Bold M&A moves rewarded with stock price boosts

Intel’s deal with STMicroelectronics to create a new semiconductor company was a hit this week with IT investors, who continue to reward bold merger and acquisition moves in hard-fought tech markets like chips and Internet services. Rumors of a Salesforce.com hook up with Google and Yahoo’s continuing search for Web 2.0 companies also are stoking investor interest.

Intel’s deal with ST allows them to get immediate cash for money-losing operations while laying claim to future profits in the flash market. They are spinning off flash memory units into a new company, which will borrow money to pay the parent corporations cash for the deal: $432 million for Intel and $468 million for ST.

The new company, as yet unnamed, will have annual revenue of $3.6 billion, ahead of rival Spansion, which is itself a spinoff from AMD. There were shadows on the deal, however. Though parts of the flash market are hot because the components go into cell phones and digital cameras, Intel has been losing money for years on its NOR flash memory products, more suited for storing code than multimedia files and considered less of a growth market than other areas of the flash sector.

On balance, traders saw the deal as a clever way of protecting the parents while reaping immediate rewards for the investments they have made. When the deal was announced Tuesday, Intel shares rose to $22.99, up $0.36, and ST shares rose to $20.26, up by $0.38.

Investors have been excited about deals in the most competitive areas of technology, including mature enterprise software as well as the burgeoning Internet services arena. Rumors of a possible new deal between Salesforce and Google this week combined interest in precisely these areas.

Discussions between the two companies, reported Monday by The Wall Street Journal, played into long-time speculation that an outright acquisition of Salesforce would make sense: In one stroke, it would give Google a solid foothold in enterprise software-as-a-service technology, and it would give Salesforce the vast resources of the high-flying Internet search champion. The companies already cooperate in the development of a number of software projects. Salesforce shares jumped to $47.76 Monday, up by $1.96, while Google shares ticked up to $470.60, up by $0.30. The companies, however, remain silent on the matter.

Yahoo shares fell Tuesday on the other hand, when officials quashed rumors that the company was going to buy social-networking site Bebo. Yahoo shares fell $0.43 cents to $28.92.

While bold moves have been rewarded lately, the long-anticipated move by historically direct-sales vendor Dell into the retail market Thursday failed to get a rise from investors. Dell shares fell Thursday by $0.37 to close at $25.89.

Financially beleaguered Dell, suffering from price pressure and competition from a rejuvenated Hewlett-Packard PC unit, has been applauded lately for getting serious about cost-cutting measures and a more flexible sales strategy. But a potential boost from the entrance in retail, which will see Dell selling desktop PCs at Wal-Mart, may have been dampened by the overall down market. Remarks this week by former Federal Reserve Board Chairman Alan Greenspan about the potential fragility of China’s economic expansion weighed heavy on the technology-oriented Nasdaq.

The Nasdaq, which has been riding high on strong technology company revenue this quarter, closed at 2537.92 Thursday, down by 39.13. Sometimes macroeconomic concerns trump sector issues.