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Elon Musk 'trying to renegotiate a lower price' for Twitter: Analyst

Jefferies Equity Research Analyst Brent Thill joins Yahoo Finance Alive to discuss the expectations for Elon Musk's Twitter takeover amongst accusations that the social media platform has made against him.

Video Transcript

BRIAN SOZZI: Elon Musk's Twitter saga continues today afterward claiming Twitter's legal team accused him of violating a not-disclosure agreement when tweeting nigh the company's automated users review process. This is just the latest in a string of controversies surrounding Musk'due south potential buyout of the social media platform.

Joining united states at present to discuss is Jefferies annotator Brent Thill. Brent, always good to see. Y'all really enjoyed your note out on this. You mentioned in that notation, Brent, that Musk might exist trying to negotiate a lower cost for Twitter. So my question to you lot is, inside of this bear market place in tech, what is fair value for Twitter?

BRENT THILL: Yep, I think right now the whole tech market'south in a massive selloff. And when he struck this transaction, obviously we saw signs of weakness for the tape. But ultimately, no i believed it would become as bad every bit information technology'south gotten. Then right now we're seeing stocks trade at single digit multiples on EBITDA, in low double digits on earnings, which is kind of unheard of that we've seen in the concluding decade for tech.

I mean many have said the downside for Twitter effectively could be in the low $30s if this fell through. And clearly, we believe he'due south simply trying to negotiate a lower price. There's been all kinds of public filings that accept said that the bots are less than 5% of users. That's in the filings. And and so I don't know what the controversy is there. The only manner you could spin this is that he's trying to renegotiate a lower price based on what's happened to the overall tech market.

Our conventionalities is we're not done with the pressure on tech. Nosotros yet retrieve there's downside relative to historic multiples. And so over again, I think what we've seen is just pretty violent moves on the up and vehement moves on the downwardly. And even while we all retrieve if he walked away, it would go to the low $30s, in this record, I wouldn't rule out anything, because nosotros've seen everything overshoot even on the down relative to what we consider more bearish levels.

So really unclear and again, I think we've never really seen a situation like this where a takeover candidate is publicly commenting on data. And then this is just, it'due south just been a roller coaster. Manifestly, many investors are at this point, viewing it as uninvestable at this point, given it feels like he's set to walk away.

JULIE HYMAN: And Brent, it'due south Julie hither. Given what you're saying and given the stock activeness that we've seen, is $54.twenty overpaying for Twitter?

BRENT THILL: I remember at this point, given what's happened to the tape, the multiple, nosotros all call back the multiple'southward outrageous relative to historic M&A in tech. Merely given what's happened in the short term with the tech market, I think ultimately many would say yes. Now if he can prove that this internal review of the users is actually, in that location'south a higher bot count, then perhaps he could say, well, I'm coming back to the tabular array and renegotiating down $x, whatsoever the number is. I'chiliad making the number up.

Simply the point is, I think ultimately valuations have all gone lower and we keep to be in the slide. And then $54.20 is probably again, the higher finish at this point. I recall many of usa thought when the deal was going through that we'd run into somewhere in the loftier $50s. So I retrieve anybody's kind of bracketed the transaction somewhere between the loftier $50s to depression $30s. And again, it really depends on the shape of the curve of their overall business concern, of the overall market place and the tape, and the tape has gotten violently negative since this happened.

And so it'south non a shocker to see him trying to walk things down. Again, he says he'southward committed, but clearly, when you have public filings that all y'all have to do is to a quick search, you can notice the bot argument within their filings, they've commented, it'due south less than 5%. And so I don't understand why you would put it on hold for that. Conspicuously, anybody thinks that there'south something deeper going on that nosotros tin can't see. And that's what he's trying to do, is throw up a flare so that he tin stall the process out.

BRAD SMITH: And then with that existence the case right now, if by happenstance this does get thrown bated and it doesn't go through, at to the lowest degree with Musk as a buyer, are there other companies that y'all imagine could boot the tires on a lower priced deal for Twitter?

