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Salesforce Could Have A Hard Time Getting Shareholders To Vote For A Twitter Buyout At Its Current Price

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Salesforce Could Have A Hard Time Getting Shareholders To Vote For A Twitter Buyout At Its Current Price
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Yun Kim of Brean Capital believes if salesforce.com, inc. (NYSE: CRM) bids for Twitter Inc (NYSE: TWTR), it would be lower than at its current share price, and in such case, it may have a tough time in getting the votes of Twitter shareholders for the potential deal.

The comments came after CEO Marc Benioff did not provide a clear answer to the company's current rumored interest on Twitter at the recent Q&A session with investors.

M&A Q&As

Although Benioff acknowledged the company's interest in Twitter's assets and has evaluated the business, it is unclear whether the evaluation is still ongoing and whether a final decision is close.

Related Link: Are We Sure Salesforce Could Buy Twitter Even If It Wanted To?

Kim said if salesforce decides to acquire Twitter, it may have to finance the deal by issuing a significant number of shares, which could trigger a shareholder's vote if it leads to more than 20 percent dilution.

"Assuming CRM can take on maximum debt of about $8 billion, we estimate that the bid for TWTR cannot be higher than the current share price without a formal shareholder approval process," Kim wrote in a note.

"In our view, if CRM were to have an interest in pursuing TWTR, we believe the potential bid could be meaningfully lower than the current share price, which may have a difficult time getting an approval from TWTR's board," Kim continued.

Meanwhile, the analyst expects salesforce shares to be pressured if the company decides to acquire Twitter at "any price" due to the high risk associated with "such large transformational deal."

Near-Term Risks

Hence, the analyst still sees near-term risks related to this potential acquisition scenario, although the CEO's comments may have tempered some of the concerns about the company pursuing this asset at any price.

Moreover, Kim is wondering whether salesforce is undervaluing the monetization potential of the social media content as Benioff's said salesforcer's interest in LinkedIn Corp (NYSE: LNKD) was simply based on the value of its deferred revenue balance rather than the value of its data.

In addition, the company unveiled its artificial intelligence platform, salesforce Einstein. Einstein will be part of the company's platform, along with Thunder (IoT) and Lightning.

Rating And Recent Stock Movements

Kim has a Buy rating and target price of $110 on the stock.

Shares of salesforce closed Wednesday's regular trading at $68.42 and Twitter shares closed at $24.87. However, Twitter shares plunged 17 percent in the pre-market hours to $20.65 on the prospect that the social media company may get a bid lower than its share price.

At last check, salesforce was up 3.84 percent at $71.05. Twitter was down 19.26 percent at $20.08.

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Latest Ratings for CRM

DateFirmActionFromTo
Feb 2017NeedhamInitiates Coverage OnHold
Jan 2017Pivotal ResearchDowngradesBuyHold
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