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Chapter 401 A Merger and Acquisition That Shook the Market

On July 4th, the global technology industry received a major piece of news.

IBM held a press conference to officially announce a strategic acquisition agreement with GenTek.

Although the press conference did not disclose many contract details, it can be confirmed that the core terms of the acquisition are that GenTek will acquire IBM's hard drive business unit with its 40% stake.

This transaction quickly became the focus of the global financial world, with major financial media outlets and online platforms reporting on it extensively. Market participants speculated about other terms behind the deal, including whether GenTek paid additional cash besides the 40% stake, and how much.

In terms of scale, although IBM's hard drive business is declining, it still has a huge customer base in the global market. ZhenTek dominates the 1.8-inch hard drive market and has no shortage of orders, but its overall scale is still significantly smaller than IBM's hard drive business.

It is clearly impossible to complete the acquisition of IBM's hard drive division by offering only 40% of the equity.

After the stock market opened, IBM's stock price surged rapidly.

It's no secret in the industry that IBM is pursuing a strategic transformation. However, this may not be clear to ordinary investors. The hard drive business is still in high demand and popularity in the market. IBM's decision to sell this business at this time inevitably raises speculation about whether there is a major crisis within IBM.

However, institutional investors who are aware of IBM's transformation interpret this deal in a completely different way.

IBM's sale of its hard drive business will allow it to invest the proceeds in emerging business areas with greater growth potential. This will not only optimize IBM's business structure and accelerate its strategic transformation, but also enhance its overall profitability and market competitiveness.

More importantly, IBM has not completely abandoned the booming hard drive industry. By holding a 40% stake in GenTek, it can still deeply share in the dividends brought by the hard drive business.

Just two months ago, Hitachi of Japan officially launched its own 1.8-inch hard drive product, becoming the second company in the world to mass-produce 1.8-inch hard drives, attempting to gain a share of this niche market. However, thanks to its leading technological advantages and product stability, GenTek still firmly controls more than 80% of the 1.8-inch hard drive market share.

Globally, both professional market research institutions and industry competitors generally believe that no hard drive manufacturer can effectively challenge GenTek's dominant position in the 1.8-inch hard drive market in the short term.

The most crucial reason is its cost-effectiveness.

Neither Japanese hard drive manufacturers nor other American manufacturers can compare with GenTek in terms of labor costs.

This allows GenTek's 1.8-inch hard drive products to be of higher quality and technology than yours, while also being cheaper.

Hitachi's current small share of the 1.8-inch hard drive market is entirely due to the fact that GenTek's production capacity is limited and cannot fully meet market demand, allowing Hitachi to take advantage of the situation.

Once GenTech's second Gigafactory in Hsinchu is completed and put into operation, GenTech's production capacity will be greatly increased, enough to meet the global market's full demand for 1.8-inch hard drives.

Based on the assessment of GenTek's dominant position in the 1.8-inch hard drive market, after GenTek's products became a hit, American hard drive manufacturers did not choose to invest resources in the research and development of 1.8-inch hard drive products. A few manufacturers that had tried to enter this field have also recently chosen to give up.

This is mainly because the return on investment is too poor. In terms of industry scale, the total output value of the 1.8-inch hard drive market is less than one-tenth of that of the 3.5-inch hard drive market.

If GenTec hadn't almost monopolized the market, ensuring a stable revenue stream, no other manufacturers would have been envious.

This is why institutions are optimistic about IBM stock. By holding shares in GenTek, IBM has shared in the market's profits and achieved business optimization and asset appreciation.

But less than a day later, as the Nasdaq market was about to close, the institutional investors who had bought IBM stock suddenly realized that they seemed to have bought at a high price and were now trapped.

In a high-end hotel in Albany, New York, Ernst, Affiliate Scott, and Leam Lehman, who had come specifically for the occasion, were sitting in the reception area, and the conversation turned to IBM.

"These money-grubbing bastards really don't miss any opportunity." Ernst's words carried a hint of sarcasm. He had sensed something was off from the IBM press conference that morning.

