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When GM first announced its intention to buy self-driving startup Cruise Automation, reports suggested GM would pay $1 billion for the 40-person company. But the real price turned out to be a lot lower.
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GM president Dan Ammann (right) with Cruise Automation co-founders Daniel Kan and Kyle Vogt. Image source: General Motors.
Back in March, General Motors (GM +0.00%) announced its intent to purchase Cruise Automation, a small San Francisco-based start-up that had developed some self-driving technology and expertise that GM wanted. At the time, reports citing unidentified sources said that GM would pay about $1 billion for Cruise.
That seemed like a steep price for a start-up with only about 40 employees. But was it really that much?
It turns out that it wasn't, The transaction was completed in May, and GM disclosed some of the details during its second-quarter earrings report and in a recent filing with the Securities and Exchange Commission (SEC). Using these reports, we can figure out exactly how much GM paid -- and I did.
Here's what GM CFO Chuck Stevens said about the purchase price during the company's second-quarter earnings call:
We're pleased to report that we closed on the acquisition of Cruise Automation during the second quarter. The deal consideration at closing was approximately $600 million, with $300 million paid in cash during the quarter, and the remaining $300 million paid through the issuance of new common stock.
Additionally, we entered into other agreements associated with retention of key employees and performance-based awards contingent on continued employment and/or reaching certain milestones from a technology and a commercialization perspective.
So, "approximately $600 million," plus some additional costs. But how much?
As is often the case, the company's SEC filings provide the missing detail. In this case, we can look to the Form 10-Q that GM filed on July 21, after its earnings report. Here's what it said:
On May 12, 2016 we acquired all of the outstanding capital stock of Cruise Automation, Inc. (Cruise), an autonomous vehicle technology company, to further accelerate our development of autonomous vehicles. The deal consideration at closing was $581 million, of which $291 million was paid in cash and approximately $290 million was paid through the issuance of new common stock.
Later in the 10-Q, we learn more:
At the closing of our acquisition of Cruise on May 12, 2016, in addition to cash consideration, we issued 9,314,527 shares of our common stock, with an aggregate value of $290 million, to the former stockholders of Cruise. An additional 3,419,028 shares of restricted stock with an aggregate value of $107 million, which vest upon meeting certain requirements, including continued employment, were issued to a number of individuals formerly with Cruise in connection with the acquisition.
We need one more piece of information: GM's shares closed at $31.18 on May 12.
Now we can calculate the full purchase price: GM paid $291 million in cash at the deal's closing, along with 9,314,527 shares of GM stock valued at $31.18, worth $290,426,951.86. On top of that, it issued 3,419,028 shares of GM stock to some Cruise employees as an incentive to stay and work for GM for awhile. Those shares will vest over time. At $31.18 each, they're worth $106,605,293.04.
Add it up, and GM paid a total of $688,032,244.90 for Cruise Automation.
Here's the thing, though. All of those GM shares were newly issued. GM didn't have to buy them, it just had to issue them. GM's cash commitment to the deal was $291 million.
Long story short: GM spent $291 million in cash, and issued some new shares of its stock. The owners of Cruise received just over $581.4 million (in cash and GM stock) at closing. Some of Cruise's former employees -- some of whom were probably also Cruise shareholders -- will receive an additional aggregate total of $106.6 million in GM stock if they each meet the requirements to fully vest.
No matter how you add it up, it wasn't a billion dollars.