On Friday, March 28, Elon Musk announced about the acquisition of social network X (formerly Twitter) by his own company xAI. The reason for the deal may lie on the surface.
First, let’s look at what the owner of the companies writes about the acquisition. The reason for the acquisition is to optimize their work:
«The xAI and X futures are intertwined. Today, we are officially taking the step to bring together data, models, computation, distribution, and talent. This combination will unleash enormous potential by combining the advanced artificial intelligence capabilities and expertise of xAI with the vast reach of X. The combined company will provide billions of people with smarter, more meaningful experiences while staying true to our core mission of seeking truth and sharing knowledge. This will allow us to build a platform that not only reflects the world, but actively accelerates human progress».
Thus, according to Musk, the goal of the agreement is to make X and xAI work more closely together. This may mean implementing AI capabilities in X, as well as facilitating the training of the Grok chatbot created by xAI. Legitimate materials for training large language models are extremely scarce, and the social network is actually a large generator of text and other content by real people. But the financial side of the deal is no less interesting, as Musk himself has told us:
«xAI acquired X in an all-stock transaction. The combination values xAI at $80 billion and X at $33 billion ($45 billion minus $12 billion of debt)».
That is, a company that is almost twice as expensive is taking over a cheaper and more troubled company that has a huge debt. In fact, Musk created a financial parachute for the not-so-stable X and protected the company from many risks. He also formally fixed its value at $45 billion.
According to Reuters, many details of the deal remain unclear, such as how X executives will be integrated into the new firm or how regulatory oversight will be handled. One of the investors in X and xAI, Prince Alwaleed bin Talal, who owns the investment company Kingdom Holding, foresees an increase in the value of his investments: «After this deal, the value of our investments is expected to reach $4-5 billion… and the meter is running». Another anonymous investor says he was not surprised by the deal. Musk did not ask investors for approval, but told them that the two companies were working closely together and the deal would facilitate deeper integration with Grok.
About about Musk’s financial deal when buying Twitter, ITC.ua wrote — it has become a significant problem for the banking system. The seven banks that to acquire Twitter provided loans to Musk for $13 billion, were given the bad debt for two years until they were able to sell it all at once last month, according to Reuters. Espen Robak, founder of Pluris Valuation Advisors, which specializes in illiquid assets, notes: «Debt is probably worth more now if it is not fully repaid».
Obviously, the deal is much more financially attractive for X than for xAI, which had virtually nothing to stop it from using X’s data in the same way. Now the latter can be as unprofitable as it wants, having «behind» xAI.