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Do You Need To Bet On Twitter After Microsoft-LinkedIn Deal? BMO Provides Insight

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Do You Need To Bet On Twitter After Microsoft-LinkedIn Deal? BMO Provides Insight

Shares of Twitter Inc (NYSE: TWTR) continued its rally on Tuesday after investors were optimistic that Microsoft Corporation (NASDAQ: MSFT)'s $26.2 billion agreement to buy LinkedIn Corp (NYSE: LNKD) may trigger another deal in the social media space.

'Sympathetic' Twitter

But, BMO said Twitter is up in sympathy, and is a very different social network. Unlike LinkedIn, Twitter is "consumer-focused and essentially entirely ad supported."

Related Link: Deutsche Bank Calls $26 Billion Price Tag For LinkedIn "Reasonable"

"While we can't rule out a run on beaten-down internet stocks in light of this deal, there's no reason, in our view, why MSFT buying LNKD should prompt a ‘competitive' response from another mega-cap tech company, as TWTR and LNKD are fundamentally different businesses," Daniel Salmon wrote in a note.

Competing Bids Unlikely

Further, the analyst doesn't expect competing bids for LinkedIn.

For salesforce.com, inc. (NYSE: CRM), the analyst said, "It would require bidding over half of its market cap, and salesforce.com's M&A track record includes nothing close to this size, instead focusing on smaller deals, such as Demandware Inc (NYSE: DWRE) last month."

Salmon noted that Facebook Inc (NASDAQ: FB) "would add to an already powerful portfolio of social networks, but is unlikely, in our opinion, as it would mark a significant move into enterprise, versus its current focus on the consumer market."

In addition, the analyst added that Alphabet Inc (NASDAQ: GOOG) (NASDAQ: GOOGL) would prefer to invest in its own Cloud offering to cater enterprise market.

The Bottom Line

BMO has raised the price target of LinkedIn to $196 (the purchase price) from $130. The brokerage has a Market Perform rating on the stock.

The LinkedIn acquisition is expected to close this year, subject to regulatory and shareholder approval. Microsoft is confident it will obtain regulatory approval in the United States, the EU, Canada and Brazil. Approval in Japan, China and South Korea is not needed. The termination fee is $725 million.

Related Link: Microsoft Is Betting On "Socializing The Productivity Suite"

"While we believed that LNKD had a strong opportunity to execute against its TAM independently, the 50 percent premium represents a good outcome for shareholders. We don't expect any regulatory issues and believe competing bids are unlikely (in part due to the sizable termination fee)," Salmon said.

At the time of writing, shares of Twitter were up 4.57 percent to $15.23 and LinkedIn shares were down 0.20 percent to $191.82. Microsoft shares were down 0.98 percent at $49.65.

Latest Ratings for DWRE

DateFirmActionFromTo
Jun 2016Deutsche BankDowngradesBuyHold
Jun 2016MizuhoDowngradesBuyNeutral
Jun 2016Canaccord GenuityDowngradesBuyHold

View More Analyst Ratings for DWRE
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