Musk's Twitter offer unlikely to succeed as board may view plan 'with horror': Rosenblatt

Theo Wargo/Getty Images Entertainment

Elon Musk's proposed offer for Twitter (NYSE:TWTR) is not likely to succeed in its current form and is likely to be tweaked if he wants to succeed, investment firm Rosenblatt said.

Analyst Barton Crockett started coverage on Twitter (TWTR) with a neutral rating and a $48 price target, noting that Musk's offer of $54.20 per share in cash is not a "premium." Additionally, his approach is likely a "turnoff" to its board of directors and as such, Crockett does not expect him to prevail.

Twitter's (TWTR) board has "solid anti-takeover protections," Crockett added, including a poison pill, staggered board terms and limits on the ability for shareholders to bring measures to its board.

With the company having named Parag Agrawal its Chief Executive in November, it's likely that they believe in his plan to turn the company around.

"The board probably views Musk's musings on what he wants to do to Twitter with horror," Crockett wrote in a note to clients. The analyst added that Musk's suggestions of content moderation rollbacks, switching its business model to subscriptions from advertising and going after non-commercial enterprise is likely to "effectively trashes the bulk of Twitter's talent and efforts, which the board probably sees as dropping a bomb on something they love."

Twitter (TWTR) shares were down nearly 1.5% to $47.82 in premarket trading on Tuesday.

Crockett pointed out that reports of other bidders, including private equity firm Apollo Global (APO), getting involved in a bid for Twitter (TWTR) may be "more compelling," due to the fact Apollo already owns Yahoo.

"Going further than and pairing Yahoo with Twitter could have some synergy value," Crockett wrote, adding that a private equity firm backing Musk in his bid, is likely "problematic."

"If Musk is [serious] about his reform ideas, Twitter's business could be greatly scaled back," the analyst explained, while pointing out it would be hard to see how that would fit with the private equity model of looking for a positive return.

In addition, Agarawal could be well received by Wall Street, as he helps lead the company to improve product changes, such as single sign-on initiatives that helped boost signups 35% and reactivations up 25%, while monetizable daily active users rose 13% in the fourth-quarter of 2021.

On Monday, Wells Fargo said that Twitter (TWTR) could be worth between $60 and $65 per share in a private equity takeover of the firm.