Goldman told TWTR Elon’s $54.20 offer was too low but has a sell target at $30 | Hacker News Reader

Goldman told TWTR Elon’s $54.20 offer was too low but has a sell target at $30

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66 pointshtk51 comments

One is a 12-month price target for the stock, the other is a takeover price (based on the long term) where GS is acting on behalf of the company and its existing shareholders. This is really not "gotcha" like ZH try to pretend it is.

A short term price target should incorporate long term cashflow expectations

> One is a 12-month price target for the stock, the other is a takeover price (based on the long term)

If you expect a certain price in the future, then you should want to buy/sell toward a similar price (minus interest) in the present, shouldn't you?

> where GS is acting on behalf of the company and its existing shareholders.

That explains wanting some premium. It doesn't explain the difference between 30 and >54.

You want to buy 100% of the stock (think about what that does to the volume of buy orders). That obviously has a much higher price than the normal market dynamics. Both things can be accurate, the price sticking at $30 on normal trading, and a full takeover requiring a significant premium.

By any normal measure I’d consider $54 a very significant premium to $30.

The most obvious reasons is it’s different people doing the analysis so they should come to different conclusions.

Not that Twitter paid GS for the latter opinion, and obviously wants a higher estimated valuation to strengthen their bargaining position? Getting paid by an entity to appraise an asset they own comes with obvious moral hazard.

> The most obvious reasons is it’s different people doing the analysis so they should come to different conclusions.

Well, that's the obvious reason it wasn't a typo.

But they're trying to measure roughly the same number. It's the opposite of obvious that two competent groups would have such wildly different results.

Wouldn't the 12 month price target also be based on the long term? Whether it's today or a year from now, it should tend toward the present value (at that time) of all of its future cash flows.

> Wouldn't the 12 month price target also be based on the long term?

No. There is a control/takeover/acquisition premium [1]. Owning a whole company is more valuable than owning part of one since you can control it without consideration for minority interests.

[1] https://www.investopedia.com/terms/a/acquisitionpremium.asp

That explains why Musk may want to pay more. It doesn't relate to the options of the current shareholders.

That doesn't actually contradict the claim that the 12 month price target is still based on expected long term returns.

According to the picture in the tweet they actually have a sell "rating", meaning that they expect the stock to very possibly go down until it hits 30$ and therefore they recommend selling as a primary strategy to deal with current twitter stock. So the tweet in my opinion is correct to call this awkward.

Stock price isn’t fixed. It’s based on how much you want to buy. Only the front of the order book is for sale at the quoted price. Everything after that is more expensive.

TWTR trading volume is I guess $1B - $2B a day (Y! says 38M units avg) shuffling stock between lots of small buyers and sellers. Musk wants to buy 25x to 50x that.

If you sell oranges, you might have them priced at a dollar each. The guy in the stall next to you thinks the exact same oranges are worth more. He prices them for sale at $2, and the guy next to him for $4. Neither of then sell anything though. A single person comes by for an orange every morning and that’s all the oranges that get sold that day in your town. This person buys their one orange from you and the town crier reports the ORNG stock quote as being $1.

If some rich guy comes along and says “I will now buy all the oranges from all of you”, the average price is going to be higher. The town banker advises you all that while their offer of $2.69 is high, you could definitely, ahem, squeeze them for more.

Where can I tick this as the correct answer :)

Following your example, after the offer of $2.69 and the counter offer of $4, there are two possible scenarios: The buyer accepts the offer (and pay $4 per share making it the real market value) or the buyer rejects it, leaving the market value at a max of $2.69. The price is not the market value (If I value my orange at $1,000,000 and nobody buy them, that's not the market value.)

If it the $2.69 buyer, now happens to own a large share of oranges, and also has open and stand next to the other sellers, but priced at $0,50. What will happen with $1, $2 and $4 sellers? Let's see in a few days :)

Equity Research and the Investment Banking Division are completely different groups with procedures in place to make sure they never interact with each other.

Right.

Not never. They speak regularly, with an attorney on the line, following approved topics and protocols.

They speak with an attorney on the line so the conversation is privileged and cant be subpoenaed.

... that doesn't give the conversation attorney-client privilege, and I think it just tends to make the judge angry when you try to claim in court that it does--it's not an effective technique in practice.

It's a phone conversation on an unrecorded line so the presence of the attorney isn't really relevant in that sense.

To synchronise schedules and blacklists. Not to discuss valuations.

Nope. Look at the dot-com bubble and bust when in a single firm equity research pumped and investment banking got people to buy.

I asked a banker this exact question back then. All I got was flowery language of great walls and reputational damage.

We all know what happened. The bubble popped. The two sides don't need to talk. The equity research is public. Incentives are such that both sides want to pump.

The dot-com bubble predates FINRA Rule 2241 which was adopted in 2015.

[1] https://www.finra.org/rules-guidance/rulebooks/finra-rules/2...

It's still very awkward for them to have such different valuations.

It's awkward only in the sense that the valuations are absolutely worthless. You can back test the 1 year target estimates of almost any company to see for yourself that they are junk, in fact this topic has been studied almost to death if you do a search on Google Scholar.

savage, and interestingly enough all these financial analysts still have good paying jobs

IMHO it falls into the same category as content farms trying to drive traffic into buying a product.

Many takeover offers tend to fall towards the high end of the stock's all time high so that shareholders feel like they are at least getting out without a loss. He needs to go closer to $70 if he wants to be taken seriously. If he can't justify the $70+ price then the investment is not worth it. If it's true what he said that he is buying it to help the world rather than for profit then $70+ price should be easy to justify.

>>If it's true what he said that he is buying it to help the world rather than for profit then $70+ price should be easy to justify.

