How Elon Musk Saved X From Collapse

At Morgan Stanley’s offices in New York, a throng of potential financiers convened to listen to X’s presentation, all keen on securing part of what used to be rejected financial obligations from Wall Street. During this gathering held in January, cell phones were strictly prohibited, and attendees were instructed to remain seated post-presentation—until X CEO Linda Yaccarino and several others departed the premises without entertaining any questions from those present.

Banks initially intended to sell $3 billion worth of bonds priced at 95 cents for each dollar but ultimately sold over $10 billion with even better pricing terms. This demonstrated Y’s capability to attract advertisers back to the platform, significantly aided by owner Elon Musk’s closeness to President Trump.

The potential merger with a more prominent, rising firm like Elon Musk’s AI-focused venture, xAI, also supported the decision for this debt offering. During confidential discussions with financial institutions on Wall Street, representatives from X indicated that there was a significant likelihood of their social media platform being acquired by Musk’s AI enterprise known for developing the Grok chatbot at some point in the future.

The billionaire has said he never lost money for investors, but for a long time it looked like he was going to with X. After Musk bought it in 2022, advertisers fled over content-moderation concerns and its loans soured as revenue fell. A month after he took over, Musk said the company—formerly known as Twitter—was on the brink of financial ruin .

Last month, Musk announced on X that he had merged the company with xAI, valuing the new entity at over $100 billion. Incorporating X into an expansive firm engaged in the worldwide competition to create advanced generative AI tools might provide the opportunity to secure funding at a valuation once thought unattainable not long ago.

The merger concludes a series of occurrences—ranging from strategic moves to fortunate coincidences—that enabled Musk to unveil an agreement prior to Trump’s tariffs essentially shutting down the market for such transactions.

This development brings Musk nearer to his long-standing ambition of transforming X into an "all-in-one app" for sharing news, paying bills, and entertainment. According to someone knowledgeable about the situation, the merged entity will first concentrate on integrating xAI's chatbot, Grok, more deeply within X, positioning it as a core component of the user interface—much like how Google has incorporated AI functionalities above its search feature over time.

A representative from X chose not to comment, and a spokesperson for xAI did not reply to request for comment.

Rocky start

Musk took out a loan of $13 billion to finalize his buyout of Twitter in 2022. However, these debts rapidly turned sour as advertisers halted their expenditures. tried to persuade worried brands intending to send back, at some stage offering steep discounts And warning advertisers that their verification status would be revoked if they failed to meet certain spending requirements.

The firm's income dropped to $3 billion in 2023 from around $4.6 billion the prior year, as per sources close to the situation. By early 2023, asset management firm Fidelity saw changes. valued the company At approximately one-third of what Musk paid for it.

X gained an uplift due to xAI, the company launched by Musk in early 2023 aiming to rival OpenAI—a business from which he parted ways following a conflict over control. As part of his settlement, X was granted a 25% share in this new venture for providing essential components like chips and critical hardware required for constructing AI systems.

These shares rapidly turned into some of the most significant holdings on X's balance sheet as the startup’s worth skyrocketed.

Last year, Musk got nearer to Donald Trump and assumed an important position in his campaign. This closeness with Trump encouraged several advertisers to come back.

Despite X's revenue declining further in 2024 to roughly $2.6 billion, there was a slight increase toward the end of the year, sources close to the situation revealed. The firm took strong measures to reduce expenses.

Musk and his advisors had been contemplating merging X and xAI for some time, but following the election, these plans moved faster, sources close to the situation revealed. For this to happen, they understood that they needed to skillfully carry out multiple deals in sequence—while catching a bit of fortune along the way.

With Musk ascendant after the election, X took a new approach to ginning up new ad spending. In December, a lawyer from X called a lawyer at advertising conglomerate Interpublic Group, hinting that its recently announced A $13 billion merger agreement in competition with Omnicom Group might encounter issues stemming from the Trump administration As noted by The Wall Street Journal due to Musk’s influential position, IPG entered into a fresh yearly agreement with X for possible client expenditures.

Other advertisers began increasing their expenditures, with Amazon.com being one of them. in January .

The story surrounding X's financial situation was shifting quickly, and Musk spotted a chance to offload billions of dollars worth of previously undesirable X debts. These loans had remained with banking institutions for over two years, and some were even valued at nearly 60 cents on the dollar.

Making a comeback

Investors such as Pimco and Citadel consented to purchase $5.5 billion worth of loans at 97 cents per dollar, significantly exceeding the $3 billion banks initially intended to offload. Additionally, they disposed of another $4.7 billion at par value.

At that point, X and xAI became more closely connected. X owned a 10% share in xAI (down from 25% due to additional funding rounds) and the artificial intelligence firm paid several hundred million dollars to the social media corporation for using their data to train models, as stated by someone knowledgeable about the situation. This payment was vital for assisting X in covering its expenses.

According to individuals privy to the negotiations, merging the two entities appeared increasingly logical. The rising revenue streams from recurring advertisements at X would enable xAI to allocate these funds towards crucial expenditures in data infrastructure and personnel, sources acquainted with the situation indicated.

The foundation was also established from within. Musk had assigned several staff members to be dual employees at both X and xAI, notably announcing two engineering leaders in January.

In early March, X secured approximately $900 million from both new and existing investors, valuing the company slightly above its initial takeover price The increase had recalibrated the company’s valuation, aligning it closer to what it was during the time Musk took Twitter private.

Shortly before the merger was revealed, Musk addressed attendees at a summit hosted by JPMorgan’s global technology banking head, Madhu Namburi, in Big Sky, Montana. He reminisced about his initial experiences following his acquisition of Twitter during this event.

He bragged to an audience that featured Ivanka Trump, ex-Alphabet CEO Larry Page, OpenAI head Sam Altman, and Trump's cryptocurrency advisor David Sacks. He claimed that X’s value had increased since his acquisition of the company and highlighted that the firm was now significantly more profitable.

According to those present, he likened the difficult decisions he had to make to his role within the Department of Government Efficiency.

On March 28, Musk announced the merger via a tweet on X, stating that it values xAI at $80 billion and X at $33 billion without considering debt. He added, "This is merely the start."

Send your correspondence to Lauren Thomas. lauren.thomas@wsj.com , Alexander Saeedy at alexander.saeedy@wsj.com and Peter Rudegeair at peter.rudegeair@wsj.com

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