When the Market Fails

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Here’s the latest in capitalism:

Qualcomm Inc. rejected Broadcom Ltd.’s unsolicited $105 billion offer, setting up a potentially hostile showdown between two giants of the chip industry over what would be the biggest technology takeover ever….In a statement Monday, Qualcomm’s board said the offer, which Broadcom submitted last week, dramatically undervalues the company and comes with significant regulatory uncertainty.

For the past year, until Broadcom made its offer, Qualcomm’s market cap has been around $80-85 billion. Anybody could come in off the street and buy Qualcomm stock that valued the company at that price. But if someone offers to buy all the Qualcomm stock at that price, suddenly capitalism has gone bonkers and the price signal of the market is off base by 30 or 40 percent.

Company boards routinely reject offers like this, and to the extent that it’s just a negotiating tactic I suppose no harm is done. But all too often it’s sincere. Management doesn’t like the idea of losing their prestigious jobs and the board goes along, so they propagate the fiction that their company is really worth a lot more than the market says it is. If it were put to a vote of stockholders, I wonder how many would agree? If it were me, I’d pocket the immediate gain and then invest it somewhere else. Why wait?

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THE BIG PICTURE

You expect the big picture, and it's our job at Mother Jones to give it to you. And right now, so many of the troubles we face are the making not of a virus, but of the quest for profit, political or economic (and not just from the man in the White House who could have offered leadership and comfort but instead gave us bleach).

In "News Is Just Like Waste Management," we unpack what the coronavirus crisis has meant for journalism, including Mother Jones’, and how we can rise to the challenge. If you're able to, this is a critical moment to support our nonprofit journalism with a donation: We've scoured our budget and made the cuts we can without impairing our mission, and we hope to raise $400,000 from our community of online readers to help keep our big reporting projects going because this extraordinary pandemic-plus-election year is no time to pull back.

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