Twitter's drop to lowest since IPO may lure takeover offers

Twitter Inc management's tough talk may be turning the company into a takeover target.

Shares slumped 5.6 per cent on Monday to $29.27, the lowest price since the company's November 2013 initial public offering. The move pushed Twitter below $20 billion in market value, making it more attractive to potential acquirers like Google Inc., investors said.

"Sometimes a dip in trading price of a stock can be a triggering event for deeper M&A discussions," said Ted Hollifield, co-head of the venture and merger and acquisition practice at Alston & Bird LLP in Menlo Park, California. He holds Twitter stock personally. "If you were to go down a list of large tech companies with big cash piles, many of those names would make a lot of sense to at least have casual engagement with Twitter now."

Last week, Jack Dorsey, Twitter's interim chief executive officer and co-founder, and Chief Financial Officer Anthony Noto warned that it will be a while before the social media company stems a slowdown in user growth. They also noted that demand from advertisers missed their expectations. Meanwhile, Twitter is conducting a search to replace former CEO Dick Costolo.

"Their comments could be suppressing the stock price for a reason, because their strategy is to be acquired," said Jeff Sica, president of Sica Wealth Management, who has clients who hold Twitter.

"I'm advising anyone that owns Twitter to hold, because I do think at this point there's going to be an acquisition." Jim Prosser, a spokesman for Twitter, declined to comment.

Even at these levels, Twitter with a small premium would probably be the largest acquisition ever for Google or Facebook Inc. Facebook last year acquired WhatsApp Inc., a messaging application, for $22 billion. Twitter has been increasing its ties with Google, making a deal earlier this year to display tweets in search results and partnering with Google's Doubleclick ad product.

Josef Schuster, whose firm, Ipox Shuster LLC, holds Twitter shares, said the company has further to fall before it becomes an attractive target. The company's stock may fall as low as $17, he said.

"That's a level that could attract some more interest," Schuster said. "It makes more sense for Google to buy than for anybody else, but it needs to settle first."

In order for Google's 2016 earnings to benefit from an acquisition, Twitter's price would have to drop to $11.16 a share, according to data compiled by Bloomberg. For Facebook's earnings to benefit, Twitter shares would only need to drop to $20.78.

Competitors are looking at some of Twitter's assets: its employees.

Two product executives announced their departures on July 28, the same day the company reported earnings. Todd Jackson, who helped Twitter debut its Highlights product, left for Dropbox Inc., while Christian Oestlien, who helped drive growth, is going to Google's YouTube. Trevor O'Brien, also in product leadership, announced his departure a few days later. The leadership quandary extends to the top seat. Dorsey and Adam Bain, the current head of revenue, are considered the top contenders for the CEO job. Dorsey also runs Square Inc., a mobile-payments startup, and Twitter's search committee has said it's not going to pick someone who isn't a full-time CEO.

Bain built Twitter's advertising business from nothing, but has never been a CEO.

Without a clear path to a leader who can help Twitter accelerate user growth, "the only strategy that will work for them is if they're acquired," Sica said.