'Hat's Off', 'Bye Bye Birdie', 'Musk Gets What He Wants'... 8 Wall Street Analysts Discuss Musk's $44 Billion Deal to Buy Twitter (TWTR)

Twitter (NYSE: TWTR) announced yesterday it has been acquired by Tesla (NASDAQ: TSLA) CEO Elon Musk for $54.20 per share in cash. The transaction values the social media company at roughly $44 billion.

Earlier, Musk said he secured $46.5 billion in financing, consisting of $25.5 billion of fully committed debt and margin loan financing and around $21.0 billion in equity commitment.

"Free speech is the bedrock of a functioning democracy, and Twitter is the digital town square where matters vital to the future of humanity are debated," said Mr. Musk in a press release.

Here is how 8 Street analysts see this deal.

Wedbush’s Daniel Ives: “It all came down to no other bidders or white knights emerging in the M&A process and Twitter's Board back was against the wall once Musk detailed his $46 billion in financing last week to get pen to paper on this deal. We do not expect any major regulatory hurdles to the deal getting done as this soap opera now ends with Musk owning Twitter. The Board got some extra time with the poison pill but ultimately had to get to the negotiation table with Musk to get this deal done as the clock struck midnight on Twitter's history as a public company.”

Stifel’s Mark Kelley: “From here, we're keenly focused on any changes to the business model, as Mr. Musk has suggested that perhaps the platform should focus on subscriptions rather than relying heavily on advertising, or maybe no advertising at all. If Twitter were to exit the advertising industry altogether, we would view that as a slight positive for the rest of our coverage, as the roughly $7bn in advertising dollars Twitter was likely on track to generating in 2023 would shift to other platforms and, given that Twitter is still considered a fairly niche platform by many in the advertising industry, we believe those budgets would mostly work their way into other relatively early or niche platforms, such as Snap, Pinterest, and TikTok.”

KeyBanc’s Justin Patterson: “While we were skeptical a deal would get done, it appears Mr. Musk's desire to own the asset outweighed risks from a slowing brand advertising environment and increased regulation of user-generated content. Likewise, we suspect a lack of other bids, the aforementioned challenges and shareholder pressure likely elevated pressure on the Board. The key questions going forward: how quickly can Mr. Musk improve Twitter's product and how much turnover will occur in the interim?”

Truist’s Youssef Squali: “We believe that $54.20/share is a fair price, translating into ~7x EV/Revenue and ~26x EV/EBITDA on our FY22 estimates. We note that this compares to FB (Buy) at 3.8x and 8x, and GOOGL (Buy) at 5x and 12x, respectively.”

Piper Sandler’s Thomas Champion: “For Twitter, this may portend an uncomfortable reality. It seems unlikely that the '23 financial/user targets set at analyst day a year ago are achievable. While there was likely an engagement benefit recently from world events, the decision suggests 1Q results may have come in weaker than expected. Further, there was no White Knight our counter-offer on the table. With management and the board likely to face withering criticism in the face of a lost Musk bid, management and the board realized this was the best alternative.”

Wolfe Research’s Deepak Mathivanan: “While we highlighted TWTR as a potential M&A target in our 2022 outlook report, we didn’t foresee Elon Musk as the buyer. Mr. Musk’s take private of TWTR is a unique situation, but we do believe the pullback in Internet valuations over the past several months lends itself to potential M&A activity in our space. As we highlighted previously, we see PINS, PTON, WIX, GDDY, and TRIP as potential M&A targets within our coverage.”

JMP’s Andrew Boone: “With ~85% of Twitter’s revenue generated through brand advertising and as free speech is a priority for Mr. Musk, advertisers may shift budgets to other channels given brand safety concerns. While it remains very early, we believe potential beneficiaries could include YouTube (GOOGL, MO, $3,300 PT), Snap (SNAP, MO, $50 PT), Reels on Facebook and Instagram (FB, MO, $265 PT), and TikTok.”

Mizuho’s James Lee: “We originally thought the Board would resist the offer due to philosophical differences. For example, Musk stated that the social media platform should shift away from advertising. Furthermore, they could be concerned about the limited time that Mr. Musk has to focus on Twitter as he is CEO of various technology companies, including Tesla (TSLA, Buy, $1,300PT, covered by Vijay Rakesh), SpaceX and The Boring Company.”

By Senad Karaahmetovic

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