At Bloomberg’s Qatar Economic Forum on Tuesday, Tesla (TSLA) CEO Elon Musk steered questions regarding his much-awaited $44 billion Twitter (TWTR) takeover.
According to the WSJ, Musk was heard saying that there were “still a few unresolved matters” before the deal could go through.
Meanwhile, TWTR rose nearly 3% to close at $38.91 yesterday but is still far from the $54.20 bid price offered by Musk.
The Three Prerequisites
Musk’s priority and “a very significant matter” is the dispute over the actual number of fake or spam accounts on the platform, which affects the calculation of the monetizable Daily Active Users (mDAUs). According to Musk, his team is still awaiting further details and clarity on the total number of spam accounts from Twitter’s management.
Furthermore, Musk noted that he is working on completing the debt financing for the deal. Lastly, the deal awaits Twitter’s shareholder approval on the matter, without which it cannot go through.
“Those are the three things that need to be resolved before the transaction can complete,” Musk added.
Meanwhile, Twitter has yet to finalize a date to hold the special shareholder meeting for the takeover vote. Nonetheless, its Board has urged its shareholders to vote in favor of the deal, which is “in the best interests of Twitter and its stockholders.”
Analysts’ Take
Yesterday, Rosenblatt Securities analyst Barton Crockett drastically slashed his price target on TWTR stock to $33 (15.2% downside potential) from $54.20 while maintaining a Hold rating.
Crockett strongly believes that Musk will go ahead with the deal but has the “leverage to substantially rework the deal price.” He further added, “This might be an ugly, tortured road that could create substantial share volatility in the interim.”
If the buyout deal fails, then Crockett believes that Twitter’s share price would be trending much lower, around $11, akin to its peers like SNAP (SNAP). Meanwhile, his revised target price of $33 is close to the median between $11 and the agreed-upon bid price.
Softening advertising spending amid the current backdrop is proving to be a drag on all social media companies, and would become worse should the recessionary fears turn true. Moreover, Crockett believes that Musk’s intent to change Twitter’s business focus could result in lower employee efficiency and a probable threat of loss of key talent.
Furthermore, Twitter’s enhanced dependence on brand advertising could prove to be a major drawback in its upcoming earnings. Add to that, Musk’s insistence on verifying the real bot size on the platform could also result in a lowering of the bid.
“Knowing that fundamentals are challenged, and that seemingly no other bidder is waiting in the wings, and that Twitter’s stock would be much lower without a deal, I believe Twitter’s board could be compelled to accept a meaningful compromise for a much lower price,” Crockett concluded.
Amid the chaos, the TWTR stock has a Hold consensus rating based on one Buy and 24 Holds. The average Twitter price target of $51.54 implies 32.5% upside potential from current levels. Meanwhile, the stock has lost 8.8% so far this year.
Parting Thoughts
Although Musk has reiterated his decision to buy Twitter, the bot size issue remains an overhang on the bid price, which may or may not suit shareholders.
