4 ms·

When buying a healthy company there's generally a premium required, which is booked as "good will" https://en.wikipedia.org/wiki/Goodwill_(accounting) https://e

by hga 11y ago

When buying a healthy company there's generally a premium required, which is booked as "good will" https://en.wikipedia.org/wiki/Goodwill_(accounting) https://en.wikipedia.org/wiki/Goodwill_(accounting) And all too often written off after the acquisition doesn't pan out.

petra 11y ago
>> after the acquisition doesn't pan out. Considering that this is common , one wonders - wouldn't it be better investing the $19 billion in innovation, even if in non-related fields ?
- ma2rten 11y ago
  You mean like Xerox Parc?
- pmorici 11y ago
  Considering they are only over paying by roughly 10% if you assume the current stock price is fair then they are "only" throwing away $1.9 billion. They probably can't develop their own flash technology and build a fab for that amount of investment.
- mbesto 11y ago
  This is a common misconception by non financial people (no offense). You have to look at this from a finance and risk perspective. 1. Cash lying around in your bank account is usually a poor use of working capital (you are effectively "losing" money by it sitting in the form of cash) 2. Investing in "innovation" is always risky. Look at how many internal Google apps get scrapped a year or two into launch. They effectively write those off and it's a direct loss to Google's bottom line. 3. "Innovator's Dilemma" - big companies realize they are not the best suited to invest in innovation, hence why startups and buying them are actually a net positive for large businesses.
  - petra 11y ago
    Bit first, this is not cash lying around, this is new debt. Second ,Even if you take all of Google's investments into innovation and and look at them combined ,they would probably offer a decent return on investment. Similarly if you look at intel capital's investments , you'll probably get a nice financial story + a decent strategic lever. Also from a pure financial perspective - sandisk has a profit of $1.22 Billion.That would take 15 years to repay. Isn't risky to make such long term investments in i a single investment , in tech , which is a dynamic field usually ?
  - 212d1d 11y ago
    1. This is not cash in a bank. 2. Innovation is a requirement not an option. 3. Innovator's Dilemma completely contradicts the point you attempt to make in #2.
- jo909 11y ago
  To make some sort of (of course flawed) comparison: You want a nice house. You can drive around the neighborhood, look at what houses exist and inspect the house you are interested in from roof to cellar bevor making an offer. You adjust your price for the parts you think need renovating, market conditions etc. Banks will gladly finance the deal, you don't need to have very much money of your own. Or you buy an empty plot, buy a lot of materials, hire people to turn the materials into a house of your specifications. In many established neighborhoods it's very hard to even get an empty plot. Maybe you don't find the materials or people in the quantity or quality you want. Maybe your plans are not that good. Maybe the weather is bad and you take much longer than you planned, and you can't stop at half a house when you run out of money. If everything goes well you can get a better house for less money, but you have to be able to afford the risk.

by hga 11y ago

petra 11y ago

>> after the acquisition doesn't pan out. Considering that this is common , one wonders - wouldn't it be better investing the $19 billion in innovation, even if in non-related fields ?

ma2rten 11y ago
You mean like Xerox Parc?
pmorici 11y ago
Considering they are only over paying by roughly 10% if you assume the current stock price is fair then they are "only" throwing away $1.9 billion. They probably can't develop their own flash technology and build a fab for that amount of investment.
mbesto 11y ago
This is a common misconception by non financial people (no offense). You have to look at this from a finance and risk perspective. 1. Cash lying around in your bank account is usually a poor use of working capital (you are effectively "losing" money by it sitting in the form of cash) 2. Investing in "innovation" is always risky. Look at how many internal Google apps get scrapped a year or two into launch. They effectively write those off and it's a direct loss to Google's bottom line. 3. "Innovator's Dilemma" - big companies realize they are not the best suited to invest in innovation, hence why startups and buying them are actually a net positive for large businesses.
- petra 11y ago
  Bit first, this is not cash lying around, this is new debt. Second ,Even if you take all of Google's investments into innovation and and look at them combined ,they would probably offer a decent return on investment. Similarly if you look at intel capital's investments , you'll probably get a nice financial story + a decent strategic lever. Also from a pure financial perspective - sandisk has a profit of $1.22 Billion.That would take 15 years to repay. Isn't risky to make such long term investments in i a single investment , in tech , which is a dynamic field usually ?
- 212d1d 11y ago
  1. This is not cash in a bank. 2. Innovation is a requirement not an option. 3. Innovator's Dilemma completely contradicts the point you attempt to make in #2.
jo909 11y ago
To make some sort of (of course flawed) comparison: You want a nice house. You can drive around the neighborhood, look at what houses exist and inspect the house you are interested in from roof to cellar bevor making an offer. You adjust your price for the parts you think need renovating, market conditions etc. Banks will gladly finance the deal, you don't need to have very much money of your own. Or you buy an empty plot, buy a lot of materials, hire people to turn the materials into a house of your specifications. In many established neighborhoods it's very hard to even get an empty plot. Maybe you don't find the materials or people in the quantity or quality you want. Maybe your plans are not that good. Maybe the weather is bad and you take much longer than you planned, and you can't stop at half a house when you run out of money. If everything goes well you can get a better house for less money, but you have to be able to afford the risk.