Goldman Sachs’ opinion does not address the underlying business decision of Twitter to engage in the merger or the relative merits of the merger as compared to any strategic alternatives that may be available to Twitter; nor does it address any legal, regulatory, tax or accounting matters. Goldman Sachs was not requested to solicit, and did not solicit, interest from other parties with respect to an acquisition of, or other business combination with, Twitter or any other alternative transaction. Goldman Sachs’ opinion addresses only the fairness from a financial point of view, as of the date of the written opinion, of the $54.20 in cash per share of Twitter common stock to be paid to the holders (other than Parent, Mr. Musk and their respective affiliates) of such shares pursuant to the merger agreement. Goldman Sachs’ opinion does not express any view on, and does not address, any other term or aspect of the merger agreement or the merger or any term or aspect of any other agreement or instrument contemplated by the merger agreement or entered into or amended in connection with the merger, including the fairness of the merger to, or any consideration received in connection therewith by, the holders of any other class of securities, creditors, or other constituencies of Twitter; nor as to the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of Twitter, or class of such persons in connection with the merger, whether relative to the $54.20 in cash per share of Twitter common stock to be paid to the holders (other than Parent, Mr. Musk and their respective affiliates) of such shares pursuant to the merger agreement or otherwise. Goldman Sachs did not express any opinion as to the prices at which shares of Twitter common stock will trade at any time, as to the potential effects of volatility in the credit, financial and stock markets on Twitter, Mr. Musk, Parent or the merger, or as to the impact of the merger on the solvency or viability of Twitter, Mr. Musk or Parent or the ability of Twitter, Mr. Musk or Parent to pay their respective obligations when they come due. Goldman Sachs’ opinion was necessarily based on economic, monetary, market and other conditions, as in effect on, and the information made available to it as of, the date of the opinion and Goldman Sachs assumed no responsibility for updating, revising or reaffirming its opinion based on circumstances, developments or events occurring after the date of its opinion. Goldman Sachs’ advisory services and its opinion were provided for the information and assistance of the Twitter Board in connection with its consideration of the merger and such opinion does not constitute a recommendation as to how a holder of shares of Twitter common stock should vote with respect to such transaction or any other matter. Goldman Sachs’ opinion was approved by a fairness committee of Goldman Sachs.
Summary of Material Financial Analysis
The following is a summary of the material financial analyses presented by Goldman Sachs to the Twitter Board in connection with rendering the opinion described above. The following summary, however, does not purport to be a complete description of the financial analyses performed by Goldman Sachs, nor does the order of analyses described represent relative importance or weight given to those analyses by Goldman Sachs. Some of the summaries of the financial analyses include information presented in tabular format. The tables must be read together with the full text of each summary and are alone not a complete description of Goldman Sachs’ financial analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before April 22, 2022, the last trading day before the public announcement of the merger, and is not necessarily indicative of current market conditions.
Implied Premia Analysis
Goldman Sachs calculated and compared certain implied premia described below based on the $54.20 in cash per share of Twitter common stock to be paid to the holders (other than Parent, Mr. Musk and their respective affiliates) of such shares pursuant to the merger agreement.
Goldman Sachs calculated the implied premia represented by the $54.20 in cash per share of Twitter common stock relative to:
| • | $39.31, the undisturbed closing price for Twitter common stock on April 1, 2022, the last trading day prior to the filing of the Schedule 13G filed by Elon Musk disclosing his ownership of Twitter common stock (which we refer to for purposes of this section of this proxy statement as the “Undisturbed Share Price”); |
| • | $48.93, the closing price for Twitter common stock on April 22, 2022, the last full trading day prior to the signing of the merger agreement (which we refer to for purposes of this section of this proxy statement as the “Current Share Price”); |
| • | $71.69, the highest closing trading price of the shares of Twitter common stock over the 52-week period ended April 22, 2022 (which we refer to for purposes of this section of this proxy statement as the “52-Week High”); |
| • | $32.42, the lowest closing trading price of the shares of Twitter common stock over the 52-week period ended April 22, 2022 (which we refer to for purposes of this section of this proxy statement as the “52-Week Low”); |
| • | $35.89, the volume weighted average price of Twitter common stock over the 30-trading-day period ended April 1, 2022 (which we refer to for purposes of this section of this proxy statement as “30-day Undisturbed VWAP”); and |
