Brean Comments On Microsoft-Salesforce

In a recent report, analysts at Brean Capital reiterated a Hold rating on salesforce.com, inc. CRM, setting a $70 fair value, amidst speculation about a potential sale of the company to a larger peer like Oracle Corporation ORCL, Microsoft Corporation MSFT or International Business Machines Corp. IBM.

The analysts say they “hesitate to respond to unsubstantiated press reports with unnamed sources” like last week’s Bloomberg report about the company being approached to be acquired.

However, since the stock moved substantially on the news, the specialists consider it is important to publish their work on the subject.

According to the note, analysts at Brean Capital “believe that it may in fact be accurate that Salesforce.com has been approached by a buyer.” Nonetheless, they also have discovered that “such a deal would be unlikely on both price/valuation - which prices most of the named buyers out of the market - with a Founder/CEO unwilling to sell without a substantial premium - and more importantly, after working with M&A lawyers, on regulatory issues.”

In addition, the firm questions that salesforce.com wants to, in fact, be acquired. Other questions raised by the report relate to regulatory issues.

Despite their doubts, the analysts play with the idea of Salesforce.com being acquired by Microsoft, a company that can afford the purchase. They say this is where they see “the most strategic sense, with over $95bn in cash and equivalents on the balance sheet and a historical appetite for M&A others may not consume like Skype and Nokia Devices. However, the co. is under a new commander, and just guided opex flat Y/Y last night, which we think would be a dubious move if they were about to embark on a deal that would highly decretive to opex (MSFT’s FY’16 op. margin is est. to be 30.5% and CRM’s is estimated to be 11.9%).”

What Makes Bren Capital Think That Salesforce May Not Be For Sale

To round up, the note provides some reasons to believe Salesforce is not interested in selling itself:

While they do note that Marc Benioff was at Microsoft’s BUILD conference on April 29, “and was out to dinner with Microsoft’s CEO and several other tech leaders the night before, just for fun, we [the analysts] checked out Marc Benioff’s typically active Twitter feed. We noted that activity does not appear suggestive of a man selling his prized hand grown company. In fact, his public Twitter feed has him over the past several days giving tours of a children’s hospital he is on the board of, looking at tech gadgets, talking with Jim Cramer on CNBC, going out to dinner with Cramer and some other friends, and other non-boardroom rush/deal activity type behavior. In our experience typically a person actively selling their company is hog tied with bankers.”