Salesforce Slips As Wall Street Digests 'Fairly Outlandish' Price Paid For Slack

Shares of Salesforce (CRM) are under pressure on Wednesday after the company said it is acquiring Slack Technologies (WORK) for $27.7B in cash and stock. Following the news, Citi analyst Walter Pritchard cut Salesforce's rating to Neutral saying he is not a fan of the deal as the multiple paid "makes it challenging to see a positive return." Meanwhile, his peer at Stifel also told investors that Salesforce is paying a "fairly outlandish price" for Slack. More bullish on the acquisition, JMP Securities analyst Patrick Walravens believes it enables Salesforce to finally realize its "social enterprise" vision that it began more than a decade ago with the launch of Chatter in 2009.

SLACK ACQUISITION: Salesforce and Slack Technologies have entered into a definitive agreement under which Salesforce will acquire Slack. Under the terms of the agreement, Slack shareholders will receive $26.79 in cash and 0.0776 shares of Salesforce common stock for each Slack share, representing an enterprise value of approximately $27.7b based on the closing price of Salesforce's common stock on November 30, 2020.

SALESFORCE RESULTS: Salesforce reported third-quarter earnings per share of $1.74 and revenue of $5.42B, both better than the expected 75c and $5.25B, respectively. The company also said that it sees fourth-quarter revenue between $5.665B-$5.675B and earnings per share of 73c-74c. Additionally, Salesforce raised its fiscal year 2021 earnings per share view to $4.62-$4.63 from $3.72-3.74, and its fiscal year 2021 revenue view to $21.10B-$21.11B from $20.7B-$20.8B. The company also initiated first-quarter revenue guidance of $5.68B-$5.715B and gave a fiscal year 2022 revenue view of $25.45B-$25.55B.

NOT A FAN OF SLACK ACQUISITION: Citi analyst Walter Pritchard downgraded Salesforce to Neutral from Buy with a price target of $250, down from $300. The analyst told investors that he is not a fan of the Slack Technologies acquisition as the multiple paid "makes it challenging to see a positive return." There is little near-term upside to Salesforce shares as questions around organic growth will likely surface following the deal, Pritchard contended.

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