First, it was reported on October 23 that Hewlett-Packard (HPQ) CEO Meg Whitman revealed that her company has plans to enter the 3D printer market in the middle of 2014. Whitman’s commentary was striking given the conviction in her intentions, which leads us to believe she is looking for a potential target that may fit well within HP labs’ research trajectory. The snail’s pace of internal innovation at Hewlett-Packard in recent years leads us to believe that Whitman will inevitably look to acquire the technology. It remains unclear, however, whether the executive suite at Hewlett-Packard has finalized the make-or-buy decision. Potential targets such as 3D Systems (DDD), Stratasys (SSYS), and ExOne (XONE) traded off on this particular news, as market participants took the commentary as the beginnings of incremental competition in the space (as opposed to the introduction of a potential buyout premium to the prices of underlying equities that specialize in this industry).
Then, rumors hit today that IBM (IBM) would be interested in buying 3D Systems for $90 per share (3D Systems is trading just under $70 per share at the time of this writing). We note that, while Whitman has stated her clear intentions to enter the space, the rumor and takeout price with respect to IBM’s interest in 3D Systems remains completely unconfirmed. Neither firm has substantiated this news. However, it does bring to light the idea of large-cap tech taking an interest in emerging technologies like 3D printing. IBM, which put up dismal third-quarter results recently, is certainly a candidate seeking to fill a void in top-line growth, while Hewlett-Packard continues to stage its turnaround.
Valuentum’s Take
We know better than to concern ourselves with takeout rumors. Even if a rumor has some basis of truth, we still wouldn’t take on the extra risk of positioning ourselves in an overpriced equity in the hope that a larger firm will take our position out at a higher price. Speculators have made tons of money on vulnerable traders that fall into the pitfalls of ‘greater fool’ tendencies, but we’re just not interested. We don’t plan to play the game of “buy the rumor, sell the news” ever, as sometimes the news never comes.