[thetrb]

So how can a company that has a market cap of around 8 billion buy another company for 16 billion?

Are they mostly doing this by taking on debt?

[rgbrenner]

Some stock.. some of Sandisk's cash.. but yes, mostly debt:

SanDisk shareholders will receive $67.50 in cash and 0.2387 Western Digital share for each share of SanDisk stock.

http://www.investors.com/news/technology/western-digital-now...

What many investors remain concerned about is that Western Digital is planning to offer some $17 billion or so in debt to help pay for the SanDisk buyout. Of that large sum, $3.0 billion will be a bridge loan. The rest is a set of traunches that are secured and unsecured debt. The company also telegraphed that it should be able to tap $4 billion of SanDisk’s cash to repay the bridge.

http://247wallst.com/technology-3/2016/03/09/did-western-dig...

[lucaspiller]

> The company also telegraphed

I assume this is business lingo for something, and doesn't mean they sent an actual telegraph?

[AJRF]

Telegraphing can simply mean the act of displaying something outwardly.

Used extensively in the context of E-Sports when someone does something that the other player can see and prepare for.

[jcadam]

Or in boxing, "telegraphing" a punch, where you draw your arm back making it obvious what you're about to do so that you're opponent can prepare to block/dodge/counter/etc.

[AJRF]

Exactly correct. Perhaps your example is a little more relevant than mine.

[StavrosK]

Basically, "indicated".

[godzillabrennus]

What a strange world we live in...

[lmm]

Do you know anyone who's ever bought a house on a mortgage? Exactly the same thing.

[executesorder66]

Why didn't the companies just merge? Would that not have been cheaper?

[lmm]

They partially did (those who were shareholders in SanDisk get some cash and some shares in the new company). You could view the transaction as equivalent to merging, taking on some debt, and paying a dividend with that debt - though only to the SanDisk shareholders, not the Western Digital ones. Arguably this is fairer in that SanDisk shareholders are people who believe in the SanDisk management team whereas Western Digital shareholders believe in Western Digital's management team (who will be in charge going forward), so they partially cash out the SanDisk shareholders.

In theory it costs the same either way (Modigliani–Miller). In practice debt financing is more tax-efficient, and lets you offer a variety of risk levels to financiers with different risk appetites (which in theory they could always replicate themselves with exotic option trades, but in practice they don't).