| • | $53.91, the average closing trading price of the shares of Twitter common stock over the 1-year period ended April 1, 2022 (which we refer to for purposes of this section of this proxy statement as “1-year Undisturbed Average”). |
The results of these calculations and comparisons were as follows:
| Common Stock Reference Price | Implied Premium Represented by $54.20 in Cash per Share of Twitter Common Stock |
|||
| Undisturbed Share Price of $39.31 |
38% | |||
| Current Share Price of $48.93 |
11% | |||
| 52-Week High of $71.69 |
(24)% | |||
| 52-Week Low $32.42 |
67% | |||
| 30-day Undisturbed VWAP $35.89 |
51% | |||
| 1-year Undisturbed Average of $53.91 |
1% | |||
Illustrative Present Value of Future Share Price Analysis
Goldman Sachs performed an illustrative analysis of the implied present value of an illustrative future value per share of Twitter common stock, which is designed to provide an indication of the present value of a theoretical future value of Twitter’s equity as a function of Twitter’s financial multiples. For this analysis, Goldman Sachs used the Forecasts for each of the fiscal years 2022 to 2025. Goldman Sachs first calculated the implied future enterprise value of Twitter as of December 31, 2022, 2023 and 2024, by applying a range of enterprise value to one-year forward EBITDA estimates (which are referred to for purposes of this section of this proxy statement as “forward EV/EBITDA”) multiples of 15.0x to 17.5x to the EBITDA estimates contained in the Forecasts for each of Twitter’s fiscal years 2023, 2024 and 2025. These illustrative multiples were derived by Goldman Sachs utilizing its professional judgment and experience, taking into account, among other things, current and historical average forward EV/EBITDA multiples for Twitter and certain selected internet companies described in the section below captioned “—Selected Public Company Comparables.”
Goldman Sachs then added the amount of Twitter’s estimated total cash and cash equivalents and equity investments and subtracted the amount of Twitter’s estimated total debt, as of December 31, 2022, 2023 and 2024, each as provided by management of Twitter and approved for Goldman Sachs’ use by the management of Twitter, to the range of implied enterprise values to derive a range of illustrative equity values as of December 31, 2022, 2023 and 2024. Goldman Sachs then divided these implied equity values by the projected number of fully diluted outstanding shares of Twitter, as provided by management of Twitter and approved for Goldman Sachs’ use by the management of Twitter, to derive a range of implied future equity values per share of Twitter common stock. Goldman Sachs then discounted these implied equity values per share to December 31, 2021, using an illustrative discount rate of 11.4 percent, reflecting an estimate of Twitter’s cost of equity. Goldman Sachs derived such discount rate by application of the Capital Asset Pricing Model (which we refer to for purposes of this section of this proxy statement as “CAPM”), which requires certain company-specific inputs, including a beta for Twitter, as well as certain financial metrics for the United States financial markets generally. This analysis resulted in a range of implied present values per share of Twitter common stock, rounded to the nearest $0.10, of $45.50 to $60.10.
Illustrative Discounted Cash Flow Analysis
Using the Forecasts, Goldman Sachs performed an illustrative discounted cash flow analysis on Twitter to derive a range of illustrative present values per share of Twitter common stock. Using the mid-year convention for discounting cash flows and discount rates ranging from 10.0 to 12.0 percent, reflecting estimates of Twitter’s weighted average cost of capital, Goldman Sachs discounted to present value as of December 31, 2021 (i) estimates of unlevered free cash flow for Twitter for the fiscal years 2022 through 2027 as reflected in the Forecasts and referred to as Unlevered Free Cash Flow (less stock-based compensation expenses) in the section of this proxy statement captioned “—Unaudited Prospective Financial Information” and (ii) a range of illustrative terminal values for Twitter, which were calculated by applying illustrative exit terminal year EV/EBITDA multiples ranging from 10.0x to 15.0x to a terminal year estimate of EBITDA, as reflected in the Forecasts (which analysis implied perpetuity growth rates ranging from 5.6 to 9.0 percent). Goldman Sachs derived such discount rates by application of the CAPM, which requires certain company-specific inputs, including Twitter’s target capital structure weightings, the cost of long-term debt, after-tax yield on permanent excess cash, if any, future applicable marginal cash tax rate and a beta for Twitter, as well as certain financial metrics for the United States financial markets generally. The illustrative terminal year EV/EBITDA multiple range for Twitter was derived by Goldman Sachs using its professional judgment and experience, taking into account, among other things, current and historical average forward EV/EBITDA multiples for Twitter and certain selected internet companies described in the section below captioned “—Selected Public Company Comparables.” In addition, using discount rates ranging from 10.0 to 12.0 percent, reflecting estimates of Twitter’s weighted average cost of capital, Goldman Sachs discounted to present value as of December 31, 2021 the estimated benefits of Twitter’s net operating losses, as provided by the management of Twitter and approved for Goldman Sachs’ use by the management of Twitter.
