Take the news with the same grain of salt you took two weeks ago when Twitter Inc (NYSE:TWTR) was first rumored to be a buyout target. Twitter stock probably won’t be acquired after all.
On Wednesday evening, reports surfaced that Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) wasn’t interested in TWTR, and shortly after that, Apple Inc. (NASDAQ:AAPL) and Walt Disney Co (NYSE:DIS) were reportedly bowing out too.
That technically leaves Salesforce.com, Inc. (NYSE:CRM) and Microsoft Corporation (NASDAQ:MSFT) as potential buyers, but inasmuch as the market hates the idea of Salesforce acquiring Twitter coupled with the fact that Microsoft was never quite deemed a likely suitor, it’s reasonably safe to assume a Twitter deal isn’t apt to happen.
Twitter stock is getting creamed on the unexpected turn of events, of course. TWTR was up 33% since two Thursdays ago on the near-certainty that a buyout was in the cards, Today, Twitter is off 17%, giving up the bulk of the gain it had achieved on the heels of the acquisition rumors.
And absolutely no one has an excuse to be surprised today.
Red Flags All Around
It’s admittedly easy to be a Monday morning quarterback when looking back on the chain of events and realizing little of it made sense. But through an unbiased lens, even the most diehard fans and followers of TWTR who were counting on a deal have to concede there was something not quite right from the get-go.
Three red flags stand out. In no certain order:
1. Buyers were named before a deal was announced
It’s not to say nobody has ever successfully predicted an acquisition by a particular suitor. However, most deals are done without any public forewarning — to prevent the very thing that happened from happening. That is, Twitter stock soared before a buyout materialized. That might have priced Twitter out of the very M&A market that shareholders were counting on. Most buyouts are announced after a decision has been made, and closed quickly on strong upfront terms to prevent a bidding war from ensuing.
2. The initial rumor was suspiciously vague
CNBC was the first to break the story, but a re-read of that story leaves one wondering how the market went from “Twitter shares surged Friday after sources told CNBC that the ailing social media company moved closer to being sold. The sources said the company has received expressions of interest from several technology or media companies and may receive a formal bid shortly” to figuring out which of the presumed suitors was going to write a check first.
Unnamed sources, expressions of interest and “may receive a formal bid shortly” deliberately remove any shred of accountability for the folks spreading the message.
3. Twitter was only entertaining offers it knew it wouldn’t get
Truly motivated sellers price their goods low enough to keep legitimate buyers interested. If the seller isn’t actually looking to sell, they simply keep the price exceedingly high to prevent an offer from being made.
Twitter has not publicly disclosed a specific desired buyout figure. But a couple of different sources both said the company was hoping for something at or above $30 billion. Such a value would price TWTR stock around $40 for a buyer, despite the fact that Twitter’s user growth has all but stalled and it’s still bleeding cash.
Bottom Line for Twitter Stock
With all the would-be (and qualified) buyers opting to go home empty-handed, the obvious follow-up question is “What’s next?”
In simplest terms, Twitter just burned a bridge (or several), and now has to succeed on its own or die trying.
Right or wrong, egos aren’t just a personal problem. They’re a professional problem, too. Twitter CEO Jack Dorsey’s best “out” of a bad situation was a buyer that was able to fix what ailed it. He probably won’t get another chance like he just had, yet he turned a savior down anyway by making it impossible for anyone to be interested.
Likewise, the chiefs of Alphabet and Disney are also apt to be feeling a bit wounded today. Their failure to deliver something many of their shareholders wanted puts them in a tough spot, and they’re certainly not going to set themselves up for the same frustration again in the future. Rather, Alphabet is reportedly taking another shot on home-grown social media. Disney may end up acquiring Netflix as its next big project.
They won’t need Twitter if those things take shape.
Whatever the case, Twitter still has no apparent answers for its slow-growth and monetization headwinds, and now it has no support from a teammate that could have helped on that front. Ergo, owning Twitter stock just became a binary, all-or-nothing affair.
That certainly makes for great trading, but it’s certainly not investing.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.