that hole?

Yes, you.

If Twitter goes the way I am projecting -- and any sentient, non-Morgan Stanley-employed human being would agree -- you would need to shore up the financing, either from your own wallet or via even more debt. Debt is marginally more expensive with a hawkish Fed and a scared-witless bond market, and ultimately people are going to look at your holdings of Tesla as the golden goose. As I am sure you are aware, the $12.5 billion margin loan only encumbers about 1.5% of your Tesla shares; just make sure that Morgan Stanley and the rest don't come after the other 98.5%.

Walk away.

Pay the $1 billion break-up fee and know that your message has been received loud and clear by Dorsey, Agrawal and every Twitter stakeholder. Let them break down in tears in management meetings and know that their reign of error has been disrupted --.by you. You made a difference at Twitter. Full stop

Just remember the approximately 100,000 employees at Tesla and the millions more at your suppliers such as CATL, Panasonic and so many others. So many people depend on you. Remember what happened when you sold Tesla shares to pay taxes after converting old stock options in the fourth quarter of 2021. I am sure TSLA's selloff didn't make your employees happy.

You have made your point, and did so very convincingly before you even reached the ownership disclosure threshold at Twitter. Walk away. The folks at Tesla, SpaceX, The Boring Company and Neuralink will be glad that you did.

--Jim Collins

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Collins' firm owned puts on TSLA and TWTR.

TAGS: Mergers and Acquisitions | Investing | Stocks | Aerospace | Automotive | Media | Technology | Real Money | Electric Vehicles

More from Stocks

4 Reasons to Be Cautiously Optimistic About the Tech Sector

Eric Jhonsa
May 25, 2022 5:15 PM EDT

Many tech valuations are now back to 2016 or 2017 levels, and quite a few contrarian indicators point to extreme bearishness.

Forget Hunting for a Bottom, Now Traders Just Want the Pain to Stop

James "Rev Shark" DePorre
May 25, 2022 4:36 PM EDT

No one trusts a bounce to last at this point, and they simply are hoping for some relief from the unpleasant action.

As Pioneer Natural Resources Blazes a Trail Higher, We Have New Price Targets

Bruce Kamich
May 25, 2022 2:50 PM EDT

Here's our updated bullish strategy on PXD.

Sell the Rumor and Buy the News on Dick's Sporting Goods

Bruce Kamich
May 25, 2022 12:24 PM EDT

Wednesday's down to up move makes trading decisions more complex.

Toll Brothers: We're Going to Need a Bigger Base

Bruce Kamich
May 25, 2022 11:36 AM EDT

The homebuilder's charts need more base building for me to get more constructive.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 11:33 AM EDT PETER TCHIR

    Thoughts Ahead of the Fed Minutes

    Recent economic and earnings issues are convincing...
  • 02:24 PM EDT PAUL PRICE

    An Interesting Chart

    I'm betting heavily that stocks will be way up aga...
  • 10:10 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    "Market Timing for Dummies"
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login