But here WD bought SD for ~85-86$ per share, when it was worth ~75$ per share. It's at least 13% more.
Does it simply mean that WD hopes that SD will rise in value rapidly? Or I imagined company buying evaluation wrong?
If WD were to start buying sandisk share-by-share, then the price would go up. By the time they owned 50+% their average share price would be a lot more than $86.
Owning 100% of sandisk is more than 100 times as valuable as owning 1%. With 100%, WD can tell sandisk what to do, has access to their IP, can merge steps in the production process, etc.
And all too often written off after the acquisition doesn't pan out.
Considering that this is common , one wonders - wouldn't it be better investing the $19 billion in innovation, even if in non-related fields ?
1. Cash lying around in your bank account is usually a poor use of working capital (you are effectively "losing" money by it sitting in the form of cash)
2. Investing in "innovation" is always risky. Look at how many internal Google apps get scrapped a year or two into launch. They effectively write those off and it's a direct loss to Google's bottom line.
3. "Innovator's Dilemma" - big companies realize they are not the best suited to invest in innovation, hence why startups and buying them are actually a net positive for large businesses.
Also from a pure financial perspective - sandisk has a profit of $1.22 Billion.That would take 15 years to repay. Isn't risky to make such long term investments in i a single investment , in tech , which is a dynamic field usually ?
You want a nice house.
You can drive around the neighborhood, look at what houses exist and inspect the house you are interested in from roof to cellar bevor making an offer. You adjust your price for the parts you think need renovating, market conditions etc. Banks will gladly finance the deal, you don't need to have very much money of your own.
Or you buy an empty plot, buy a lot of materials, hire people to turn the materials into a house of your specifications. In many established neighborhoods it's very hard to even get an empty plot. Maybe you don't find the materials or people in the quantity or quality you want. Maybe your plans are not that good. Maybe the weather is bad and you take much longer than you planned, and you can't stop at half a house when you run out of money. If everything goes well you can get a better house for less money, but you have to be able to afford the risk.
The other way is to just buy up a majority of the public, voting shares, typically called a hostile takeover. This is the hard way, and can become extremely expensive if enough people decide they don't want to part with their shares except at very high prices. As you buy up shares the price will go up, so it ends up being a longer, more difficult, less certain, and more contentious way to buy a company.
http://www.amazon.com/Barbarians-Gate-The-Fall-Nabisco-ebook...
Alternative is that WD pays cash to stockholders they might have had lying around. Then issue debt in SanDisk and pay dividend upstream from Sandisk to WD afterwards. Bigger company, and bigger debt result, only different place for the debt. Sometimes tax incentives help which route to choose (private equity often loads up firms on debts, since interest is deductible).
Only way to 'pay less' would be (happens sometimes) that you can buy a company that holds a lot of cash, but that has a relatively low valuation one way or the other. Perhaps stockholders sense risks and don't expect dividends (market cap in that sense is expected value of future earnings plus lots of noise). Then you buy company, and use the cash for superdividend right away. Bigger company results, but with relatively stronger solvency since you've paid part from cash that was 'undervalued'.