Comments on: HP and Palm: How Mergers and Acquisitions Work

By: Neil Venters

Neil Venters — Tue, 04 May 2010 17:32:48 +0000

Historicaly, most M&A deals are value-destroying, or in other words, in the long run the merged entity end up being worth less than two stand-alone companies. This happens for two reasons:

(1) Most large deals are driven by CEO ego’s (i.e. I wanna run the biggest company on the block) and wallet (CEO’s pay is directly correlated to the SIZE of that company)

(2) Post-merger integration is VERY difficult – hence most synergies are often unrealized.

On a lighter note, this deal is a good news for investment banks and people looking for investment banking careers!!
.-= Neil Venters´s last blog ..M&A Associate Needed at Brown Brothers…. =-.

By: the weakonomist

the weakonomist — Sun, 02 May 2010 20:50:53 +0000

Anthony, the acquiree (in this case Palm) is offered a price per share to sell. This is often at a premium of 10-40% over the current price. The stock price shoots up because people are willing to buy it at any price below the offered amount because it guarantees a return. If the price goes above the offer price it’s because investors expect a counter offer from someone at a higher price. If it stays below the offer price it’s because there is some skepticism about whether or not the offer will go through (either DOJ intervention or failure at the negotiating table).

BTW, an update to my previous comment. The head hunter and I spoke over email and the distinction over his use of cash any my use of cash was the cause of the disagreement. We were technically both right and by using his definition of cash HP does have less than the other firms.

By: anthony

anthony — Sun, 02 May 2010 17:41:24 +0000

any thoughts on why a stock, such as palm, shoots up when talk of a take over breaks in the news?

By: the weakonomist

the weakonomist — Fri, 30 Apr 2010 03:15:37 +0000

Keith, Apple would have only bought them for the patents, so it wasn’t worth it to them. HP bought them for the patents and their product portfolio.

Head Hunter, I’m not sure where you get your data but MSFT has 8.5b in cash, GOOG has 9.2b, and AAPL has 10b. Maybe you use “cash reserves” in a different context, but I’m talking about cash on the balance sheet. And even if your numbers were right (which they aren’t), I got 2/3 which does make me remotely right.

By the way, debt means nothing. Debt is simply a reflection of a firm’s choice of capital use. Whether you raise cash by debt or equity is irrelevant here. More established firms PREFER debt for the tax advantages and the lower WACC. Growth companies (like GOOG and AAPL) prefer equity because they don’t have to make any payments on equity unless they decide to pay a dividend. The downside is the higher cost of capital.

I apologize to readers that may not know what I’m talking about. Don’t worry about it. When I’m wrong about something and someone proves it I’ll own up. But the comment above me was so wrong I had to respond.

By: The Head Hunter

The Head Hunter — Thu, 29 Apr 2010 16:20:18 +0000

Great M&A article, but I take a little umbrage to your statement “They’ll still have more cash than Microsoft, Google, or Apple”

That’s not even remotely true, here’s the rundown:

HPQ has a mkt cap of 123B:
14B Cash Reserves
13.8B Debt

MSFT has a mkt cap of 271B:
17.5 B Cash reserves
3.7 B Debt

Aapl has a mkt cap of 243B:
6.4B Cash Reserves
0 Debt

GOOG has a mkt cap of 168B:
8.2B Cash Reserves
0 Debt

So, while it has more cash on hand then AAPL & GOOG, when you factor in the debt, it’s not even close.

Great Article though, keep up the great work!

By: Keith @ LifeTuner

Keith @ LifeTuner — Thu, 29 Apr 2010 15:34:11 +0000

Do you have any thoughts on why Apple opted out of buying Palm? Wouldn’t it have given them an advantage over HTC in their patent lawsuit?