Jonathan Schwartz explains how $1Bn in cash is actually better than $4Bn in cash:
Let's start with basics. Pat Martin and team have done a fantastic job turning StorageTek around. They're profitable, and cash flow positive. On a non-GAAP basis, combined with Sun, we believe the deal will be accretive (additive) to earnings within the first year. Making money is a good thing. (Sun employees will recognize that as Priority 1.)
On a cash basis, here's an even simpler calculus for non-accountants - although the deal takes $4.1 billion to complete, STK has $1 billion in cash - meaning it takes $3 billion net to acquire the company. On $3 billion in cash, Sun generates around $100M in interest income. Using the cash instead to own STK swaps our interest income for STK's net income and cash flow. Which both exceed, obviously, our $100M in interest income. The shareholders are better off.
On top of this, we get the benefit of a common corporate infrastructure, increased purchasing power with suppliers, increased coverage - opportunties that represent upside to the above figure. And that's before we get to new revenue opportunities.
I think he went to the Abraham Beame institute for Advanced Finance - Bill Lyons was the other well known graduate of that school. Remember this post I made over the weekend - now read the last paragraph above. I've seen the results of "common corporate infrastructure", and it's not pretty. Then he touts the acquisition of sales staff:
With this transaction, Sun and STK combine to create one of the largest dedicated storage sales and service forces in the world - and combining our product roadmaps makes us a supplier of the broadest product line in the industry. (And unlike other notable industry combinations, there is near zero product overlap or redundancy - so customers can be assured of a seamless transition and roadmap continuity.) With healthcare information privacy, Sarbanes-Oxley, new FDA regs, securities compliance - anyone want to bet against the growth of archival storage or information lifecycle management? We'll be 3,000 folks stronger in going after the opportunity (which, at last count, measures about $65 billion annually) - and not just with tape, but with the combined organization and roadmap.
All I can say to that is LOL. When PPS and Digitalk merged, the first people who bailed were the sales folks. Why? They knew that there was going to be a period of uncertainty during which commissions were going to be harder to come by. There are always other opportunities for good sales people - the best ones at StorageTek are either out the door already, or interviewing. What Sun is going to end up with the low performers.
This is an amazing post by Schwartz, actually. Sun has been hearing a crescendo of "WTF??" reactions from all over, so they have to explain what passes for strategic thinking there with an immediate post from the COO. There is an interesting side point here - the fact that they posted this to a blog rather than (or in addition to) a standard press release is interesting.