Salesforce.com Stock Could Drop 25% on Twitter Buyout

By Douglas A. McIntyre Updated Jan 13, 3:12AM EST · Published Sep 25, 9:14AM EDT

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Salesforce.com Stock Could Drop 25% on Twitter Buyout — © Thinkstock

Twitter Inc. (NYSE: TWTR) may or may not be for sale. Salesforce.com Inc. (NYSE: CRM) may or may not be the buyer. If Salesforce does make an offer for Twitter at slightly above the current price of $23 (which surged over 20%) on the rumor, its shares could drop 25% from $70 to $52, which is close to their 52-week low.

The simplistic view of the drop is that Salesforce’s market cap is $48 billion. Twitter’s is $16 billion. Dilution. Salesforce only has $1.5 billion in cash and securities on its balance sheet, so it would have to use stock or borrow an extraordinary amount to money.

In addition to the price, Salesforce would have a very hard time justifying how Twitter would help its core businesses.

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A thin explanation offered by CNBC is that because Microsoft Corp. (NASDAQ: MSFT) bought LinkedIn Corp. (NYSE: LNKD) and Salesforce badly wanted it, Twitter is an excellent second prize:

“The fact that they went after LinkedIn opens a Pandora’s box to the fact that they’re interested in internet assets,” said Neil Doshi, an analyst at Mizuho Securities, who has a neutral rating and $15 price target on Twitter. “This seems one degree further from the LinkedIn business, which has a real enterprise solution.”

The “Twitter is an advantage school” is in a minority. As MarketWatch pointed out:

… buying Twitter does not appear to make much strategic sense for the cloud computing company. Salesforce already has a deal with Twitter, in which its sales-force customer base uses Twitter’s vast amounts of data for lead generation in real time.

That is by far a set of reasons for the deal not to be done. Salesforce would put its shareholders at risk for a huge drop, not only because of the market cap relationship, but simply because it is a bad deal.

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.