The company's market cap has shrunk by 10% as the rumours of Twitter buyout strengthened. Yet, Salesforce's CEO is still fascinated with Twitter's "unpolished jewel".
In the last month, the talks about Twitter's buyout went through all stages from denial, uncertainty to acceptance. The company's stock price has plunged 29% over the past year as Twitter (NYSE: Twitter [TWTR]) failed to demonstrate any meaningful revenue growth and bring new users in the aggressive competition with other social media platforms.
However, earlier in September, TWTR jumped over 20% when the management finally discussed the possibility of a buyout. In the past few weeks, several big companies have expressed their interest in buying Twitter, with new names being added to the debate almost every few days. The Wall Street Journal mentioned 3 possible interested candidates such as the giants Google (NASDAQ: Alphabet Class A [GOOGL]) and Disney (NYSE: Walt Disney Company [DIS]) as well as a smaller Salesforce (NYSE: Salesforce.com [CRM]). According to the experts, Twitter is about to "field the bids" this week, making the acquisition rumours closer than ever.
Salesforce was heavily criticized by investors for considering buying Twitter as the approximate sum of the bid, that is expected to be somewhere around $20 billion, would be too heavy to pull for a company with a current market cap of roughly $49 billion. In turn, for Google and Disney, the deal would be an easy buy considering their large market caps of $539.9 billion and $148.2 billion, respectively.
Some experts say that bidding for Twitter is a simply "dumb idea" of Salesforce and is very unlikely to be approved by the stakeholders, reports MarketWatch.
“While we believe there is a rationale for Salesforce to acquire Twitter, we are hopeful that given Salesforce’s negative stock price reaction to news that the company could be in talks with Twitter, that Salesforce will decide on the less risky path of organic growth,” said an analyst Frederick Grieb.
But it seems like Salesforce's CEO Marc Benioff is particularly fascinated with Twitter. According to the Wall Street Journal's sources, Benioff has referred to Twitter as an "unpolished jewel" that could open new frontiers for his company as a next stage of Salesforce growth. However, Benioff's idea has already been criticized by the analyst for being unreasonable in the current stage of the company's development. Buying Twitter means taking over its major problems related to the shrinking social media popularity of the platform that might be too hard to solve for a corporate-focused Salesforce.
If completed, this acquisition would be the biggest in Salesforce's history, costing close to a half of its market cap. In today's trading, Salesforce stock was down almost 7% reaching its 8-month low. Bespoke experts add that the company has already lost over $5 billion of its market cap in the past weeks after expressing the interest in acquiring Twitter.
In addition to that, the company has recently bought a startup Krux for $700 million and has spent over $4 billion on other acquisitions in the past few months, says IBD News.
"[The Krux deal] would take Salesforce.com's net cash to a negative $500 million, and would make it more difficult to pursue a potential Twitter deal that has been speculated in the media," said UBS analyst Brent Thill, as reported by IBD.
Some say that Salesforce is trying to make up for the disappointment of not winning LinkedIn (NYSE: LNKD) back in June when the social media was acquired by Microsoft (NASDAQ: Microsoft Corporation [MSFT]) for $26.2 billion. But anyway, it is obvious that Salesforce is in possession of substantially smaller resources than the other possible candidates and the deal is likely to put the company's business in danger. It will be clear in the coming weeks whether any company at all will place a bid high enough to convince Twitter's management to sell the company. But for now, the rumours are powerful enough to drag Salesforce stock down.