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The debt can be secured against the assets its buying, and if not explicitly secured, debt holders are still pretty high on the pecking order in bankruptcies.
by hga 10y ago
The debt can be secured against the assets its buying, and if not explicitly secured, debt holders are still pretty high on the pecking order in bankruptcies.
A major reason to do it is that in the US debt is massive tax advantaged compared to things like stock, and a major reason for entities to lend out money for something like this is how poorly other less risky vehicles are paying in this era of financial repression (http://lexicon.ft.com/Term?term=financial-repression http://lexicon.ft.com/Term?term=financial-repression or https://en.wikipedia.org/wiki/Financial_repression https://en.wikipedia.org/wiki/Financial_repression).
- samfisher83 10y agoTheir ip business is ridiculously profitable. Every cell phone sold whether they make it or not they get a cut. So no one would have issues lending to them.
- hga 10y agoI have every expectation it's "ridiculously profitable" (they don't, for example, reveal all the details of achieving good power consumption in their patents), but it's clearly not a big enough part of the company to avoid the terrible results baq highlighted in this comment: https://news.ycombinator.com/item?id=12804392 https://news.ycombinator.com/item?id=12804392 And it's very common for a company with a great cash cow to bankrupt themselves by going out of their area(s) of core competence ... which this acquisition might be a doubling down on. I.e. isn't Qualcomm fabless, while NXP has 8 sites according to this list: https://en.wikipedia.org/wiki/List_of_semiconductor_fabrication_plants https://en.wikipedia.org/wiki/List_of_semiconductor_fabricat...
- manarth 10y ago"they don't reveal all the details of achieving good power consumption in their patents" In general, that would mean the feature is not patented: the choice is usually between patent an invention (but it must be explicitly described), or keep it secret (but if anyone is able to copy it, they're allowed to do so). Patents are essentially an award of a short-term monopoly, as recompense for publicly disclosing an invention. If the invention is not sufficiently explained, then it's merely a trade secret, and can be copied without challenge.
- mtgx 10y agoEven so, we're seeing more and more companies use ridiculous amounts of debt for acquisitions. I think this is pretty clearly a consequence of dirt cheap debt, which may lead to another economy crisis in 5-10 years, because not all of these multi-tens of billions of dollars debt deals for acquisitions are going to be successful, and when they'll crash, they'll crash hard.