This past weekend I attended the Financial Asset Management V conference in San Francisco, CA. One of the panelists cited re-shoring of jobs as a positive he sees in the economy. Add Apple to the list for [finally] bringing some jobs back here to the U.S.A. Let’s hope this practice continues.
In one of the FIN101 sections this week we discussed targets and acquirers. I said the acquirer’s stock price tends to drop and the target’s stock price tends to rise. This recent article in the New York Times makes a similar comment:
“Verizon shares are about the same as they were before rumors of the deal surfaced last week, even though the share price of the acquiring company usually drops.” [emphasis added]
Let’s look at the math of the acquisition. If Vodafone’s 45% stake is worth $130B then Verizon’s total value is $130B/0.45 = 289B. That is $159B for Verizon’s 55% and $130B for Vodafone’s 45%. The NYT article suggests the Enterprise Value is $176B, but that number does not include Minority Interest (which is 52.376B as of the 2013.12.31 balance sheet). So let me calculate what Vodafone is worth:
Enterprise value = Market cap + debt + minority interest + preferred stock – cash and cash equivalents
= 132.61B + 47.618B + 52.376 + 0 – 3.093B = 229.503B
Therefore Vodafone’s 45% is: 0.45*229.503B = 103.28B
So why is Verizon overpaying by roughly 30 billion dollars? Who knows? Perhaps some of the board members, executives, or large shareholders of Verizon are also shareholders of Vodafone. Good for those folks, but not for the remaining shareholders.
If you factor in VZ’s current P/E (84.87) and P/B (3.92) that enterprise value of 229.503 seems inflated. So apparently the offer for Vodafone’s interest includes a mix of the overpriced stock and cash. Maybe it is a fair deal…
I don’t have a Facebook account. Call me old school, but according to this article I am happier! May you all be happy as well, Facebook or no Facebook.
By the way, anyone entering into a short position on Facebook stock?
Netflix is cool technology but how does it increase productivity in a Schumpeterian context? In that context productivity enhancing technological progress leads to economic growth. How is getting the [relatively few] remaining Americans who are not Netflix subscribers going to lead to productivity enhancement and subsequently economic growth? The same argument applies to Facebook.
Perhaps streaming video saves time and money related to driving to Blockbuster and picking up a movie. But do we do anything with the time and money savings? Do we just spend that saved time and money consuming more Netflix content?
A 30% jump in value in one day because of one earnings report? Something is fishy here. Buyer beware, and I am referring to stock investors and advertisers on Facebook. I still don’t have a Facebook account. For others, when was the last time you clicked on an advertisement and spent money?
Some positive hiring news from Ford. Now, any engineers out there want to move to bankrupt Detroit? Real estate may be cheap…
The articles on 3D printing keep coming in. As I said before, this has the potential to be the productivity enhancing technological progress that leads to economic growth. If done correctly, it can be positive for the environment.