From Switzerland to Houston; Bed Bath & Beyond Strikes Investor Deal for Over $1 Billion to Avoid Bankruptcy; Elon Musk's detached-from-reality, self-pitying nonsense – and what he should have written; Responses to readers on my Tesla e-mail list; Musk Gets Away With Mischief
"Huh," you might be thinking... "Weren't you just in Switzerland?"
Yes, but that was yesterday (my flight from Zurich landed at JFK at 5 p.m. yesterday and I was on a 6 a.m. flight from LaGuardia)!
I'll admit that this travel is extreme, even by my standards, but I didn't want to let even one extra day go by before coming here to do more research on a major investment theme in the energy sector that my team and I are very bullish on.
In the near future I'm going to be sitting down to discuss one of the biggest stories in the energy sector – stay tuned to my daily e-mails for more on this.
2) After a wild day yesterday, in which Bed Bath & Beyond's (BBBY) shares rose 92%, the Wall Street Journal broke this news last night: Bed Bath & Beyond Strikes Investor Deal for Over $1 Billion to Avoid Bankruptcy. Excerpt:
Bed Bath & Beyond has secured investor backing for a more than $1 billion capital raise to stave off bankruptcy and try to turn around its flagging business, people familiar with the matter said.
The offering of convertible stock and warrants, coupled with a $100 million additional credit line from one of its lenders, is expected to save the troubled retailer from the near-term chapter 11 filing it has warned about for weeks. Bed Bath & Beyond has received investor commitments to raise $225 million of equity capital initially and the rest of the more than $1 billion offering over time, according to people familiar with the matter.
The company, which has seen its share price rally in recent weeks despite its dire outlook, warned Monday that if it fails to complete the planned fundraising, it would likely file for bankruptcy and its assets would be liquidated.
While the deal staves off the inevitable for a while, it's highly dilutive to shareholders, which is why the stock is crashing today.
Some investors – the handful who aren't just speculating madly – may be hoping for an outcome like Hertz (HTZ) or AMC Entertainment (AMC), but this is highly unlikely given the total collapse of BBBY's business. ("In a securities filing Monday, the company said comparable sales were expected to fall between 30% and 40% in its fiscal first quarter.")
This continues to be a stock to avoid at all costs...
3) In response to this Wall Street Journal article, When Does Elon Musk Sleep? Billionaire Speaks of Limits to Fixing Twitter and His Back Pain, Tesla (TSLA) CEO Elon Musk tweeted this:
These are my thoughts on this, which I sent to my Tesla e-mail list yesterday (if you would like to be added to it – I send roughly one to two e-mails per week – simply send a blank e-mail to: tsla-subscribe@mailer.kasecapital.com):
Wow, what detached-from-reality, self-pitying nonsense!
Here would be a more correct assessment:
"The last three months were extremely tough, as I had to deal with the disaster I created by:
"a) Vastly overpaying for a lousy company (albeit cash flowing $1 billion-plus annually) that I had no business buying,
"b) Trying every sleazy trick in the book to weasel my way out of the contract I signed to buy it,
"c) Crippling the company only days after I acquired it by firing the majority of employees (perhaps, done prudently, a reasonable course of action, but catastrophic given that I had no clue what I was doing), and
"d) Removing restrictions against hate speech (again, without any nuance, thoughtfulness, or clue as to what I was doing), which caused advertisers to flee and revenue to crash by roughly 40%.
"All of this quickly pushed Twitter to the brink of bankruptcy (where it remains) and caused me to completely neglect my other two main businesses, Tesla and SpaceX, the former of which really needed my attention due to a tidal wave of new competitors and many other challenges, the latter of which seems to be benefiting from my absence.
"I hope others see the pain I've experienced (and continue to experience), understand that it's a direct result of my extreme recklessness and arrogance, and don't repeat my dreadful mistakes."
4) In response to my comments, one reader chided me:
Sorry Whitney, you are wrong on one of these issues.
c) I am a software engineer at one of the world's largest payments processors. Over 75% of the people here could easily be fired instantly and no one would notice a difference at all. You could even just randomly do it and it would take months for any signs to show of problems. Most people do nothing of importance and the typical task that should take a few days to do often gets done in months.
The skill level of engineers that get put into many of the positions is not close to the level needed to get acceptable productivity. I could easily come into a new company and figure out who are the critical employees and which ones are there for the free ride in a short period. Losing 50% of most of the people in these top 500 businesses when they are IT based is not detrimental to the company.
I agree – that's why I added this: "(perhaps, done prudently, a reasonable course of action, but catastrophic given that I had no clue what I was doing)."
Read this article, which I sent around on January 25, to see how – thanks to a toxic combination of hubris, incompetence, and meanness – Musk has pretty much destroyed the company for which he paid $44 billion: Extremely Hardcore. Excerpt:
Musk offered to buy the company for the absurdly inflated price of $44 billion. The move thrilled employees like Simon who chafed at Twitter's laid-back atmosphere and reputation for shipping new features at a glacial pace. Simon, who owned a portrait of himself dressed as a 19th-century French general, told his team, which managed advertising services, that he wanted to build an "impact-focused, egalitarian and empirical culture, where any team member, with a strong data-driven justification, gets the metaphorical center stage."
