In the world of mergers and acquisitions there are 2 distinct parts to the proposal. The first is how does the company add value to the existing shareholders and with many mergers it is easy to see. There are natural extensions of what the company is doing now. The questions are what talent is coming, did the company get the right price at the right time to do what it needs to do. The second distinct phase of an acquisitions is selling the merger to government officials or non direct shareholders. Somewhere in government are levers to make the merger go smoothly or throw wrenches into the operations. If the company has not thought about both distinct phases problems will happen.
In an article by Kate Holton and Douglas Busvine of Reuters, in the example of Nvidia, the company is headquartered in the US and at the present time has the best chips for gaming, AI, smartphones and a host of other uses. Nvidia wants to purchase Arm Ltd based in London, UK for $40 billion from Japan’s Softbank Group Corp. In terms of increasing the use of chip design, the deal makes a great deal of sense for Nvidia.
In London, Arm is a handful of global tech companies headquartered in the London area, in this case Cambridge. One of the most important institutions around Cambridge is the University. Similar to many university towns and cities, a growing technology complex has grown around it including Arm. Therefore Nvidia has promise to invest $40 billion including more jobs and more R&D in England. At one time, the idea of a merger was to send more jobs back to where the company was headquartered and leave servicing and distribution in the merged company. Now days, particularly with COVID and technology jobs, governments are trying to secure as many jobs as possible in their jurisdiction.
Linking to dividend paying stocks, these are the companies with the continuing cash to invest in mergers and every year or two, there is a merger and acquisitions. The basis used to be the spreadsheet and how much more the possible company can add and where costs can be cut. In these days, the added feature is what does the different levels of government say or will do both in terms of politics and using their purchasing powers?
There are more questions than answers, till the next time – to raising questions.