Goldman Sachs derived a range of illustrative enterprise values for Twitter by adding the ranges of present values it derived as described above. Goldman Sachs then added to the range of illustrative enterprise values it derived for Twitter the amount of Twitter’s estimated total cash and cash equivalents and equity investments and subtracted the amount of Twitter’s estimated total debt as of December 31, 2021, adjusted for any subsequent publicly announced changes to those figures, as provided by the management of Twitter and approved for Goldman Sachs’ use by the management of Twitter, to derive a range of illustrative equity values for Twitter. Goldman Sachs then divided the range of illustrative equity values it derived by the number of fully diluted outstanding shares of Twitter as of March 31, 2022, as provided by the management of Twitter and approved for Goldman Sachs’ use by
the management of Twitter, to derive a range of illustrative present values per share of Twitter common stock, rounded to the nearest $0.10, of $39.10 to $60.90.
Selected Precedent Transactions Analysis
Goldman Sachs analyzed certain publicly available information relating to the following selected transactions involving companies with an enterprise value in excess of $1 billion in the internet industry since 2010. For each of the selected transactions, where information was publicly available, Goldman Sachs calculated and compared the implied enterprise value of the applicable target company based on the consideration paid in the transaction as a multiple of the target company’s EBITDA over the last twelve month period ended prior to the announcement of the applicable transaction (which we refer to for purposes of this section of this proxy statement as “EV/LTM EBITDA”).
The following table identifies the transactions reviewed by Goldman Sachs as part of this analysis:
| Announcement Date |
Acquiror |
Target |
EV/LTM EBITDA | |||||
| Feb 2021 |
Magnite, Inc. | SpotX, Inc. | 33.4x | |||||
| Jun 2020 |
Just Eat Takeaway.com N.V. | Grubhub Inc. | 47.4x | |||||
| Dec 2019 |
Hellman & Friedman LLC | AutoScout24 | 26.1x | |||||
| May 2018 |
Silver Lake | ZPG Plc | 21.5x | |||||
| Jun 2016 |
Microsoft Corporation | LinkedIn Corporation | 31.2x | |||||
| Nov 2015 |
Expedia, Inc. | HomeAway, Inc. | 36.4x | |||||
| Aug 2015 |
Liberty Interactive Corporation | zulily, inc. | 50.6x | |||||
| Jul 2014 |
Zillow, Inc. | Trulia, Inc. | NM(1 | ) | ||||
| Jun 2014 |
The Priceline Group Inc. | OpenTable, Inc. | 29.9x | |||||
| Nov 2012 |
priceline.com Incorporated | KAYAK Software Corporation | 27.6x | |||||
| May 2011 |
Microsoft Corporation | Skype Global S. à r.l. | 32.2x | |||||
| (1) | Not meaningful |
While none of the selected transactions or companies that participated in the selected transactions are directly comparable to the proposed merger of Twitter, the transactions included as selected transactions were chosen because the target companies that participated in the selected transactions are companies with operations that, for the purpose of this analysis, may be considered similar to certain of Twitter’s operations, market size and product profile.
The foregoing analysis indicated a 25th percentile EV/LTM EBITDA multiple of 28.2x and a 75th percentile EV/LTM EBITDA multiple of 35.7x. Using this analysis and its professional judgment and experience, Goldman Sachs applied a range of illustrative EV/EBITDA multiples of 28.2x to 35.7x to Twitter’s last twelve months Adjusted EBITDA (adjusted to exclude a one-time litigation-related net charge of $766 million) as of December 31, 2021, as provided by the management of Twitter and approved for Goldman Sachs’ use by the management of Twitter, to derive a range of implied enterprise values for Twitter. Goldman Sachs then added to the range of implied enterprise values the amount of Twitter’s estimated total cash and cash equivalents and equity investments and subtracted the amount of Twitter’s estimated total debt, as of December 31, 2021, adjusted for any subsequent publicly announced changes to those figures, as provided by the management of Twitter and approved for Goldman Sachs’ use by the management of Twitter, to derive a range of illustrative equity values for Twitter. Goldman Sachs divided the range of illustrative equity values by the number of fully diluted outstanding shares of Twitter as of March 31, 2022, as provided by the management of Twitter and approved for Goldman Sachs’ use by the management of Twitter, to derive a range of implied values per share of Twitter common stock, rounded to the nearest $0.10, of $50.30 to $62.90.
