At a charity auction, I once watched two perfectly sensible people bid against each other for a weekend in a cottage neither of them had seen. The winner paid enough to have bought the cottage a new kitchen. She looked thrilled for about a minute, and then visibly began doing the sums.
I thought of her on Monday.
What Happened on Monday
On 5 October, Schneider Electric, the French maker of electrical equipment for factories and commercial buildings, agreed to buy PTC, a Boston company whose software helps manufacturers design and maintain their products. The price is $205 per share in cash, or $22.6bn, a 42.3% increase over PTC’s last closing price. It is the largest purchase Schneider never made, about twice the size of its Aveva deal in 2023, as Silicon Republic reported.
PTC’s shareholders had a lovely day. Their shares closed up about 33% at $192.26. Schneider’s shareholders did not. Their shares fell 9.97% in Paris to €272.80, removing roughly €15bn in value in a single session.
The Arithmetic of Winning
I did the sums because nobody was stopping me. A 42.3% premium on a $22.6bn deal means Schneider is paying about $6.7bn more than the market thought PTC was worth the day before. The €15bn its own shareholders lost is nearer $17bn. So the market did not simply charge Schneider for the premium. It charged more than double.
The reasons are not mysterious. The deal is to be funded with $16bn to $17bn of new borrowing and $5bn to $6bn of new shares. Schneider’s net debt had already climbed from €9.43bn to €16.29bn in under two years, and this could roughly double it. The share buybacks will pause in 2027 and 2028. The price works out at about 21 times PTC’s expected 2027 earnings, according to an analysis by TIKR, and only looks comfortable if the promised cost savings and extra sales turn up as planned. Management’s own estimate is the deal earns its keep by year five, and all this borrowing arrives in a month when long-term interest rates reached their highest in more than twenty years.
Even the Winners Are Not Home Yet
One detail I enjoyed. The offer is $205 and PTC closed at $192.26. A gap of nearly $13 is the market’s way of saying the deal isn’t finalised until the third quarter of 2027, and a lot can happen between a handshake and completion. Anyone who has bought a house knows that feeling precisely.
The Lesson I Keep Having to Relearn
Economists call it the winner’s curse. In any auction, the winner is the one who valued the thing most highly, which means they are also the one most likely to have been wrong. Schneider may yet be right. Joining the machines to the software that designs them is a sensible idea, and five years from now this could look shrewd. I have no view on that, and no position in either company.
My interest is closer to home. Every bad purchase I have made had the same three ingredients in this deal. I wanted it badly, I had a story about the future to justify the price, and I paid with money I did not yet have. The ‘wanting’ is where impatience lives, and it has not gone anywhere. I now check for the third ingredient. If I can pay from what I already hold, the story only has to be roughly right. If I am borrowing, the story has to be right and on time.
I wrote about what debt does at a much larger scale in $350 Trillion in the Red: Why It Lands on You, and the principle shrinks down to household size without losing anything. A premium is a bet that you know something the market does not. Borrowing to pay it is a bet you know by a deadline.
I never found out whether the cottage was any good. I hope it was. At that price, it needed to be.
The Jacqueline Brand — knowledge builds confidence, and confidence builds wealth. This is editorial commentary for information and education only. It is not financial, investment or professional advice, and nothing here is a recommendation to buy or sell any investment. The Jacqueline Brand is not authorised or regulated by the Financial Conduct Authority. The value of investments can fall as well as rise, and past performance is not a guide to future returns. Figures were correct at the time of publication. Always do your own research and consider speaking to a regulated adviser. Where cryptoassets are discussed, they are high risk and largely unregulated in the UK, and you could lose all the money you invest. The Collection
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