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Takeover Of salesforce.com, inc. (NYSE:CRM): How Much Profitable?

As per the industry experts, the acquisition of salesforce.com, inc. (NYSE:CRM) by any company will not only come with an expensive price tag but will also hurt the profitability of buyer company. The software provider valued at around $49 billion would hurt earnings for companies from Oracle Corporation (NYSE:ORCL) to International Business Machines Corp. (NYSE:IBM) and Microsoft Corporation (NASDAQ:MSFT) that belongs to list of possible suitors.

The details

The experts stated that earnings of the technology company could reduce by as much as 18%. It indicates that buyer would require cutting costs by $3 billion to offset the drop in profits and break even on the acquisition deal. John Difucci, an analyst at Jefferies Group, said that it would shock market if a disciplined acquirer spends such a vast amount on salesforce.com. It would come as a surprise even if a relatively undisciplined company acquires Salesforce, given the risk and size of service provider.

The calculations

SAP SE (ADR)(NYSE:SAP) and Google Inc (NASDAQ:GOOGL) profits could also take a hit with such kind of acquisition. The experts used pre-synergies calculation with a supposed acquisition price of $85 a share for Salesforce.com, funded 75% with buyer’s stock and the rest with cash. CRM shares traded at $73.80 at 11:00 a.m. in New York on Thursday.

The deal is considered as dilutive in the existing merger market. Most of acquisitions recorded recently are estimated to boost earnings quickly by reducing costs to expand margins. As a result, most of the stocks related with acquisition news have recorded strong gains after the news. However, it is not the case with Salesforce.com.

The management speaks

SAP CEO Bill McDermott said that the company has “zero interest” in software provider Salesforce. Salesforce CEO Marc Benioff and McDermott held talks last year about possible deal between the two companies. Microsoft reported that it isn’t in discussions with Salesforce for a possible deal.

Published by Duncan Oleinic

Duncan Oleinic is from New Yourk. After graduating with a degree in physics, he began his career as an analyst in a broking firm. Through this experience he was able to advance to the role of correspondent for a U.S based financial news provider, where he worked from 2001 to 2007. He subsequently joined a merchant banking firm as a financial analyst focused on valuing unlisted companies in the sub-continent. Over the course of his two years here, he performed valuations of several media companies which were later acquired by peers.

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