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I don't understand the stock market. VMW at $50B market cap equates to ~$120 per share. The Broadcom acquisition is for ~20% more, and yet, the stock price is a

I don't understand the stock market. VMW at $50B market cap equates to ~$120 per share. The Broadcom acquisition is for ~20% more, and yet, the stock price is at $120, not... $145 or something. Can someone more financially literate (or with direct experience in the stock market) explain this discrepancy to me? (comment made at ~9:33am ET, stock market opened a few minutes ago)

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phonon 4y ago
"Under the terms of the agreement, which has been unanimously approved by the boards of directors of both companies, VMware shareholders will elect to receive either $142.50 in cash or 0.2520 shares of Broadcom common stock for each VMware share. The shareholder election will be subject to proration, resulting in approximately 50% of VMware’s shares being exchanged for cash consideration and 50% being exchanged for Broadcom common stock. Based on the closing price of Broadcom common stock on May 25, 2022, the total $138.23 per-share consideration represents a 44% premium to the closing price of VMware common stock on May 20, 2022, the last trading day prior to media speculation regarding a potential transaction, and a 32% premium to VMware’s unaffected 30-day volume weighted average price (VWAP). Upon closing of the transaction, based on the outstanding shares of each company as of the date hereof, current Broadcom shareholders will own approximately 88% and current VMware shareholders will own approximately 12% of the combined company on a fully diluted basis. " [1] 1. The deal might not go through, or the terms might change. 2. You might not be able to get 100% cash for your shares. [1] https://www.vmware.com/content/dam/digitalmarketing/vmware/en/pdf/company/vmware-broadcom.pdf https://www.vmware.com/content/dam/digitalmarketing/vmware/e...
dodobirdlord 4y ago
If the stock is trading at $120/share that means everyone who owns stock (and is paying attention and offering it for sale) won’t sell for less than $120. But that doesn’t mean all of them, or even most of them, would sell for $120. Many of them probably believe their stock should be worth more than $120 and expect the price to go up in the future. So if you want to buy out the whole company you have to pitch a price high enough that a majority of shareholders (or the board of directors as their fiduciary proxy) agree to sell at that price. This is basically guaranteed to be a substantially higher price than whatever the current market price is, because if the average shareholder didn’t expect the stock price to go up, why are they holding shares? As the deal becomes increasingly likely to go through, the stock price will likely gradually shift up to match the deal price.
terra_ignota 4y ago
Your instincts are right, it's just that the price jump happened on Monday when the talks were reported in the press over the weekend. It jumped from ~$95 on the Friday close to $115 on the open, ~20%.

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phonon 4y ago

"Under the terms of the agreement, which has been unanimously approved by the boards of directors of both companies, VMware shareholders will elect to receive either $142.50 in cash or 0.2520 shares of Broadcom common stock for each VMware share. The shareholder election will be subject to proration, resulting in approximately 50% of VMware’s shares being exchanged for cash consideration and 50% being exchanged for Broadcom common stock. Based on the closing price of Broadcom common stock on May 25, 2022, the total $138.23 per-share consideration represents a 44% premium to the closing price of VMware common stock on May 20, 2022, the last trading day prior to media speculation regarding a potential transaction, and a 32% premium to VMware’s unaffected 30-day volume weighted average price (VWAP). Upon closing of the transaction, based on the outstanding shares of each company as of the date hereof, current Broadcom shareholders will own approximately 88% and current VMware shareholders will own approximately 12% of the combined company on a fully diluted basis. " [1] 1. The deal might not go through, or the terms might change. 2. You might not be able to get 100% cash for your shares. [1] https://www.vmware.com/content/dam/digitalmarketing/vmware/en/pdf/company/vmware-broadcom.pdf https://www.vmware.com/content/dam/digitalmarketing/vmware/e...

dodobirdlord 4y ago

If the stock is trading at $120/share that means everyone who owns stock (and is paying attention and offering it for sale) won’t sell for less than $120. But that doesn’t mean all of them, or even most of them, would sell for $120. Many of them probably believe their stock should be worth more than $120 and expect the price to go up in the future. So if you want to buy out the whole company you have to pitch a price high enough that a majority of shareholders (or the board of directors as their fiduciary proxy) agree to sell at that price. This is basically guaranteed to be a substantially higher price than whatever the current market price is, because if the average shareholder didn’t expect the stock price to go up, why are they holding shares? As the deal becomes increasingly likely to go through, the stock price will likely gradually shift up to match the deal price.

terra_ignota 4y ago

Your instincts are right, it's just that the price jump happened on Monday when the talks were reported in the press over the weekend. It jumped from ~$95 on the Friday close to $115 on the open, ~20%.