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By Peter Coy
Opinion Writer
Elon Musk is so smart that you have to wonder if trashing X, formerly Twitter, is somehow in his best interest. This couldn’t possibly be one giant mistake, could it?
Actually I think it is a giant mistake. There is, however, an unlikely scenario where damaging X in the short run might benefit Musk in the long run. Just for kicks, and because everyone is fascinated by the world’s richest person, I’ll take you through it.
First, though, a refresher on why people are talking about Musk and X this week. It’s because he once again did something seemingly inexplicable. On Wednesday at The New York Times DealBook Summit, he charged that companies that had pulled ads from X after he endorsed an antisemitic conspiracy theory were trying to “blackmail” him. Using profane language repeatedly, he told them, “Don’t advertise.”
This is not the way to lure advertisers back. And it was far from the only thing Musk has done to damage X. He cut more than three-quarters of the staff, including most of those involved in keeping hate speech off the platform, which predictably resulted in more hate speech and fewer advertisers. Dropping the Twitter name and getting rid of the cute blue bird logo didn’t help, either.
Again, it’s plausible and even probable that Musk has simply made a series of bad choices. As smart as he is, he does have an impulsive streak and a lot of anger inside of him. At the DealBook Summit, he admitted that endorsing the antisemitic tweet was a mistake. He told the interviewer, Andrew Ross Sorkin, that he had “demons” in his mind stemming from an unhappy childhood.
But let’s get to the weird theory that Musk is doing all of this deliberately in a way that benefits him in the long run. It starts with the fact that he realized soon after he bid for the company that it was a mistake and tried to back out of the deal, but wasn’t able to extricate himself. So he was uncomfortable with owning X to start with. Then he made management mistakes, such as firing essential employees. And, crucially, interest rates rose sharply, raising the cost of servicing the bank loans he took on to finance the deal.
At this point, the shares he owns in X are worth far less than he paid for them. They aren’t traded, so there’s no public valuation. But the big money manager Fidelity estimates their value for customers of its mutual funds, and as of Sept. 30 it had marked them down by nearly two-thirds from what they were worth when Musk took majority control.
There’s something in finance called gambling for resurrection. It’s when you’re down so far that you don’t have much more to lose, so you’re willing to take big risks in the hope of recouping your losses. The theory is that Musk is gambling for resurrection with a triple bank shot that probably won’t work — but just might.
The main proponent of the crazy-like-a-fox theory, as far as I can tell, is Eric Talley, a professor at Columbia Law School who specializes in corporate law, governance and finance. I interviewed him on Thursday. He admitted, “I am still uncertain myself” whether Musk is engaged in “a diabolical strategy embedded in a four-dimensional chess move” or just being erratic.
If it is 4-D chess, he said, it’s that Musk is trying to harm X in the short run to get the banks that have lent him money to accept that they will have to “restructure” what he owes them — that is, lower the interest rates, extend the payment periods or write off some of the debt altogether. Once that dirty deed is done, he could then focus on getting the less indebted company back on a growth path.
The risk in such a strategy, of course, is that Musk would succeed in talking the company down, but not in talking it back up, leaving his stake in the company worth little to nothing. As Talley put it to me: “To hit the right window on this you need to create a temporary degree of acid indigestion on the part of your creditors, take advantage of that, and hope that the pyrotechnics that you set off don’t ignite the whole company and cause it to lose all its value.”
Talley speculated that Musk might even go a step further and buy some of the loans from the issuing banks, so that X would owe money to him. Then he could put the company into bankruptcy and negotiate to convert his debt into equity, giving him an even bigger share of the ownership. The equity would be worth something if he could then turn the company around.
There are a couple of legal problems with this scenario, aside from the tricky business of how to resurrect a company once it has fallen. One legal problem is that making inaccurate statements about a company to affect its value (up or down) violates securities law and common law. To be sure, Talley wasn’t accusing Musk of doing this, nor am I. Another legal problem is that there could be terms in the agreement with the lenders to block him from acquiring a lot of the bank debt. Sometimes there are even agreements to prohibit revisions of the credit agreement, Talley said.
Again, there’s no evidence that Musk has any such plan. The company didn’t immediately respond to a request for comment. But as long as he keeps doing things that damage X’s value, the speculation that he has some kind of ulterior motive will continue.
One way to focus the attention of decision makers before waging war might be to have universal conscription. They might think more carefully about putting boots on the ground if they or members of their families were wearing those boots.
Alice L. Givan
Brooklyn
Money, money, money for weapons. Capitalism had great ideals, but has gone astray in many ways. War is a big one. Systemically keeping the poor down, another big one.
Diana Morley
Weaverville, N.C.
You and Binyamin Appelbaum discussed why Americans are feeling grumpy about the economy. Another reason is that losses are always felt more strongly than gains. So the pain from price increases is greater than the pleasure from wage increases, even if the wage increases are somewhat bigger.
Robert Riley
Brooklyn
“If a little knowledge is dangerous, where is the man who has so much as to be out of danger?”
— Thomas Huxley, “On Elementary Instruction in Physiology” (1877)
Peter Coy has covered business for more than 40 years. Email him at coy-newsletter@nytimes.com or follow him on Twitter. @petercoy
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