FINANCE CASE REPORT: Elon Musk's Twitter Deal : Valuation and Financing of the Leveraged Buyout The report should be word-processed (or PDF), double-spaced, with 11-pt font and 1-inch margin. It sho
Elon Musk’s Twitter Deal You are an intern at a major investment bank in Toronto. However, in your spare time, you have been an independent contributor at Seeking Alpha for over four years and have received considerable attention with 5k followers (yay!). Today is August 1st, 2022 and you decided to write an analyst report covering the deal between Elon Musk and twitter. Consider related case(s) we have discussed in class (available via syllabus) and complete the following case report. The report should be written professionally (pay attention to language and formatting), ready to be review by your followers, most of whom are finance professionals or sophisticated individual investors with paid access to your report (in fact, you know that director at your local office is one of your subscribers!).
Following are the detailed requirements on the report:
• The managerial decision of this report is to generate a fair per share valuation of Twitter as a stand-alone entity.
• Introduction: Describe the context of the report, factors should be considered in evaluating Twitter, and your final recommendation price. Also, include a brief roadmap to the sections you will later include in your report.
• Analysis:
Examine the problem being faced and discuss contributing factors (size-up). Show the steps you’ve used to reach your recommendation and implementation plan. Make sure to refer to your exhibits in your text. The following items (at least) are expected to be included in your report: o
Size-up analysis on important factors that need to be considered and discussed when valuing Twitter. Include a financial ratio analysis. At least two non-financial factors and a thorough review of Twitter’s financial health is expected. Hint: Industry analysis is recommended as part of the non-financial size-up analysis. o
Perform a per-share valuation of Twitter as a stand-alone firm with the following approaches:
Comparable company analysis (COMPs). Which companies and multiples do you choose? Why?
In a leveraged buyout (LBO), an LBO model is usually used in place of a DCF. Following our discussion of LBO in class and complete an LBO model valuation (base model) of Twitter. Assume that Elon Musk could secure $25 billion in debt, and $21 billion in equity of his own and of other investors. Also, assume that equity investors require a rate of return of 25%. Note: Do not simply use the best-case scenario assumptions provided in case Exhibit 6. Construct your own set of assumptions (Revenue growth, EBITDA margin, long-term growth rate and EV/EBITDA exit multiple).
Conduct a sensitive analysis to your base model. How would your per-share valuation change when the EBITDA margin and EV/EBITDA multiple change at the same time?
Show your detailed evaluation model in exhibits. You are encouraged to collect and use external data for this case. In your report, for each method of valuation, discuss the important assumptions you have made (e.g. estimation of long-term growth rate and EV/EBITDA multiple, selection of comparable companies & use of metrics for COMPs)
You do not need to reach a final valuation recommendation here. •
Alternatives:
Compare the valuation you obtained from the two methods. Along with sensitivity analysis, how would weight them to reach a final per share valuation, or a range of per share valuation?
Explain your choice of weight. The key to success in Analysis and Alternatives section is to defend your chosen assumptions/weight with reasoning and evidence, where applicable. You are also free to use actual pieces of evidence (e.g. historical performance data of industry peers, industry reports, news coverages etc.) from the real world to support your statements.
Recommendation & Plan of Action:
Besides your final per-share valuation, comment on the risks associated with Elon Musk’s acquisition of Twitter.
The report should be word-processed (or PDF), double-spaced, with 11-pt font and 1-inch margin. It should be 20-25 pages including the exhibits. However, if a few more pages would help you explain your propositions better, feel free to do so. Just keep in mind that a report is not judged by its length, but its content. Your report will be evaluated on an overall basis.