BRENT THILL: Well, nosotros know historically in that location take been a lot of tech companies that have been interested. Salesforce kicked the tires and investors are like, get off the parking lot, we don't want you in this auto! And that was a pretty clear statement from salesforce.com shareholders. I'chiliad not maxim Salesforce will do it.

The signal is, in that location's I think a lot of potential strategic acquirers. The 2d camp you have to think about is the billionaire club and who are the other potential buyers with another community of buyers. I think private equity certainly could look at this. I hateful, there's a number of camps that could practice it.

I think the challenge right now is, there'south so much inventory in tech on sale, and we're likely to get worse on fundamentals than better as nosotros caput into a recession. Ultimately, I think many investors believe once more, and Jefferies firm view is, that if the economy is slowing into '23, that ultimately, we're going to get a meliorate shot on goal, if you will, on the price. So I don't really meet anyone kind of waiting gear up to leap out of the bushes and say I want it. That'south not what we see right now. And clearly, I call back during the process that went through, the fact that no i came to save them on the $54.20 tells y'all a lot.

There wasn't really anyone else out there that was willing to brand the move. So certainly, again, assuming the deal falls autonomously, stock goes to low $30s, we'll run across at that bespeak. Once again, I don't see anyone at this point. And certainly given the macro environs, why not wait? Why not give yourself 6 to 9 months seeing what's happening with advertisers in a recession? And we know that the commencement dollar is that gets shut off in a recession are ad dollars. And that'southward Twitter's, that'southward Twitter's revenue stream right now.

BRIAN SOZZI: Brent, how much damage is this saga doing to the fundamentals of Twitter? Let's look at a product person inside of Twitter. How can you lot feel motivated to go to work every 24-hour interval and create some form of interesting new production if you don't know you won't have a chore in six months?

BRENT THILL: Exactly. I mean, you nailed it. I mean, it's, I can't imagine. It'southward kind of like living in a washing machine right at present. You're constantly on a spin bike. And at this point, I think, I judge the other side of this is, that nosotros're seeing layoffs in tech, we're seeing valuation downside. Then we're seeing a lot of that in other places, but I think this is pretty astringent in terms of the sentiment.

We've already seen a number of senior executives leave. We've had a couple of our companies that we cover inside the rest of the tech manufacture hire executives out already. So I call back you're already seeing execs check out. They're like, I don't want to, I don't want to be in for the spin cycle. So this is simply going to make information technology worse.

And when you look at the comments that he says where he wants to get the company, like, what I don't go, is he lays out this incredibly bullish outline and then says the deal'south on concord because of this? Similar, that's what I call up is so counter. And I think it'due south really unproductive for the morale and for the squad within this company. I tin can't imagine going through that. Certainly wouldn't go through information technology. I wouldn't stand for it, because if you look at these statements that he's made about trying to get the subscription business concern and the ad business at a certain level, the number of users,

I hateful, all these targets, they're never going to hitting information technology. In that location but never going to hit it. And we published a notation highlighting why. Yous expect at these subscriber numbers for a new service, I mean, Disney Plus is like, you know, once more, we've drawn the comparing that they're non even at the target, and they're Disney.

And then these big iconic brands, I recall this is going to be very, very hard both from a perspective of trying to meet the goals if he wants to come across them, and and so secondarily right now, the more than he stalls on this, the more morale gets tough, the product quality has already been challenged. We've been talking about this for years.

The Twitter product is not where it needed to be, and that's why he's involved. And we think he tin can work wonders. And so I'd say, look, permit's get rid of the sideshow, let'due south just proceed moving forward, try to keep this on track if he really wants to become this washed and endeavour to become this deal closed and then that they can move on to the next chapter.

BRIAN SOZZI: Brent Thill, Jefferies analyst, ever good to see y'all, great insights, we'll talk to y'all before long.

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Source: https://finance.yahoo.com/video/elon-musk-trying-renegotiate-lower-142835655.html

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