Facebook today announced that it has reached a definitive agreement to acquire Oculus VR, Inc., the leader in immersive virtual reality technology, for a total of approximately $2 billion. This includes $400 million in cash and 23.1 million shares of Facebook common stock (valued at $1.6 billion based on the average closing price of the 20 trading days preceding March 21, 2014 of $69.35 per share). The agreement also provides for an additional $300 million earn-out in cash and stock based on the achievement of certain milestones.
There’s rounding right there (23.1m * 69.35 is not a round number). And there’s plenty of uncertainty about how much they will actually pay: how can anyone know how much of that earn-out will ultimately be paid?
There’s rounding right there (23.1m * 69.35 is not a round number).
That sounds backwards to me. It looks to me like they started at the round 2.0, set 20% in cash, 80% in stock, found that required 23.1m shares of facebook and rounded that to three digits to get within 2% of the 1.6 they wanted.
Also, the incentive pay of 300m is 15% of the fixed payment, less uncertainty than rounding to 1 significant figure.
It absolutely could be all of the above! But see I write questions like this fairly frequently: I notice something surprising and don’t have a good explanation for it. I then write down the question and pose a couple possible explanations which makes me think of more possible explanations. Frequently I realized that taken together the possibilities I thought of are enough to explain what I was surprised at and I don’t even ask the question. Other times, like this one, I still feel like I’m missing something. So I ask the question.
In this case it looks like the biggest thing I missed was how much these sales’ values depend upon the moment-to-moment stock prices of the parties involved and so that not rounding them hardly even makes sense, as you and bramflakes point out. Thanks!
Why not all of the above? We can see some rounding already; http://investor.fb.com/releasedetail.cfm?ReleaseID=835447 says
There’s rounding right there (23.1m * 69.35 is not a round number). And there’s plenty of uncertainty about how much they will actually pay: how can anyone know how much of that earn-out will ultimately be paid?
That sounds backwards to me. It looks to me like they started at the round 2.0, set 20% in cash, 80% in stock, found that required 23.1m shares of facebook and rounded that to three digits to get within 2% of the 1.6 they wanted.
Also, the incentive pay of 300m is 15% of the fixed payment, less uncertainty than rounding to 1 significant figure.
It absolutely could be all of the above! But see I write questions like this fairly frequently: I notice something surprising and don’t have a good explanation for it. I then write down the question and pose a couple possible explanations which makes me think of more possible explanations. Frequently I realized that taken together the possibilities I thought of are enough to explain what I was surprised at and I don’t even ask the question. Other times, like this one, I still feel like I’m missing something. So I ask the question.
In this case it looks like the biggest thing I missed was how much these sales’ values depend upon the moment-to-moment stock prices of the parties involved and so that not rounding them hardly even makes sense, as you and bramflakes point out. Thanks!