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> Wouldn't doing due diligence mean you spend this time, however long it requires, to find out the reality of the company? Possibly, but consider my analogy of
by chollida1 14y ago
> Wouldn't doing due diligence mean you spend this time, however long it requires, to find out the reality of the company?
Possibly, but consider my analogy of buying a house.
When you do a house inspection you get a professional to do it for you. You have to trust his opinion in a lot of cases and in even more cases you understand that he can't vouch for some things.
ie wiring behind walls, mold checks on hidden surfaces, foundation cracks behind finished walls.
if you wanted to do all this on your house inspection you'd have to kick out the tenants for 3-4 weeks and tear the house down to the studs to be 100% sure there were no problems.
Now go back and consider the purchase of a company by another. If they wanted to know every detail it would take 2 years and shut down the company being aquired while they do it.
No sane company would ever agree to that so you have the situation we currently have where you negotiate what the acquiring company can see and what the break fee is if they walk away.
Sadly the diligence phase is often farmed out to an IB who has no interest in seeing the deal break.
- loceng 14y agoOkay, sure. Though it's $8 billion; 80% of the value paid! It seems like the there would have been wiring exposed, pipes burst and water leaking and doing external, visible damage..
- josephlord 14y agoThere was a common view at the time that they had significantly overpaid and that was based on the straight books. Also only $5BN of the write down was for Autonomy. If they overpaid by 100% (possible as they paid 64% over the share price which could also have been overvalued) then it could be that accounting irregularity accounts only for a fraction of the write down. 10-20% of the purchase price feels as likely as 80% but we may see when it is investigated. http://www.hp.com/hpinfo/newsroom/press/2011/110818xc.html http://www.hp.com/hpinfo/newsroom/press/2011/110818xc.html
- loceng 14y agoAh okay, thanks for clarification. Not as dramatic then.
- josephlord 14y agoMore like we don't know yet. It could be but I wouldn't jump to the 80% accounting/audit error/failure at this point.