Banking & Finance

Tech/Comm Acquisition Target Updates (CSCO, BRCD, NOVL, PGI, STX, WDC, XLK)

Mergers and Acquisitions are still coming in the world of technology and communications.  Many deals have been announced in technology that are around the Ciscoization of the data center and around cloud computing and software.   We wanted to review several technology and communications companies we have covered as potential M&A targets  in the recent past to discuss what the outlook is and what sort of progress has been made at each company.  You will notice the Cisco Systems, Inc. (NASDAQ: CSCO) theme throughout this potential tech M&A, but that is merely a sign of the times as tech giants like H-P, IBM, and Dell have gone after IT-management, cloud, storage, and networking operations.  We want to evaluate and update the outlook for Brocade Communications Systems, Inc. (NASDAQ: BRCD), Novell Inc. (NASDAQ: NOVL), Premiere Global Services, Inc. (NYSE: PGI), Seagate Technology PLC (NASDAQ: STX) and Western Digital Corp. (NYSE: WDC).  We also wanted to see how these compared to the Technology Select Sector SPDR (NYSE: XLK) as the tech/comms key ETF.

Brocade Communications Systems, Inc. (NASDAQ: BRCD) rose as an M&A potential target in late-Summer and shares have held their own despite the thought that many feel a merger here would have to come at too high of a premium for a buyer.  This was one of our picks for stocks which could double earlier this year before the cloud and M&A craze came, and the buyout thesis for a low-cost provider in networking and storage was a part of that call.

The company is effectively half Brocade in storage and half Foundry in communications and networking.  Shares were at $5.15 on our first go-round, now shares trade around $5.80.  The 52-week trading range is $4.64 to $9.45 and the market cap is roughly $2.6 billion.  Brocade is not meant to be an earnings report play as shares are often volatile around earnings.  The status of a deal is currently “possible, but nothing set on the books.”  Analysts also have an average price target of $6.35 for Brocade.

Novell Inc. (NASDAQ: NOVL) has been a long road of excitement that has so far led to nowhere.  The pending merger offer and pending auction or divesting plan has been on hold for about a month now,and frankly from the start we  expected that Novell would need a higher buyout price to secure shareholder approval.   There were reports that Novell was having a hard time selling its NetWare and identity management products because private equity firms would not pay Novell’s asking price.

When the first merger offer came, shares popped to $6.08 from $4.75 on over 140 million shares in a single day in March.  Shares have traded as high as around $6.50 but the stock is back to about $6.00.  Unfortunately, that is the long road to nowhere.  One key issue is that much of Novell’s cash is tied up internationally and cannot be easily accessed in a tax-efficient manner of repatriation.  The company had been a potential buyout candidate in the minds of many investors on several occasions over the last 10 to 15 years.  Here we are, Novell is small with a $2.1 billion market cap and it is still an independent company with over $1 billion in cash and equivalents if the cash can be tapped.

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