News of Elon Musk’s $17 billion loss on Twitter, reported by Fidelity

Do you need a good laugh? If so, you’ll probably get a giggle from the tale of how what seemed like a big break for Elon Musk’s Twitter buyout has instead turned into a big embarrassment for him and his co-investors. Musk’s big break consisted of getting the giant Fidelity mutual fund company to kick in $316 million to be part of his buyout of Twitter. Had Fidelity not agreed to have the Twitter stake held by some of its funds converted into stock of Musk’s buyout company rather than getting $54.20 a share of cash, he would have had to kick in $316 million more of his own money to get the deal done.

But having Fidelity as a Twitter coinvestor has turned out to be a huge mistake—and a major source of embarrassment to him. And a source of nine digits of losses to holders of the Fidelity funds that went along with the buyout.

Even though Twitter, now known as X Holdings, is a private company and isn’t required to file public financial reports, Fidelity’s presence in the deal makes it possible to figure out how much X Holdings’ investors have lost (on paper) since the takeover was completed last October.

I’m not sure any of the players realized that Fidelity would have to disclose this stuff when the Twitter buyout was put together—none of the 20 players would talk with Fast Company when we approached them last month and I didn’t bother trying this time around. However, Fidelity’s presence in the deal has been a boon for financial journalists.

I’ve been thinking about this since I first wrote about Musk’s Twitter debacle in May. In the month since that article appeared, there have been about a zillion similar stories, none of which would likely have been written if Fidelity weren’t part of the buyout.

Listing Musk’s unlucky co-investors

As a result, my bet is that in future takeovers of companies that plan to stay private post-buyout, no one will invite Fidelity into the deal because of the problems and embarrassment that Fidelity has caused for Musk and Musk’s 18 other Twitter buyout coinvestors. In addition to Fidelity, they are A.M. Management & Consulting; Andreessen Horowitz; Aliya Capital Partners; BAMCO; Binance; Brookfield; DFJ Growth IV Partners; Honeycomb Asset Management; Key Wealth Advisors; Lawrence J. Ellison Revocable Trust; Litani Ventures; Qatar Holding; Sequoia Capital Fund; Strauss Capital; Tresser Blvd 402; VyCapital; and Witkoff Capital.

Let me explain why the presence of Fidelity (whose spokesperson didn’t respond to my requests to talk) in the buyout has generated problems and embarrassment.

Fidelity, unlike the other X Holdings investors, is legally required to disclose how much its stake in X Holdings is worth.

That’s because the Fidelity mutual funds that own X Holdings stock are bought and sold by investors based on the funds’ asset value per share. Even though X Holdings stock isn’t publicly traded, Fidelity has to value it as accurately as possible.

As best I can tell, Fidelity estimates that value monthly. I have no idea how it does that, but I’m sure it’s doing its best to come up with an accurate number. And if you know how to find that number, which involves parsing some of the Fidelity funds’ monthly filings, you can apply it to the whole buyout.

I’ve been using reports filed by Fidelity’s Contrafund to calculate the paper losses Fidelity and the other Twitter buyout players have suffered.

According to Contrafund filings, it paid $53,469,000 for its X Holdings stake when the buyout took place last October. As of the end of May, after taking three separate writedowns, Contrafund valued the stake at $17,826,565. That’s almost exactly two-thirds below its cost.

Apply that two-thirds loss, and you see that Fidelity fund investors have taken a hit of about $210 million on the funds’ initial $316 million X Holdings stake. Apply that two-thirds loss to all of Musk’s coinvestors, whose reported initial stake was $7.14 billion, and their total paper loss is about $4.75 billion.

Calculating Musk’s personal loss on Twitter

Musk’s personal paper loss on Twitter is far greater. If we assume a total buyout cost of $46.5 billion–$44 billion to shareholders and $2.5 billion for various costs—and subtract the $13 billion that X Holdings borrowed, that leaves $33.5 billion that Musk and his coinvestors had to put into the deal. Subtract the coinvestors’ $7.14 billion, and Musk’s personal cost is about $26 billion. A two-thirds loss on that is more than $17 billion.

This loss isn’t about to send Musk into poverty–Bloomberg says his current net worth is about $220 billion. I reached out to X Holdings to try to confirm this and got Musk’s traditional pop emoji response.

We wouldn’t know any of these loss numbers if Fidelity weren’t involved in the Twitter buyout. So thanks, Fidelity. And thanks, Elon.

Since I can’t imagine Musk or any other takeover type ever making this mistake again, let’s enjoy the access while we can.