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tgb comments on Open thread, 24-30 March 2014 - Less Wrong
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Facebook bought Oculus Rift for $2 billion. What makes this, and so many other large deals, such clean numbers? Are the press rounding the details? Are the companies only releasing approximate or estimate numbers? Can the value of a company like Oculus really not be estimated to the nearest 10%? Or do these whole numbers just serve as nice Schelling points on which to hinge a bargain? Or am I forgetting lots of ugly-numbered deals?
(WhatsApp purchase was 2 significant figures, and this list on Wikipedia does show mostly 2-3 significant figures though some figures are probably converted from other currencies.)
In cases like this, a large portion of the "money" paid is actually in the form of shares, which can vary wildly on a day-to-day basis (especially during a takeover!). It doesn't make sense to specify the value of it too precisely because nobody knows what the shares are going to be worth tomorrow.
That's a good reason for the press to round such figures, but the actual figure is round, on the day it was decided, and that itself is mysterious.
What makes you think that these numbers are determined by some kind of rational cost-benefit analysis rather than those with the money rattling off numbers until those with the property give in?
Why not all of the above? We can see some rounding already; http://investor.fb.com/releasedetail.cfm?ReleaseID=835447 says
There's rounding right there (23.1m * 69.35 is not a round number). And there's plenty of uncertainty about how much they will actually pay: how can anyone know how much of that earn-out will ultimately be paid?
That sounds backwards to me. It looks to me like they started at the round 2.0, set 20% in cash, 80% in stock, found that required 23.1m shares of facebook and rounded that to three digits to get within 2% of the 1.6 they wanted.
Also, the incentive pay of 300m is 15% of the fixed payment, less uncertainty than rounding to 1 significant figure.
It absolutely could be all of the above! But see I write questions like this fairly frequently: I notice something surprising and don't have a good explanation for it. I then write down the question and pose a couple possible explanations which makes me think of more possible explanations. Frequently I realized that taken together the possibilities I thought of are enough to explain what I was surprised at and I don't even ask the question. Other times, like this one, I still feel like I'm missing something. So I ask the question.
In this case it looks like the biggest thing I missed was how much these sales' values depend upon the moment-to-moment stock prices of the parties involved and so that not rounding them hardly even makes sense, as you and bramflakes point out. Thanks!
Google's IPO was e * 10^9$ :)