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Acquisitions of conventional companies

Should a New Technological Corporation use its high multiple stock to diversify its industry position by buying companies with other shapes in different industries? It certainly can; few companies have the financial power of a New Technological Corporation in an acquisition. But should it? Probably not. As discussed in terms of ``strategic partnerships'' above, when a New Technological Corporation consolidates its results with a company with a different shape the sum is almost always less attractive financially. If the acquired company had equal or better margins or capital structure, it would be a New Technological Corporation, not something else.

Managements of New Technological Corporations are, however, well justified in looking over their shoulders at frequent intervals to see if conventional companies are beginning to regard them with envious eyes and slowly, surely, drawing plans against them. As the properties of New Technological Corporations become increasingly apparent, they may come to be regarded as the most attractive of all potential takeover targets. Their liquid assets are enough to pay for a significant part of the acquisition; their large cash flow can cover a large debt load, and their minimal capital equipment and physical plant permits easy integration into another organisation.

The disadvantages in acquiring a New Technological Corporation lie in the premium price one pays for its earnings and its dependence on Wild Talents who can pocket the acquirer's cash and walk out the door if not treated well. These factors suggest that hostile takeovers of New Technological Corporations are unlikely or, at least, unwise.

Editor: John Walker