At the press conference, IBM remained tight-lipped about the positive aspects of the acquisition, revealing no details that could further support the stock price increase.

Ernst suspected at the time that IBM's shareholders were likely using the acquisition to manipulate stock prices and seek illicit gains.

When he learned from Leam Lyman that IBM wanted GenTek to disclose the specific amount of the acquisition, he became even more convinced of his judgment.

Sure enough, just before the Nasdaq market closed, GenTech's official website suddenly updated with more details about the acquisition.

According to information disclosed on the official website of GenTek, GenTek acquired IBM's hard drive business unit by paying only 40% of its equity, without attaching any additional conditions or paying any additional cash consideration.

Reporters sprang into action, eager to find out why IBM had made such a foolish decision.

In terms of revenue data, IBM's hard drive business, due to its declining market share, did not show a significant difference in overall revenue compared to GenTek.

In terms of asset size alone, the gap between the two sides is enormous.

In terms of production lines alone, IBM's capacity is more than three times that of GenTek's existing capacity, not even counting IBM's assets in terms of technology patents, warehouse land, office facilities, etc.

If ZenTek gradually relocates IBM's hard drive business production lines to Asia after the acquisition, making full use of Asia's labor costs to reduce the production costs of IBM hard drive products, how much would the large land asset left behind by the IBM factory be worth?

Land prices in the United States are low, but the land area is large and the location is good.

These factories were built in the 1950s and 60s, and with the city's planning, it wouldn't be an exaggeration to call it the city center.

Whether these lands are used for secondary development, leasing, or sale, they can bring substantial profits to Gentex.

Wall Street analysts have stated that if IBM's hard drive business were valued separately, it would be worth more than twice the current overall valuation of GenTek.

Now you're telling me that someone's assets, valued at twice the amount, were only exchanged for 40% of their equity.

This isn't even bad news? Isn't that just utter idiot?

"Just watch, the negative news for IBM is likely to continue for some time."

Leam's face showed disbelief. "You mean, the high IBM stock price this morning was actually deliberately created to allow some IBM shareholders to cash out?"

Ernst nodded. "Next, barring any unforeseen circumstances, IBM will regularly use various means to suppress its own stock price in order to clear out retail investors and some weak-willed institutional investors from the market."

"When the orders I bring to IBM are able to significantly increase IBM's revenue, that will be the moment when IBM's stock price makes a dramatic comeback."

"At that time, IBM will release a series of positive news, driving the company's stock price to a new high."

They will then look for new buyers to complete another round of exploitation and maximize shareholder profits.

After listening to Ernst's analysis, Lyom Lyman exclaimed, "Isn't IBM afraid of being investigated by regulatory agencies for this stock price manipulation?"

"An investigation?" Ernst gave a knowing smile, as if to say, "You're still too naive." He looked at Leam and said, "In this market, the referees are all someone else's. How can you investigate?"

"Who are the shareholders behind IBM? They have deep connections and powerful influence in the political and business circles. Who dares to investigate?"

"6

Seeing the confused and disbelieving look on Leam Lehman's face, Ernst was able to understand, after all, the influence and image of the Blue Giant in the United States were unmatched by other companies.

Apart from AT&T, even Microsoft can't compare.

If IBM is like this, one can imagine how many unknown shady dealings other companies might be engaging in in the capital markets.

This is also an important reason why Ernst let Leam work in the family office. An excellent lawyer not only needs to have solid professional knowledge and superb business skills, but also needs to adapt to the malicious eyes of the market and profit from the black market.

Ernst glanced at his watch. "Alright, everyone go back and rest. Get plenty of rest. We'll meet in the hotel lobby at six o'clock to attend tonight's cocktail party."

The American Retail Industry Conference was held this afternoon. Ernst went to the venue, listened for a while, and then left because he found it boring.

Tonight's cocktail party is the real focus for him; he's here to network and discuss collaborations, not to listen to reports.