Assessed Blog 6 Merger and acquisition-Intel 

In this week lecture,l have learnt about the company merger and acquisition.This is a financial part which make me really interested in,if you look back at my blog,l have list many example about the company merger and acquisition.Like the Chinese real estate company Vanke’s takeover defense,and the downfall of the RBS because of the acquisition of Dutch bank without due diligence.Initially,maybe is the affection of this acquisition failure and defense news experience,to be frank,in my opinion,l think merger and acquisition is not good for a company,especially when they offer such a large premium to the target company which means the loss of the shareholder of bidding company,if the merger is failed,it also will cause a big issues in bidding company’s share price or the liquidity(if they purchased in cash). However,the formula PVAB = PVA + PVB + gains has reminded me that if the company does sufficient research into the area they want to expand,and there exist actual potential profits,such merger or acquisition indeed can bring both company highly returns.

Recently,the chipmaking giant said that they will pay 15.3billion pounds to buy Mobileye,the maker of autonomous driving technology, in one of the biggest deals yet in the emerging field of self-driving cars and Israel’s biggest-ever cross-border acquisition.It should be noted that Intel has paid a lot premium through this deal.Based on FT, the $63.54 per share that Intel is paying is a 34 per cent immediate premium,and all the money is paid by cash.Up to know,l have wondered that did this deal really can reach the expectations of Intel executives?l mean such a big premium will lead to the increase of cost of capital and damage the wealth of shareholders.Even worse,such big payment all paid by cash will seriously affect company’s liquidity.So,what is the real situation of this deal?

Excellent development prospects

If we look into the self-driving industry,it has a huge potential recent years,with the explore of the Silicon Valley,there are already number of cars test in road in street.For example,in California,the number of self-driving car has surged.To go further,l believe this application will spread allover the world,most driver will be placed by advanced software.It will be a big reform of the traffic industry,

Highly technology

The other factor l believe make these two companys together is that they both own best technology in their field.For Mobileye,they own a technology in self-driving called REM,compare by just use the images of the inter connection in cars,signals,and street videos.This can help save the cost,but need a highly advanced connection technology which is the cloud computing technology by Intel,so it is a good combinatioto the traditional self-driving technology highly rely on the LIDAR,this method can save a lot cost n between this two company to share their experience.

Enough cash flow and well-prepared

Through the research,l believe there will not liquidity problem exist inside Intel company.First,some people say that Intel has missing out in large part on the mobile-device revolution and allowing its once seemingly insurmountable lead in semiconductors slip away.But if we look at that time’s data,we can find Intel deal well with their company’s strategy and company’s wealth.  

in market,Intel has dig deep whether in technology or in capital.In particular, both net income and free cash flow have jumped in the years since the financial crisis, with volatile movements from year to year masking, in some ways, Intel's overall upward trend. As revenue has grown, Intel has ensured that more money falls through to its bottom line, supporting its profitability, its return of shareholder capital through buybacks and dividends, and its positive overall cash flow.Moreover,the missing time of the mobile phone period has stimulated lot of capital for Intel to invest in today’s strategy.And if we do deep research into the activity of Intel start in 2016,we can find they do really prepare in exploring in autonomous vehicle market,in April,they takeover a Italian company called Yogitach which is focus on developing chip for self -driving and robot.In May,by takeover a Russian company called Itseez for improving the car safety systems.In September,takeover a semiconductor chip makers which is professional in development of visual chip.It is not hard to reveal the purpose of Intel want to expand a market in self-driving market.Unlike the RBS(blog 2)without due delligence

Unique transaction

If we go into the deal,we may find that this transaction is unique.From the Mobileye report,it said that instead Mobileye will be integrated into Intel,Intel’s automatic Driving group(ADG)will be integrated into Mobileye,and the headquarter will still located in Israel.Whether or not,l believe this is a benefit action both for Intel and Mobileye,for such technology company,it is important to remain their corporate culture and space for self-development,too much dominate for Intel may eliminate the corporate identity,so it is wise for Intel to give a assistance to Mobileye rather than to control them.   

After the acquisition information has published, the share price of Mobileye has rocketed,obviously,the merger by Intel is a great positive motivation for Mobileye, all cash payment is extremely important for this kind of technology company which means they can invest them in where they want to push their reform and innovation. By contrast,Intel experienced a downward of its share price,because of the decrease of its cash flows which makes me think about the assessing success in merger and acquisition in lecture when a merger is success the target will gain 20% in average but the bidding company may gain nothing at first.

On conclusion,in my view,l believe this will be a success acquisition for Intel.The cautious market research,and the brilliant market prospects can afford a affordable gain for Intel.But to be honest,it is still a long way to implement completely automatic driving period,and there still many competitors devoted into develop more sufficient self-driving systems.It is expected that these two company combination can create more value for their shareholder.