After months of haggling, Elon Musk and Twitter (TWTR) expect to finalize a buyout agreement next week, news reports said. Twitter shares were down on Friday.
According to a report by The New York Times, talks between the two sides have become cordial and focused on completing the transaction on Oct. 28 rather than litigation, people familiar with the matter said.
What happens after that is in Musk’s hands. He tried to get out of the deal. But Twitter urged Musk to go ahead with his initial bid to buy the company for $44 billion.
Twitter shares fell 4.9% to close at 49.89 in the stock market today.
A new service called The X App
What could Musk do with the company? In an enigmatic tweet in May, Musk wrote about the creation of a new service called X. He dubbed it “the everything app.”
The closest thing to an all-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, gaming, 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 effort to get the needle moving and probably not before 2024 at the earliest.”
What does this mean for Twitter stock?
One concern among investors is what a Twitter deal will mean for Tesla stock. It’s down 44% since Musk became CEO Tesla (TSLA) announced a 9% stake in Twitter in early April.
Then Tesla stock fell more than 12% on April 26, a day after Musk and Twitter reached an agreement for Musk to acquire the company.
Musk sold billions of dollars worth of Tesla stock to fund the deal.
“This continues to be a brutal situation for Tesla investors to bear the burden,” Ives said. “We believe Musk may need to sell an additional $5 billion to $10 billion to fund this deal, depending on funding talks.”
Twitter stock: Free cash flow overwhelming
Ives continued, “Free cash flow for Twitter remains very disappointing, making this a very difficult leveraged buyout candidate with banks likely on the hook for most of the debt portion of the deal.”
A Washington Post report on Friday also said Musk had told potential investors that he plans to shed nearly 75% of Twitter’s 7,500 employees and reduce the company to a skeletal workforce of just over 2,000.
“It’s clear that with a leveraged $44 billion deal, massive staff cuts and cost controls have to take place,” Ives said. “Twitter is long overdue to cut costs given its lack of growth.”
“However, Musk can’t blaze a trail for growth with Twitter,” he added. “A number in the 75% range would be far too aggressive in our opinion and could set this core platform back years before the X-App strategy kicks in.”
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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