The race to acquire Twitter Inc (NYSE:TWTR), if there actually is one, just heated up with an unexpected entrant. Bloomberg is reporting that media and entertainment giant Walt Disney Co (NYSE:DIS) is preparing an offer, sending DIS stock off more than a percent on Monday. Disney joins rumored suitors Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) and Salesforce.com, Inc. (NYSE:CRM).
As was the case with Alphabet and Salesforce.com, Disney has not confirmed its interest. Bloomberg only cited “people familiar with the matter.” But it was enough for Wall Street, which sold DIS stock off immediately o
The Disney report rekindled a rally that carried Twitter stock 21% higher on Friday, adding more than 1% to its value on Monday despite starting the week out in the red following doubt-driven downgrades of TWTR stock. Oppenheimer downgraded Twitter stock to an “Underperform” earlier in the day, simultaneously lowering its price target to $17. Twitter shares last traded at $22.89.
Several Possibilities, Reasons
Chatter of a Twitter sale has been circulating off and on for months. Aside from Alphabet and Salesforce.com, former Microsoft Corporation (NASDAQ:MSFT) CEO Steve Ballmer has been pegged as a potential buyer, along with Microsoft itself.
Verizon Communications Inc. (NYSE:VZ) also has been suggested as a possible buyer. It recently made a successful bid for Yahoo! Inc. (NASDAQ:YHOO), indicating a deeper interest in internet properties.
Among all the legitimate contenders, Alphabet is the odds-on favorite, and seen as the company not only able to afford it, but the name that could do the most with Twitter. Its entry into the social media space, Google+, was essentially a failure, and Twitter would be strong platform from which Alphabet, under the Google umbrella, to try again.
Salesforce.com, conversely, wouldn’t likely integrate Twitter with its business line as successfully as Google could, nor could salesforce feasibly afford to what Twitter is apt to command in terms of an acquisition valuation. Some say Twitter is looking for $30 billion or more.
Walt Disney has the financial wherewithal to bid on Twitter, and knows it needs to move deeper into the internet space.
Even if it doesn’t yet know exactly why or how it could best do that.
Why Would Disney Buy Twitter?
DIS stock is struggling this year, posting double-digit losses amid a gain for the broader markets.
While Disney’s movies and theme parks continue to do well and while it’s part-owner of Hulu, ESPN and its other television properties continue to lose ground to a plethora of over-the-top television alternatives. Monness Crespi Hardt analyst James Cakmak explained of Disney’s alleged interest, “It’s a video distribution play. What Disney has to think about is what is its place in a post cord-cutting world. They are investing in technology for distribution — and this would give them the platform to reach audiences around the world.”
Albert Fried analyst Richard Tullo, in a note on DIS stock, commented, “On the surface a deal makes no sense but if you think streaming video is potentially disruptive to live sports then there is a strategic case to be made.”
It’s not a stretch. Twitter has now successfully broadcast two NFL games over its microblogging platform, reaching a couple million viewers each time.
While those aren’t numbers that would be satisfactory for ESPN, they do validate the notion that Twitter could be turned into a digital video venue.
Still, a social networking venue that needs a great deal of tweaking and would be competing with an increasing number of streaming video options isn’t exactly an ideal fit for Walt Disney. That doesn’t mean CEO Bob Iger isn’t going to pull the trigger anyway, though, if other possible suitors like Alphabet and Microsoft tarry.
That’s a very big if, however. Tullo added “Keep in mind Twitter is an expensive stock on virtually every metric, and if no one bids for Twitter then it could be a broken deal stock.”
In other words, the only thing propping TWTR up is a potential buyout.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.