There has been enormous action in stock of Salesforce.Com (NASDAQ: CRM) this week, based on takeover rumors.
Nothing is going to happen.
Here is why my own “spidey sense” indicates. Oracle (NASDAQ: ORCL) is interested in buying the company. Salesforce is a big customer for Oracle software and hardware. It is more successful in selling that combination as “cloud” than Oracle itself. It would make a great bold-on acquisition. And it’s very possible that people at that company were preparing a bid this week.
But Salesforce CEO Marc Benioff does not want to sell. Why should he, at least until the company starts turning a profit, which it hasn’t done since 2011, when it was less than half the size it is now. You can’t calculate a P/E ratio on a company with no earnings. At its current price the Price/Sales ratio is close to 10.
So some strategic leaks, simple non-denial denials, were all that was necessary for Bloomberg to go off to the races, with a story claiming the company was talking to its bankers about a possible acquisition. Immediately a list of names came up as potential buyers, led by Microsoft (NASDAQ: MSFT), which has been working to get Salesforce business onto its Azure cloud and which, with its $397 billion market cap, could actually buy a company worth about $50 billion in today’s market.
But it’s not happening. While Microsoft CEO Satya Nadella may be interested, he’s not going to chase a money-losing acquisition at any price. Salesforce merely played the rumor of Microsoft (and anyone else the media wanted to name) against the potential of an Oracle bid, got the stock price above what any bidder could pay, and then went back to work.
If you have the nerve, short CRM today.