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Elon Musk dragging his feet on completing his deal to buy Twitter is putting the company's board in an extremely tough decision, according to Wedbush Securities Analyst Dan Ives.
- Time now for our daily "Musk Minute." The Tesla CEO continuing his Twitter spat with Twitter, this time in the wee hours, tweeting this at 3:32 AM. Let's talk about what happens next with @divestech on Twitter, or as you know him, Wedbush Securities analyst Dan Ives.
Good to see you, sir. You have called this a traveling circus, which no doubt is. It traveling towards a deal, though, or as actually happened to PT Barnum's circus in 1865, is it burning down to the ground?
DAN IVES: I think it's somewhere in between. Look, I think right now, it's probably a 60, 65% chance that Musk uses this as a scapegoat and tries to walk away from the deal with a billion breakup fee, although I believe there's still probably about a 1/3 of a chance that he just tries to drive a lower price negotiations behind the scenes or in the public markets. And I think that's what, right now, everyone trying to figure out is, is this a low to mid $40 bid, or does he walk? And right now, this continues to be what I'd characterize as a "Twilight Zone."
- And as we look at the financing for this, obviously, with one eye on Tesla, now we're hearing some reports of, perhaps, SpaceX shares being sold in order to fund this. What is the endgame here? What is Elon actually going to get out of this, in terms of what he's now risking for Twitter?
DAN IVES: Look, I think that's the good question, because I think this is essentially him getting cold feet, in our opinion. Now look, the bot issue, that's always been an issue on Twitter. They've cleaned it up significantly. Is it higher than 5%? It could be. But in my opinion, this is like buying a house and at the last minute not buying it because of the handle on the refrigerator.
And I think that's sort of the view of the street. This is-- Tesla went down $300 billion, in terms of mark cap since this deal [? app ending. ?] I think Musk underestimated what the impact would be here. And now it's about, does he drive a lower price, or does he walk away? And Twitter's board-- backs against the wall because there's no other bidder in sight.
- Yeah, Dan, I wanted to ask you about that because in your note, you were saying that Twitter's board-- there isn't really much room or really many options out there for him. If it's not Musk, doesn't sound like there's anyone else that stands out to you that-- who could potentially be a buyer, if there would even be another buyer out there.
- Yeah, it's yelling into an empty forest. I think that's the issue, is that there's no other bidder that I can see, strategic or financial, unless we get significantly lower. And that's right from a Twitter board perspective. This is really going to put them in what I'll call is a quagmire because if they ultimately take this to the courts, that will go on for years. And Musk eventually would just walk away and probably pay a billion dollars.
I do believe Musk, at the end of the day, still wanted this deal, but ultimately at a much lower price.
- Yeah, I love the refrigerator analogy there. To me, this reminds me of a guy who wants to get out of a wedding, per se. He knows he doesn't want to marry this girl, so he wants her to break up with him-- not that I did that. I'm just saying it reminds me of that type of situation.
If this goes to court, do they have a case? He has shed $10 billion off their market cap, tweeting that stock down.
DAN IVES: Yeah, I think this would be a significant legal issue, in terms of that, he'd have to contend with. Even if you look at the specifics of the deal, and there are some questions-- can he walk away because of this? He'd have to prove to me that the bots are more than 5%. And I think this all playing out in the public markets over Twitter, I think that's just created more of a fiasco, a traveling circus feel. And I think right now, investors are trying to figure out what the next step is.
Look, but at the end of the day, even with Musk's antics, this is a black eye for Musk. And the way he's handled this has really been a disaster, and not just in terms of for Twitter, for their employees, and just overall in terms of the street. I mean, every day, it's just another situation, in terms of what we see on Twitter.
- Dan, what do you think this means for Tesla shareholders? You closely follow Tesla. We've seen a bit of a reaction when we have developments regarding Musk and Twitter. Is this good news for Tesla shareholders if Musk, in fact, pulls out?
DAN IVES: Look, it's good news in the fact that he was leveraging his Tesla shares. That was a big part of the [? overhang ?] on Tesla to buy Twitter. But I think the problem is that it started to cascade into a life of its own. And I think there is a group of passive investors that are just, I think, frustrated and I think really even threw in the towel and has over the last month, just because they don't want any of these antics in a jittery market.
You want Musk focused on the build out of Giga in Berlin, focused on Austin, the supply chain issues, instead of just what we're seeing play out here. And I think that's been a frustrating situation for Tesla investors in what's been a white knuckle [? hit. ?]
- Dave, let's talk tech stocks broadly. Having a nice day today, up 300 points, 2.6%, but still down 23% year to date. In your notes, you say the fear level resembles 2008. Do the overall mechanics of the economy resemble '08, '09?
DAN IVES: Well, I mean, that's what we don't think-- we've talked about-- we don't think it's dotcom 2.0. I just view it as a massive sort of overcorrection. It's going to be a have and have not. The froth will come out of the system. It's a resetting of valuations.
But I do believe that it's been an overcorrection on names like Apple, Microsoft, names like Google, some of the cybersecurity, growth's getting thrown out the window. And that's why, in doing this over two decades, I've seen these cycles before. But when you look at the economy, you look at corporate balance sheets, you look where IP spend is-- I mean, that's why I look at names like cloud, cybersecurity, and some of the FAANG names, Microsoft, Apple, as well as Google among them.
- Dan, when you're identifying some of those names, I know in the recent note you put together what you call a Wedbush Tech Playbook. But what exactly are you looking for? Is it just strictly valuation, or is there something else when you're trying to identify some of these attractive names?
DAN IVES: Yeah, it's really three things. First, it's stress testing our models. We're basically assuming-- let's assume recession happens. Take 8% to 10% off numbers. What do the valuations look like? Are those names you buy, or you don't own them? So one is stress test the models.
Two, where are the end market? Is that going away-- cloud, cybersecurity. I look at 5G with Apple. I look at some of the productized names.
And then I think the third, it's just really combining and looking at overall valuation the names that make sense. And that's why our best calls over the years have been, in the chaos, to kind of find the names that are overly hit. And I think that sort of been a situation over the last week, because there's many yelling fire in a crowded theater. And ultimately, that's not been our style. It's trying to find, in the carnage, the opportunities.
- Dan Ives rocking the Nittany Lions hoodie there. I like that. Good call hiding that Giant stuff deep in the background, though. You want to keep that in the backdrop for now, Dan.
Appreciate it. He's Wedbush--
DAN IVES: Thank you.
- --analyst Dan Ives. Thank you.