Twitter Deal Unlikely, But Might Still Trade At An M&A Premium

Twitter Inc TWTR shares moved up 20 percent on September 23 following press reports that the company had initiated discussions with several media and technology companies that could lead to a formal bidding process.

Citi’s Mark May maintains a Neutral rating on the company, with a price target of $16.

Rationale For M&A

“While we see some strategic rationale for certain companies to acquire Twitter, the company's struggles and steep valuation make a deal at a meaningful premium - especially from here - less likely in our view,” May mentioned.

The analyst believes that given the current share price, a potential bid could go up to $26, representing 15 percent upside.

Related Link: Disney Unlikely To Acquire Twitter Based On Past Deals

However, if a bid does not materialize, the stock is likely to decline to the lows seen in late May, given Twitter’s stagnant user growth, deteriorating financial and potential for further downside to the consensus expectations.

In the near term, however, May expects the stock to continue to trade at an M&A premium.

Bid Price

“Though a Twitter transaction does screen as being possible from a strategic and financial perspective, we would consider the valuation at $26 per share as being aggressive,” May went on to say.

The analyst believes a private equity transaction would be unlikely, given Twitter’s free cash flow is meaningfully supported by the company’s ability to use SBC as a currency, an ability that would disappear if Twitter is taken private.

Full ratings data available on Benzinga Pro.