First it was Salesforce (NYSE:CRM) and Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL). Then it was Salesforce, Alphabet, Disney (NYSE:DIS), and Microsoft (NASDAQ:MSFT)... and oh wait wasn't Verizon (NYSE:VZ) in the mix too?
It's been hard to keep track of all of Twitter's (NYSE:TWTR) rumored buyers.
Given that little ink has been spent following up on any details about interest from Verizon and Microsoft -- on top of the fact that the two companies are on the hook for a combined $31 billion for deals already reached in 2016 -- let's assume those two companies are out too.
Realistically, it's down to just Salesforce, at least for now. My guess is the company's CEO Mark Benioff couldn't be happier. The company's chief executive hasn't been quiet about his interest in Twitter since rumors started swirling in late September.
With all the deep-pocketed competition leaving the table, Benioff and company might be able to take Twitter at a much more reasonable price, absent any venture capital interest.
Unfortunately, even a toned-down offer for Twitter is still a stretch for Salesforce.
A look at the books
Salesforce has just over $1 billion in cash and equivalents on the balance sheet, and the business' $2.5 billion in total debt amounts to about 40% of the company's equity.
As I'm writing this, Twitter is a $17 billion company. Even with no one bidding against them, Salesforce will likely have to pay over $20 billion to make a deal happen.
So how does a company with $1 billion in cash pay a $20 billion tab?
Debt and dilution
The most likely scenario is that Salesforce would scrounge up the necessary funds through a combination of cash gained via debt and shares of Salesforce.
For the sake of simplicity, let's say they split the bill even, $10 billion in debt, $10 billion in stock.
- The company's total debt load increases five-fold, and Salesforce's debt balloons to twice its current total equity.
- Based on the current share price, the company issues nearly 150 million shares, increasing total shares outstanding (and diluting existing shareholders) by 22 percent.
The actual terms of a potential offer will undoubtedly be different, but even the 50/50 scenario above looks ugly on both sides. With an offer at each end of that spectrum, you end up with either an extremely levered Salesforce or an extremely diluted group of shareholders.
All of this financial hoop-jumping-through and shareholder disruption for a company that has issues of its own, doesn't clearly fill a need, and would push Salesforce's recently profitable business back into the red.
The acquisition would be a massive bet on Salesforce's ability to turn the "unpolished jewel" into a monetization machine for the customer relationship management company.
That's no guarantee, but current shareholders can be sure if a deal goes through, they'll feel the pinch.