Other employees noted the darker motifs of Musk's career – the disregard he brought to labor relations, the many lawsuits alleging sexual harassment and racial discrimination at his companies – and found his interest in Twitter ominous. On Slack, a product manager responded to Simon's enthusiasm for Musk with skepticism: "I take your point, but as a childhood Greek mythology nerd, I feel it is important to point out that story behind the idea of the Midas touch is not a positive one. It's a cautionary tale about what is lost when you only focus on wealth."
The comment would prove to be prophetic. According to more than two dozen current and former Twitter staffers, since buying the company in October 2022, Musk has shown a remarkable lack of interest in the people and processes that make his new toy tick. He has purged thousands of employees, implemented ill-advised policies, and angered even some of his most loyal supporters. Those who remain at the company mostly fall into two camps: people trapped by the need for health care and visas or cold-eyed mercenaries hoping to ascend through a power vacuum.
Today, Musk has become notorious for the speech he suppresses, rather than the speech he allows, from suspending journalists for tweeting links to his jet tracker to briefly restricting users from linking to their accounts on Instagram and Mastodon.
In three months, Musk has also largely destroyed the equity value of Twitter and much of his personal wealth. He has indicated that the company could declare bankruptcy, and the distraction of running it has caused Tesla stock to crater, costing him $200 billion.
If "free speech" was his mandate for Twitter the platform, it has been the opposite for Twitter the workplace. Dissenting opinion or criticism has led to swift dismissals. Musk replaced Twitter's old culture with one of his own, but it's unclear, with so few workers and plummeting revenues, if this new version will survive. As one employee said in December, "Place is done for."
5) Another reader wrote:
I'd opine that Twitter was a much bigger disaster before Elon got there, promoting the Russian collusion BS, banning conservative viewpoints, in bed with the liberal media, colluding with the intelligence community and White House, etc. C'mon man!!
That's a fair point, which is why I added: "(again, without any nuance, thoughtfulness, or clue what I was doing)."
There was a way to fix the problems this reader cites without allowing a huge spike in hate speech, white supremacists, child porn, etc. (e.g., see this recent article in the New York Times: Musk Pledged to Cleanse Twitter of Child Abuse Content. It's Been Rough Going), but Musk barreled in like a bull in a china shop, without even attempting to understand the complexities and nuances...
6) You may be surprised to hear this given my dim view of Musk's shenanigans, but I actually like the jury's decision rejecting the lawsuit about his infamous "funding secured" tweet because I have an even dimmer view of stock market speculators and class-action lawyers... I don't want them to get a penny!
Bloomberg columnist Matt Levine's hilarious, insightful take on it underscores why he's one of my favorite writers: Musk Gets Away With Mischief. Excerpt:
The case was actually about whether investors bought Tesla stock at inflated prices because they were deceived by Musk's tweets, and in evaluating that question you might want to think about what Twitter is, and who Elon Musk is.
If Tim Cook had put out an Apple press release in 2018 saying "we are thinking of acquiring Tesla and have proposed a price of $420 per share, funding secured," the price of Tesla would have gone up to, like, $410, because people would have taken that very seriously, because Tim Cook does not sit around saying nonsense in press releases all day.
But Elon Musk really does sit around tweeting nonsense all day, so you can't take him that seriously. Does that mean that the rules that apply to Tim Cook (and pretty much every other public company CEO) don't apply to Musk? Ehh, I guess? Sorry? Here's Bloomberg's story on the verdict:
The verdict isn't likely to become a precedent that spurs more free-wheeling corporate disclosures on social media, said Adam Pritchard, a professor at University of Michigan Law School. That's because other CEOs will continue to use conventional methods to communicate about company business, he said.
"Nobody does this – only Elon does this," Pritchard said before the verdict. "He's incorrigible. I don't think his behavior can be reformed. There's just too long of a track record of too much mischief."
You don't have to like this! "He's incorrigible, so we'll let him do whatever he wants with no consequences" is a depressing conclusion. And yet as a matter of liability for securities fraud it does seem relevant?
A few months before "funding secured," on April Fools' Day, Musk tweeted that Tesla was bankrupt. A few months after "funding secured," he tweeted that the new Tesla Roadster would "use SpaceX cold gas thruster system with ultra-high pressure air in a composite over-wrapped pressure vessel in place of the 2 rear seats" to fly.
Neither was true. He has also been promising fully self-driving Teslas imminently for years, and I guess the SEC is looking into that, but surely by this point no one takes it all that seriously.
And yet if another CEO promised a feature for years and never delivered it, people would feel deceived! Because that's not what other CEOs do, but it is what Elon Musk does. If you say enough false things, then no one will take you seriously, so your false statements can't be fraud. Ahahaha boy is that not legal advice! It's also not quite true, in that the market does react to Musk's tweets, but in some sense that's not his problem. Here's a juror from the trial:
"There was nothing there to give me an 'aha' moment," he said, later adding, "Elon Musk is a guy who could sneeze and the stock market could react."
Best regards,
Whitney
P.S. I welcome your feedback at WTDfeedback@empirefinancialresearch.com.