Elon Musk's $44bn takeover of Twitter Inc (NYSE:TWTR) should close next week, as the world's richest man getting his financing and cost cuts ready in the same week that the social media group publishes its earnings.
Musk has to get the Twitter deal done by next Friday, October 28, which is the date imposed by the Delaware Court as the hard deadline. Earnings are due from the group on Tuesday.
The main hurdle is currently the structure of the financing, said analysts at Wedbush, who are confident the deal will be done next week, even though Musk continues to seek outside financing to help him close the deal along with current $12.5 billion debt financing.
The Wedbush analysts said: "It's pretty simple, the more investors that bail on this deal is the more money that Musk needs to contribute and therefore sell more Tesla stock. This continues to be a brutal situation for Tesla investors to bear the burden as we believe Musk might need to sell an additional $5 billion to $10 billion range to fund this deal depending on the financing talks this week/weekend."
READ: Twitter tells employees there are no plans for massive layoffs after reports Elon Musk looking to chop 75% of its staff
They added: "As we have discussed the $44 billion Twitter price tag is simply a train wreck for an asset that we peg fair value in the $30 billion range best case in the midst of Everest-like uphill growth challenges. Free cash flow for Twitter remains very underwhelming which makes this a very difficult LBO candidate with banks likely on the hook for most of the debt portion of the deal."
The analysts noted that the Washington Post reported that Musk would potentially cut roughly 75% of Twitter employees once the social media firm is under his ownership.
They said: "Clearly, massive headcount cuts and expense controls need to take place on a leveraged $44 billion deal and Twitter is long overdue for expense reductions given the lack of growth. However, Musk cannot cut his way to growth with Twitter and a number in the 75% zip code would be way too aggressive in our opinion out of the gates and potentially set back this core platform for years before the 'X App' strategy takes hold."
On the debt topic, the analysts said it is important to note that the banks are essentially cemented to the Twitter debt deal and they see no way out despite the very tough debt markets currently.
The analysts noted that the recent Citrix debt deal has clearly made investors nervous, but they do not see this debt situation falling apart and thus giving Musk "a way out" of the Twitter deal with a minimal breakup fee despite the noise.
The Wedbush analysts concluded: "We continue to believe the Twitter deal gets done next week. The easy part for Musk was buying Twitter, the herculean task will be fixing it in the years to come."
They repeated their $54.20 deal price target and 'neutral' rating on Twitter, with the shares currently changing hands for $50.23.
Contact the author at jon.hopkins@proactiveinvestors.com