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I agree that paying in new shares doesn't make the acquisition free. But the value of shares is an expectation of future cash flows. If that expectation is curr

I agree that paying in new shares doesn't make the acquisition free. But the value of shares is an expectation of future cash flows. If that expectation is currently on the high side for Nvidia and on the low side for Arm then paying in shares makes the acquisition cheaper for Nvidia than paying cash. Nvidia is essentially telling us that they think their shares are currently richly valued. I agree with that.

bananaface 6y ago
Not necessarily. They could just prefer to be diversified. It can be rational to take a loss of value in the pursuit of diversification (depends on the portfolios of the stakeholders). They could also think their shares are valued accurately but believe the benefits of synthesis would increase the value.
- fauigerzigerk 6y ago
  How would any of that make payment in shares beneficial compared to cash payment?
  - bananaface 6y ago
    $12B cash appears to be all they have available. They can't pay more cash. https://www.marketwatch.com/investing/stock/nvda/financials/balance-sheet https://www.marketwatch.com/investing/stock/nvda/financials/... Their only other option would be taking on debt.
    - fauigerzigerk 6y ago
      Right, so Nvidia with their A2 rating and their solid balance sheet in a rock bottom interest rate environment still found it favourable to purchase Arm with newly issued shares. That's telling us something about what they think about their share valuation right now.
      - xxpor 6y ago
        Perhaps there are tax implications?
      - bananaface 6y ago
        That's not how interest works. "Low rate environments" are low rate because debt is less attractive than in a high rate environment. Debt isn't automatically preferable when interest rates are low - if it were, rates would rise. There's no free lunch. All it tells you is that they think it's preferable to taking on debt, which in some sense is the position you always start from. Debt has a deadweight cost that you have to overcome. But we can test your theory. You're saying they thought their shares were overvalued. The market's reaction was the opposite - announcing the deal bumped their share price 7.5%.

bananaface 6y ago

Not necessarily. They could just prefer to be diversified. It can be rational to take a loss of value in the pursuit of diversification (depends on the portfolios of the stakeholders). They could also think their shares are valued accurately but believe the benefits of synthesis would increase the value.

fauigerzigerk 6y ago
How would any of that make payment in shares beneficial compared to cash payment?
- bananaface 6y ago
  $12B cash appears to be all they have available. They can't pay more cash. https://www.marketwatch.com/investing/stock/nvda/financials/balance-sheet https://www.marketwatch.com/investing/stock/nvda/financials/... Their only other option would be taking on debt.
  - fauigerzigerk 6y ago
    Right, so Nvidia with their A2 rating and their solid balance sheet in a rock bottom interest rate environment still found it favourable to purchase Arm with newly issued shares. That's telling us something about what they think about their share valuation right now.
    - xxpor 6y ago
      Perhaps there are tax implications?
    - bananaface 6y ago
      That's not how interest works. "Low rate environments" are low rate because debt is less attractive than in a high rate environment. Debt isn't automatically preferable when interest rates are low - if it were, rates would rise. There's no free lunch. All it tells you is that they think it's preferable to taking on debt, which in some sense is the position you always start from. Debt has a deadweight cost that you have to overcome. But we can test your theory. You're saying they thought their shares were overvalued. The market's reaction was the opposite - announcing the deal bumped their share price 7.5%.