Why SoftBank Might Acquire Twitter

| About: Twitter, Inc. (TWTR)


On Thursday, SoftBank and Saudi Arabia announced a $100 billion tech investment fund.

The Prince of Saudi Arabia owns 5.2% of TWTR.

Founder and current President of Softbank Masayoshi Son said he wants to get into social media "one way or another" in a 2014 Charlie Rose interview.

Previous COO of Softbank said he would be interested in buying TWTR at "the right price" in July 2015 (TWTR down 51% since then).

Masayoshi Son will be visiting Santa Clara (40 miles from TWTR HQ) on Tuesday, October 25th.

Recently, Twitter (NYSE:TWTR) stock has been hammered as acquisition interest appears to be scant and Marc Benioff publicly announced that Twitter wasn't the right fit for Salesforce. However, SoftBank (OTCPK:SFTBY) could be a potential bidder for Twitter.

First, it appears SoftBank has previously been interested in Twitter.

In his March 10, 2014 appearance on Charlie Rose, Masayoshi Son (founder and president of SoftBank) was asked if he would get into social media and responded, "One way or the other, yes. Yah, one way or the other." (Full interview)

When asked at a FortuneTech conference on July 15, 2015 if he would be interested in acquiring Twitter, Nikesh Arora (now former president and COO of Softbank) said, "At the right price."

Since then TWTR has fallen 51%. Logically, it would make sense that Twitter may be of interest to Softbank at this lower price.

What's even more interesting is that on Thursday, Softbank suddenly announced a $100 billion tech investment fund with the hopes of becoming "the biggest investor in the technology sector." Details on the agreement are scarce, but it appears Softbank will contribute $25 billion, Saudi Arabia will contribute $45 billion over the next five years, and outside groups may contribute the remaining funds. According to the Financial Times, Softbank will be targeting to invest $20 billion per year over the next five years.

Twitter would be the perfect size for an acquisition.

Saudi Arabia's involvement in the fund is also a clue. The Saudi Prince Alwaleed bin Talal owns 5.2% of Twitter and his support of a deal could help in passing a shareholder vote, especially if management opposes a deal.

Furthermore, Masayoshi Son will be speaking at an ARM TechCon on Tuesday, October 25th, which is being held 40 miles from TWTR HQ. This could provide the perfect cover for Masayoshi Son to finalize negotiations over next weekend (22nd-23rd) without arousing suspicion.

Why would SoftBank, a Japanese conglomerate, be interested in Twitter? Because Twitter is wildly popular in Japan. In fact, Twitter added a new line in its most recent 10-Q, "No individual country from the international markets contributed in excess of 10% of the total revenue for the three months ended June 30, 2015 and the six months ended June 30, 2016 and 2015. Japan accounted for $61.2 million, or 10%, of total revenue for the three months ended June 30, 2016." (Page 23 of most recent 10-Q) Also, Masayoshi Son is the 9 th most followed person on Twitter in Japan with over 2.5 million followers.

Two groups, SoftBank and Saudi Arabia, that have expressed interest in Twitter in the past, suddenly have formed a huge tech investment fund as Twitter is rumored to be on the auction block. Masayoshi Son will be in Santa Clara next week. Coincidence?

Disclosure: I am/we are long TWTR.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Many of the arguments made in this article were originally made by user @1971Capital on Twitter.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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