Twitter’s stock could see a violent sell-off if it says no to Elon Musk’s buyout offer.
And such a sell-off may open the door to a more strategic partner than the controversial CEO of Tesla.
“If Twitter rejects Musk’s offer we see the possibility for another investor to support the stock should it sell off. We believe that, if there is a 20%+ sell off on a rejected bid, Twitter would definitely present value to a strategic investor. In our view, this could be a positive outcome given Twitter would likely prefer a consortium of investors rather than be controlled by a single large owner,” said Jefferies tech analyst Brent Thill.
Thill reiterated a Hold rating and $48 price target on Twitter’s stock.
To be sure, the ball is now in the court of Twitter’s board.
Musk — who has a 9.2% stake in Twitter — offered to buy the social media platform for $54.20 a share on Thursday.
“I invested in Twitter as I believe in its potential to be the platform for free speech around the globe, and I believe free speech is a societal imperative for a functioning democracy,” Musk wrote in a letter to Twitter Chairman Bret Taylor, as disclosed in a new SEC filing. “However, since making my investment I now realize the company will neither thrive nor serve this societal imperative in its current form. Twitter needs to be transformed as a private company. As a result, I am offering to buy 100% of Twitter for $54.20 per share in cash, a 54% premium over the day before I began investing in Twitter and a 38% premium over the day before my investment was publicly announced. My offer is my best and final offer and if it is not accepted, I would need to reconsider my position as a shareholder. Twitter has extraordinary potential. I will unlock it.”
Twitter confirmed in a press release that it received Musk’s offer and said the board of directors “will carefully review the proposal to determine the course of action that it believes is in the best interest of the Company and all Twitter stockholders.”
Added Thill, “We are skeptical that Twitter will accept Elon Musk’s $54.20 offer, which implies 21x FY23 EBITDA and 15% upside from current levels. While we viewed Musk’s involvement as a positive for the stock, we believe Twitter is likely looking for an offer of $60+, which is still only 23x FY23 EBITDA (vs. low 30x level in early ’21). Given regulatory scrutiny, we don’t expect an offer from another large Internet player.”
Twitter shares (TWTR) had surged 13% in pre-market trading. But the stock fell slightly in the early afternoon Thursday on fears Twitter would rebuff Musk’s offer and he would dump his stake and send the share price reeling.
CFRA Research analyst Angelo Zino agrees, Twitter’s stock could take a sizable hit if they turn Musk away.
“Clearly. I think this [Twitter’s stock] gravitates back to the low to mid-$30 range [without a Musk deal],” Zino said on Yahoo Finance Live. The analyst downgraded his rating on Twitter Thursday to Hold from Buy.