Musk Parting From Twitter Purchase, but Twitter Stock Remains Attractive
Lowering fair value to $47.
Elon Musk and his legal team stated in a filing on July 8 that Musk has decided to terminate the agreement to purchase Twitter for $54.20 per share. The filing stated mainly lack of user data from Twitter as the reason behind the decision. Twitter responded that it would take legal action against Musk to make sure the deal goes through. While the two parties likely are facing a lengthy battle of which the final decision remains very uncertain, we believe Twitter may have the stronger case. We also think that a scenario remains where Musk and Twitter reach a new, lower-price agreement. Plus, with the stock trading at levels at which Musk initially began to purchase, other parties may take an interest in Twitter.
We remain confident that the firm will continue to grow revenue (albeit at a lower rate than we had assumed before Musk’s offer) and expand margins. We are lowering our fair value estimate to $47 from Musk’s bid of $54.20 (which was slightly below our previous fair value estimate of $58 before the offer) as we expect Twitter will likely face distractions that set back its efforts to grow revenue and expand margins. Our fair value estimate still implies attractive upside, but patience may be needed.
Ali Mogharabi does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.