After months of haggling, Elon Musk and Twitter (TWTR) expect to finalize a buyout agreement next week, news reports say. Twitter stock was down Friday.
According to a report from the New York Times, talks between the two sides have turned cordial and focused on closing the transaction on Oct. 28, rather than through litigation, people familiar with the matter said.
What happens after that is in the hands of Musk. He tried to pull out of the deal. But Twitter pushed Musk to move forward with his original offer to buy the company for $44 billion.
Twitter stock fell 4.9%, closing at 49.89 on the stock market today.
A New Service Called The X App
What might Musk do with the company? In an enigmatic tweet in May, Musk wrote of creating a new service called X. He called it “the everything app.”
The closest thing to an everything app would be WeChat, the most popular app in China, owned by Tencent Holdings (TCEHY).
People use WeChat for text messaging, a social media platform, voice communication, video conferencing, games and a mobile payment system. It has more than 1.1 billion users.
“WeChat 2.0 is his goal,” Wedbush analyst Dan Ives said in an email to Investor’s Business Daily. “But it will take massive efforts to move the needle and likely not till 2024 at the earliest.”
What Will It Mean For Twitter Stock?
A concern among investors is what will a Twitter deal mean for Tesla stock. It’s down 44% since Musk, the chief executive of Tesla (TSLA), revealed a 9% stake in Twitter in early April.
Then Tesla stock dropped more than 12% on April 26, the day after Musk and Twitter reached an agreement for Musk to take ownership of the company.
Musk has sold billions of dollars in Tesla stock in order to help finance the deal.
“This continues to be a brutal situation for Tesla investors to bear the burden,” Ives said. “We believe Musk might need to sell an additional $5 billion to $10 billion range to fund this deal, depending on financing talks.”
Twitter Stock: Free Cash Flow Underwhelming
Ives went on to say: “Free cash flow for Twitter remains very underwhelming which makes this a very difficult leveraged buyout candidate with banks likely on the hook for most of the debt portion of the deal.”
Also, a report by the Washington Post on Friday said Musk told prospective investors that he planned to get rid of nearly 75% of Twitter’s 7,500 workers, whittling the company down to a skeleton staff of just over 2,000.
“Clearly, massive head count cuts and expense controls need to take place on a leveraged $44 billion deal,” Ives said. “Twitter is long overdue for expense reductions given the lack of growth.”
“However, Musk cannot cut his way to growth with Twitter,” he added. “A number in the 75% range 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.”
Twitter stock has an IBD Composite Rating of 72 out of 99.
Please follow Brian Deagon on Twitter at @IBD_BDeagon for more on tech stocks, analysis and financial markets.
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