Salesforce CEO: Twitter Talks Part Of The Normal M&A Procedure

Although CEO Marc Benioff provided some insight into salesforce.com, inc’s CRM normal M&A procedure during an investor Q&A session, the rationale for pursuing Twitter Inc TWTR remains unclear, Jefferies’ John DiFucci said in a report. He maintained a Hold rating on Salesforce, with a price target of $80.

The share dilution from a Twitter acquisition could reduce Salesforce’s share value by an estimated $11.26, while increased debt would reduce value by $9.50-$20, depending on the price paid, analyst DiFucci mentioned.

Rationale Unclear

CEO Benioff’s “diplomatic response” to the Twitter deal indicated that the company actively evaluated several potential targets as part of their normal procedure, while not placing a bid for most of them. Such was the case with Twitter.

Related Link: Why Salesforce Needs An Independent, Confidential M&A Process

“Contrary to some investors' belief that CRM could greatly benefit from TWTR's pools of data, he rebutted that CRM is not looking to acquire assets for data...If the value in TWTR is not data, however, it's unclear to us what it is, and it's not obvious to us what acquisition synergies CRM would realize,” DiFucci wrote.

Expected Dilution

Assuming that Salesforce does not increase its share count by more than 20 percent, thereby avoiding a shareholder vote, the max value of stock that the company could to make the Twitter acquisition is $9.5 billion. Assuming the bid does not include any premium to Twitter’s current share price, Salesforce would need to take on debt of $8 billion, the analyst stated, adding “A higher price could require more leverage, which may be difficult.”

Share dilution would reduce the value of Salesforce’s shares by $11.26, while increased debt would reduce value by another $9.50, DiFucci added.

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