To: Sr K who wrote (176306 ) 10/21/2011 7:21:06 PM From: John Koligman 2 Recommendations Respond to Another positive is that so far Mikey has been buying companies to fill holes in Dell's portfolio and not paying up huge. HPQ has been paying up huge, and this excerpt is telling... HPQ's Autonomy buy kinda reminds me of when Nokia coughed up 8 billion to buy NAVTEQ for it's mapping services.... Leo’s parting gift to HP was the acquisition of Autonomy — UK’s largest software maker. Autonomy had a sales of $949 million! The price HP paid was 10 times the sales. The value of something lies in the eyes of the beholder, but let's see if this was a good use of cash for HP. HP announced that it will be putting off its share repurchases because of this deal. If HP would have bought its shares with the $10 billion it is using to acquire Autonomy at the current depressed levels, and used the generated FCF to buy shares too, it would end up buying all outstanding shares in five to six years. This will create some serious returns for the shareholder! To put the overpayment in perspective, the cash represents 20% of the current market cap of $50 billion but the Autonomy’s sales represent only 0.7% ($929 million/$126 billion) of its revenue. If HP only used the $10 billion cash to buy back its stocks then this would have increased EPS and dividend by almost 15%. Autonomy will never be able to increase either EPS or dividend by that much. That is some serious overpayment. This is not the first time HP has overpaid for a company. HP paid $2.3 billion for 3Par, after a bidding war that erupted for the company between HP and Dell ( DELL ). Dell walked out of the deal and 3Par paid $92 million to Dell in termination fees. HP ended up paying a price that was 11 times its earning and 3 times its market cap! Bill Ackman says the following about HP:
