victor,
What you described is an LBO. An LBO only works when the sum of the parts is worth less then the parts.
I know about arbitrage. Selling at a present value price that would vary depending on the closing date. That really doesn't happen right away on big deals. It does on small deals. Think about it. FTC approval, JD approval, European approval of some type.
First, if you are going to buy CPQ, you don't mess around with buying 5% before sitting down with management. Amateurs do that. Second, most companies subject to an LBO want the LBO for various reasons. One of the reasons is that they can unload tons of stock or stock options at a good price. The old hostile LBO doesn't happen very often anymore.
You hit an area I have experience with. The goodwill in the Compaq name alone is worth $20 to $30 a share. Let's say $25 a share. El's mild review of investments reveals another $6 or $7 billion. Cash is about $4 billion. That is roughly about $7 a share. That brings us to $32 without even touching the core business or intellectual property. Do you want to sell the core business for $18? Stop and think like a business person.
In an LBO, you don't want to pay any goodwill. If you pay for the brand name, the sum of the parts is worth more then the parts, and that is a money loser. After all, in an LBO you want to use the company's money to pay for the stock not your own.
NW |
