[scarface74]

This acquisition was essential free.

This time, really, the profits don’t matter: Microsoft is paying by issuing about 73 million new shares of stock, which cost it nothing. (It’s a tiny dilution, given the company’s 7.7 billion shares outstanding; what’s more, the share price rose on the news, which means that existing shareholders are happy to be diluted.)

https://slate.com/business/2018/06/microsoft-github-deal-why...

[kgwgk]

Using overvalued stock could make the acquisition “cheaper” than the sticker price (not really free). However, they’ve said they’ll do extraordinary buybacks to cancel the dilution in six months following the transaction. So unless the price of MSFT shares has a large correction during that period they are really going to spend over $7bn in cash.

[scarface74]

Just to add to your response and making assumptions about how you came up with the $7 billion....

The new stock is about 1% of the total number of shares outstanding. Thier total market cap is around. $785 billion. If they did a stock buyback to cancel the dilution it would be 7.85 billion.

My numbers are rounded - the new stock is actually less than 1% and the market cap as of right now is a little less than 785 billion so around 7 billion is more accurate.

[kgwgk]

I just rounded down (to give a conservative estimate) the $7.5bn I've seen everywhere. If they are giving them new MSFT shares worth $7.5bn, buying those shares back would cost around $7.5bn assuming the price doesn't move. Of course it may be significantly more or less that depending on the evolution of the stock price.

By the way, I said they will buy back stock in the next six months but it will be in the six months following the closing of the transaction (which is expected to take place by the end of the year). I've edited my previous comment slightly.

[endorphone]

That seems like spurious logic, especially given that Microsoft has spent many, many billions of their cash hoard on a stock buyback program (as does Apple, etc). By the broken logic of that Slate article, they're throwing money down a well foolishly because shares outstanding are "free".

Further, noting the current day price change is always the basis for countless nonsense articles. The shares haven't been diluted yet -- not until the deal closes later in the year -- and a temporary blip one way or another is close to meaningless.

[scarface74]

Remember that AOL was able to buy Time Warner with inflated stock. If you have inflated currency (I.e. stock), why not use it to buy some real assets?

[endorphone]

Whether a share price is inflated or not is always a point of contention -- if it's so obvious we can all buy our put options and retire on our riches. However Microsoft could literally have sold $7.5B worth of new shares and given that money to charity (which, in turn, would have been a nice tax benefit).

That money is very real, and there is nothing free about it.

[scarface74]

Whether a share price is inflated or not is always a point of contention -- if it's so obvious we can all buy our put options and retire on our riches.

"The market can stay irrational longer than you can stay solvent".