A couple of pages back folks were talking about how 7500 employees for twitter felt bloated, especially since they are not A-list talent either (FAANG). Looks like cuts will come if you read the tea leaves on the financials of this upside-down-topsy-turvy-kinda-LBO. From NYT:
So to summarize:
$13.5 billion of Muskâs offer is a loan to Twitter; the aforementioned 4.51% interest rate would mean $609 billion in annual interest payments, which, you will note, was just covered by last years free cash flow of $630 billion.
That leaves $33.5 billion of Muskâs offer as cash for equity.
$12.5 billion of that cash is a margin loan against Muskâs Tesla stock; $21 billion is out-of-pocketâŠsomehow.
The first thing to note is that Musk is taking on enormous risk, and doing so in a way that actually limits his potential return. Remember, most LBOâs entail putting up around 10% of the purchase price, not 72%; the benefit of that approach is not simply less downside risk, but also more leverage to generate a higher return. This certainly lends credence to Muskâs insistence that this acquisition isnât about the economics.
That noted, I suspect that margin loan in particular is something Musk would like to get rid of as soon as possible. The best way to do that is to bump up Twitterâs cash flow and refinance that $12.5 billion, and the easiest way to increase cash flow is to make big cuts to Twitterâs workforce. Here are some rough calculations on what that might look like:
Twitter, as of the end of 2021, had 7,500 full-time employees. That, to be perfectly honest, is a lot, particularly given the anemic nature of Twitterâs business: the average Twitter employee generates $677k in revenue (for reference, each of the 35,587 Facebook employees generates $3.3 million in revenue).
Twitter spends just over $3 billion on Research & Development, Sales & Marketing, and General & Administrative; for the sake of argument letâs assume that those costs are Twitterâs employee costs, which means each employee costs Twitter around $401k/year (this obviously isnât correct, but itâs close enough for this exercise).
$12.5 billion more in debt (to refinance the margin loan) would require $564 million more a year in free cash flow (at an interest rate of 4.51%); that is about 1,400 employees at $401,000/employee.