EMC How high can it go? Message Board

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Technology Stocks : EMC How high can it go?

EMC 29.05

0.0%

Sep 15 5:00 PM EST

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To: Proud_Infidel who wrote (13728)	1/11/2002 4:04:17 AM
From: Gus	Read Replies (3) of 17183

Dumb rumor. 1) Even if the deal can pass regulatory muster -- and I don't think it can -- I don't think IBM can afford to pay what EMC thinks it's worth. The initial bid itself would be a distinct gamble without regulatory certainty that will end up being disruptive to IBM's own storage operations. 2) IBM can't afford to pay all cash for EMC without taking on massive amounts of debt even at today's trough valuation of nearly $36B. IBM's only currency for buying EMC is a combination of cash and common stock. That common stock component will start depreciating as soon as the deal is announced. Pretty soon the vicious circle of depreciating stock and inevitable market share losses will hasten the exodus of more EMC personnel leaving IBM management open to more questions about a 1+1=1.5 or less major acquisition. Those questions will most assuredly damage IBM's ongoing campaign to be judged on the basis of its ability to post consistent high single-teen growth in sales and mid-teen growth in earnings. At $88B in annual revenue, high single-teen sales growth is already harder than it sounds without the major complications of integrating two vastly differing corporate cultures. 3) Under new purchase accounting rules, IBM has to carry GOODWILL -- the difference between purchase price and fair market value of assets -- on its balance sheet. It would also be legally required to assess the impairment of that Goodwill EVERY year. Why would IBM want to do that with at least $30B in Goodwill from the acquisition assuming no premium to today's stock price? 10% impairment in one year, for example, would mean a $3B non-cash charge in an environment where pro forma accounting is increasingly under attack. 4) IBM and EMC have a technology cross-licensing agreement so both companies already have access to each other's technology. 5) EMC doesn't need IBM. IBM doesn't need EMC. If IBM takes out EMC, that only creates a large, gaping hole in the marketplace for another EMC-type-of-company to balance IBM's dominating market position just like 1990 when IBM had 75% of the $8B mainframe storage market and the 3 Stooges had the other 24%. That means yet another incentive for key EMC talent to walk out of the door to join the easily well-financed EMC-by-any-other-name start-up as soon as their non-compete agreements expire. At the end of the day, IBM will risk nearly everything it has worked for in the last 8 years to buy an asset that will start depreciating heavily as soon as they buy it. Even IBM is not that dumb.

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