About those Twitter fairness opinions

Another day; another twist in the Elon vs Twitter saga. But even if Musk merely wants to re-cut the buyout price for Twitter to something well under $54.20 a share, the maths is going to feel awkward.

In the preliminary proxy statement filed by Twitter on Tuesday, the financial analysis of Goldman Sachs and JPMorgan that underpinned their respective fairness opinions to Twitter’s board were included.

These opinions help the directors satisfy their duty of care obligation, and make for fascinating reading here at FT Alphaville. We have summarised the banks’ valuation analysis in graphical format:

And here are Goldman and JPM’s underlying assumptions:

Here are the financial projections that Twitter’s management prepared. Note that these do not seem so great for supporting the $13bn of debt that Elon has raised, and are far lighter than what the New York Times reported Musk was marketing to potential co-investors, which included hitting $26bn (!) in revenue by 2008.

We’ll focus on the precedent transactions analysis, which we at FTAV Towers reckon is the most important valuation methodology because a) these are actual transactions that happened, unlike a theoretical DCF b) include a control premium, while the other methodologies represent standalone trading values.

Both firms picked identical benchmarks:

The lower bounds of Goldman and JPM are at roughly $50 a share. A renegotiated deal in the low $40s has been bandied about, but a valuation in this territory would then fall outside the range implied by these previous transactions.

That does not necessarily mean that Twitter’s board is prevented from exercising its business judgment in taking a lower deal price. Twitter’s results might suffer enough anyway in 2022 to reduce the Ebitda put against those precedent multiples.

But it is going to leave many shareholders unhappy.

Source: Financial Times