Where on earth do you get that

$70 is insane, Twitter will likely never reach that again, it for sure will not under current leadership. Twitters current leadership is killing the platform

It doesn't matter whether the stock is likely to reach $70 or not. What matters is that musk must convince the majority of stock holders to sell him their shares. If he wants to take over the company. The current offer is getting rejected. He'll need to up his bid. He really needs to offer a price they or the board can't refuse. A price way closer to the all time high or above it. No shareholder is going to give up their shares for altruistic reasons, that's not why the bought them, so they are waiting for the right price.

Which is likely $54.20... a Rejection following by Elon dumping his 9% $54.20 will seem like a fortune

> must convince the majority of stock holders

I don’t think it is the majority — I think he needs all of them. Anything less than 100% and he’d have to worry about fiduciary duty to minority shareholders. And if taking a company private, you need to have all of the shareholders on board.

I might not fully understand this dynamic, but I thought that was the reason why he wanted to buy 100% and not just a controlling interest.

No sale would ever be completed if you needed 100% of shareholders to agree. A jokester could buy 1 twitter share for $45 and block a sale.

Such transaction must be put to vote by shareholders and only a majority needs to approve.

So long as the transaction was fair...

But, Musk has stated that he wanted to take Twitter private. Doesn't that change the calculations somewhat? I mean, you want to buy all of the shares at once, otherwise, how do you determine the fair market price for the last hold-out shares? They would be worth more that the early sellers.

I guess I'm saying that because he has a stated interest in taking the company private, this is more complicated than a traditional M&A event. (Hence why it may not be worth it to do this as a hostile takeover).

It doesn't have to be fair to you just the majority of the stockholders. True, you can reject the offer as a stockholder but the company's stock will be taken off the exchange once the 50+% stockholder decides the company will no longer be public. So if you want to ever sell you'll have to look for a buyer yourself. Imagine having all your money locked up. Not knowing when, if ever, you'll be able to get your money out. Also, if you try to go to court then you'll have to finance the suit and you'll have to have a valid reason to go to court. And to top it all as a minority stockholder you'll have very little influence over how to run the company. It's easier to sell at the price that's offered.

Once a stockholder gets control of the majority of the stock he/she can do whatever they want short of fraud. Hence, if I control 50+% of the shares I can sell the company to anyone and take it private if that's what I want. The board would still need to approve it but as the controlling shareholder I can replace the board with members that will do what I want so they can't stop me. Again, I can't commit fraud but if I can justify it then I can do it. No minority stock holder can stop me.

Almost every public company has a forced buy-out clause in their stock's trading and ownership rules. That is, if someone ends up owning $VAST_MAJORITY of a company's stock, they can then forcibly purchase the small fractions off at an acceptable going-private premium.

I think the threshold for forced buy-out tends to be >90%.

You always have to treat owners essentially equally but only a majority is typically required to make decisions. Meaning you can’t decide to give one owner distributions or dividend and not other owners using just a majority vote but you can take most action that guides the company.

I remember GME and what happens when big fish comes and publicly demands a big chunk.

Stocks are not commodities, offer is highly inelastic. They are precisely limited and traded as such. Especially when we are talking about profitable and political-weight-size media company.

Goldman Sachs is more like a collection of companies (divisions) than one company. Further, there is often a Chinese Wall between divisions preventing them from having access to one another to prevent insider trading.

That price target is public. I'm pretty sure chinese wall wouldn't prevent the other guys and GS from reading TipRanks.

Goldman Sachs will look stupid if they advise against a sale at $54 if they also advise to sell and believe the price will be $30.

Twitter board is not buying GS opinion. It's clearly worthless if one guy says "Twitter is worth $30" and the other guy says "Twitter is worth more than $54".

They are paying GS to tell them what they want to tell the public i.e. don't sell to Musk.

Twitter board is just too incompetent to execute such cover up. I assume there's at least one bank they could hire that has buy rating on Twitter to justify their "don't sell" advice.

In the commodities world it's expected that Goldman's physical position is the opposite of what would be expected from their analysis. It's also worth pointing out that it's perfectly reasonable for a forecast to be very different to a current price due to price being a function of time and different risks and time horizons involved.

Zerohedge really shouldn’t be tolerated here at this point in time, to be honest.

People still read Zerohedge?

https://apnews.com/article/russia-ukraine-coronavirus-pandem...

US "intelligence" pushing propaganda just as much if not more than Russian "intelligence".

The 3 letter agencies have lost my trust and many (if not most) of my fellow Americans trust.

Like wise the AP has lost a lot of trust as well, they are not immune to posting fake stories and propaganda either.

Could zh have posted Russian propaganda maybe.. likely even. That will not stop me from reading the site

I mean, they absolutely did post propaganda. The administration was 100% vindicated in this statement. They explicitly did not accuse ZH of knowingly or deliberately working for Russia, only that they ran a story without vetting that came from a source connected to Russian intel that contained disinformation related to Russia's intention to invade Ukraine.

Really US Intel and the AP are very rarely wrong and I don't think they've ever posted propaganda. Us Intel usually comes with a confidence level and it's up to policy makers to react (or overreact or underreact).

>>>Really US Intel and the AP are very rarely wrong

This is sarcasm right. Tell me this is sarcasm

Intel you read in the news is always filtered through the mouths of politicians laden with agenda. During the Iraq war, the Bush admin ran their own intel operations when the pros didn't tell them what they wanted to hear. That being said, the accusation against ZH is from politicians too so I guess it still applies.

Still they were right and ZH ran propaganda. Whataboutism doesn't make them less guilty. Their unflinching denial makes them more guilty.

They want the deal to be rejected (i.e call it too low), so musk sells his current shares, dropping the price into the 30’s, so they cN cover their short sale.

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