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Strategies & Market Trends : Speculating in Takeover Targets
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To: richardred who wrote (3966)6/14/2015 4:45:17 PM
From: richardred  Read Replies (1) of 7066
Apple/Twitter anyone? Google needs a new fixer upper project.

With Costolo Out, a Sale Might be Next for Twitter

As Twitter struggles to reinvent itself after the departure of chief executive Dick Costolo, the path forward might include a sale.

Twitter’s departing chief executive Dick Costolo hasn’t even left the building, and already some tech experts are talking takeover. Costolo announced Thursday he will step down July 1.

Of course, Twitter takeover talks are nothing new. Since the social media microblogging site went public in 2013, it has produced less than desired results for shareholders, including tepid user growth and earnings. But the company still has incredible value as one of the premier social media properties, and could find a happy home within a much larger company.

Here’s what Deutsche Bank had to say in a research note, out Thursday:

While most investors were eager to see CEO Dick Costolo step aside, we think he deserves much credit for scaling the business from $3B in value to over $25B over his six-year tenure, a feat few others in consumer internet can match. Further, the CEO dislocation coupled with no super-voting share structure, a board somewhat on the defensive, lots of potential asset value, and the current environment of cheap money--leads us to think [merger and acquisition] from a strategic [perspective] just became slightly more possible.

Deutsche Bank notes that, unlike Facebook and other tech peers, Twitter lacks a two-tiered common stock structure, which was the subject of a proxy vote at Facebook on Thursday. An absence of such a structure, makes Twitter an easier takeover target, some argue, because owner control is less concentrated.

The $100,000 question is who would bite. Here are some possibilities:

  • All eyes turn to Apple, which has the money. But it might not crack open its $178 billion hoard to fork over $33 billion for Twitter, its current valuation. True in 2013, it acquired social media analytics company Topsy Labs for $200 million. But social media does not appear to be a strong strategy for the consumer electronics maker.
  • More theories swirl around Google, with which Twitter recently inked a deal to rank tweets in Google searches. A mashup with Google Plus could bolster its own flagging social media endeavors.
Venture capitalist Ross Fubini, a partner at Canaan Partners, in Menlo Park, California, says the two companies have a lot better synergy elsewhere. And Twitter could ultimately become a network through which Google could serve its massive advertising inventory.

“The powerful thing about Twitter is the fact that it is a network for connecting consumers,” Fubini says, adding it has additional value as a destination replete with brands and celebrities. That could also make it appealing to a traditional media company such as Time Warner.

  • And then there’s Facebook. The company has $11 billion in cash on hand, and it’s shown an appetite for expensive purchases, such as its 2014 acquisition of mobile messaging application WhatsApp for $19 billion. And the two have reportedly been in talks before, which broke down over price, the first time in 2008 when Twitter had a valuation of a mere $500 million. More recently, price appears to have been a sticking point as well.
  • Don’t count out Microsoft either. The software company has shown more interest recently in hardware companies like Nokia, for which it paid $7.2 billion in 2014. But its 2012 acquisition of Yammer, known as the “Facebook for business,” for $1.2 billion shows it has some interest in social networking.

Finally, a merger of Yahoo and Twitter might be possible. “If you put Yahoo and Twitter together it would be the most powerful force in the media business,” former Yahoo chief executive Ross Levinsohn said in January. Who would buy whom is a matter of some debate, but Levinsohn said the two companies held informal talks about ways to combine the two media businesses in 2012.

In the short term, however, what’s likely to happen is that Twitter will bring on a new chief executive, and one with product development experience similar to Yahoo chief executive Marissa Mayer, technology experts say, and then look to sell itself after building audience share and active viewers. Speculation has swirled around an acquisition by Twitter of Flipboard, the social magazine app, which would give Twitter access to CEO and tech entrepreneur Mike McCue, also a former Twitter board member.

“McCue would be exceptional, and a great outcome for Twitter,” Fubini says.

Published on: Jun 12, 2015
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