(Bloomberg) — Elon Musk, in his first address to Twitter Inc. employees since buying the company for $44 billion, said bankruptcy was a possibility if it doesn’t start generating more cash, according to people familiar with the matter.
Most read from Bloomberg
The warning came amid a tumultuous start to Musk’s reign at the social media company – a two-week period in which he has fired half of Twitter’s staff, pushed out most of its top executives and ordered the remaining employees to stop working from home. An executive who until Thursday had emerged as part of Musk̵[ads1]7;s new leadership team, Yoel Roth, left, people familiar with the situation said. Another, Robin Wheeler, also resigned — but Musk persuaded her to stay on, said some of the people, who requested anonymity to protect personal and professional relationships.
While the acquisition has removed Twitter from the scrutiny of public markets, Musk saddled the company with nearly $13 billion in debt that is now in the hands of seven Wall Street banks that have been unable to pass it on to investors.
Confidence in the company has eroded so quickly that even before Musk’s bankruptcy comments, some funds were offering to buy the loans for as little as 60 cents on the dollar — a price usually reserved for companies deemed in financial distress, Bloomberg News reported Thursday.
In his address to employees, Musk issued several stark warnings. Employees should prepare for 80-hour work weeks. There will be fewer office benefits such as free food. And he ended the flexibility from the pandemic that allowed employees to work from home.
“If you don’t want to come, accept your resignation,” he said, according to a person familiar with the matter.
Asked about the prospect of attrition, Musk said, “We all have to be more hardcore.”
In discussing Twitter’s finances and future, Musk said the company needed to move quickly to make its $8 subscription product, Twitter Blue, something users will pay for, given pushback by advertisers worried about harmful content.
Musk has previously used the threat of financial ruin in an attempt to motivate workers, according to a person familiar with his management style. He’s trying to convey the idea that if people don’t work hard, Twitter will be in a very difficult place, this person said.
The Information and Platformer previously reported on Musk’s bankruptcy filing.
He also hinted at products he wants to introduce, including payments, more conversational ads and interest-bearing checking accounts. Onboarding to the Twitter app should be smoother, as is the case with TikTok, he said.
Earlier Thursday, Twitter’s chief information security, chief privacy officer and chief compliance officer left, raising concerns about the company’s ability to keep the platform secure and comply with regulations. Twitter is currently bound by a consent decree with the Federal Trade Commission that regulates how the company handles user data, and may be subject to fines for violations.
Roth had since taken over the social network’s entire Trust and Safety effort, while Wheeler, a director of sales, had recently stepped up to oversee relations with jittery advertisers. She hinted at her decision to stay in a tweet, as well as a post on an internal Slack channel.
The debt Twitter took on to finance Musk’s acquisition leaves it with interest costs that, by one estimate, will rise to $1.2 billion a year.
The social network has seen pushback from some advertisers concerned about Musk’s plans for content moderation.
Debt investors and credit ratings also show little confidence. The company’s banks have been quietly soliciting hedge funds and other asset managers for their interest in buying part of the company’s debt.
The discussions so far have centered around the $6.5 billion secured loan portion of the financing, people with knowledge of the talks said. The banks had appeared unwilling to sell at any price below 70 cents on the dollar, according to one of the people. Even at that level, losses could run into billions of dollars, Bloomberg calculations show.
Moody’s Investors Service, meanwhile, recently cut Twitter’s credit rating deeper into junk territory. “Twitter’s governance risk is very negative, reflecting Moody’s expectations of aggressive fiscal policy and concentrated ownership by Elon Musk,” the rating firm said.
Musk warned employees in an email late Wednesday of “difficult times ahead,” with “no way to sugarcoat the message” about the company’s financial outlook. He ended employees’ ability to work remotely unless he personally approved it.
–With assistance from Katie Roof, Davide Scigliuzzo, Gillian Tan, Claire Ruckin, Jill R. Shah and Lisa Lee.
(Adds details of Wheeler’s decision to stay in second tier)
Most read from Bloomberg Businessweek
©2022 Bloomberg LP