Investing

Market Recovery: The Return of M&A in Tech and Telecom (ADCT, TEL, HPQ, ORCL, CIEN, Q, CTL, BRCD, CBB, CVLT, DELL, JDSU, LEAP, PCS, WFR, NOVL, PGI, RSH, TLAB, TDC, OVTI, SYNA)

What about the smaller companies that have survived selling all the little gadgets and components for your tech gadgets and PCs?  RadioShack Corp. (NYSE: RSH) is not a tech company, but is a retail destination for many who choose not to go much larger outlets like Best Buy or large box retail stores.  The company has been under a buyout rumor cloud for long enough that you wonder if it will ever really happen from Best Buy or from private equity.  After a big gain on Tuesday on hype and hope, followed by some easing of the buyout hype, the market cap is still rather low at $2.7 billion.  It had elevated options trading on Tuesday for a deal in the near-term rather than far away, and that is not likely tied to Lance Armstrong being out of the Tour de France on Team RadioShack.  It might take as much as $30 to secure a vote from holders, but who knows for sure on that… This is a long-standing rumor that has so far yielded nothing more than Julian Day getting to say the stock is up since he took over.

Tellabs Inc. (NASDAQ: TLAB) tried to merge with Ciena Corp. (NASDAQ: CIEN) back in the 1990’s.  That deal fell apart and the thought that the deal could ever be rekindled is one which has not come up in years.  But now that there has been the rumored pressure with the AT&T-Tellabs relationship risks due to vendor and supplier consolidation, Tellabs finds itself in a scenario that if shares get too weak then it may have to seek a buyer.  With a gain this week to $7.35 and a $2.8 billion market cap, the 52-week range is $5.06 to $9.45.  Tellabs may instead want to go on the offensive and look for deals where it could deploy its $1.4 billion listed in cash and short-term investments as a diversification away from just.  When it comes to Tellabs either making a purchase or looking for a buyer, the motivation might stem from need rather than greed.

Teradata Corporation (NYSE: TDC) has come up as a name in storage and enterprise data warehousing solutions as recently as May.  Shares are actually lower now than then, and at $31.40 its market cap is just shy of $5.25 billion.  This was a carve-out spin-off from NCR back in 2007 and the recent highs north of $34 are actually all-time highs.  Anyone wanting to acquire this one today for a premium would at least have the added higher shot of securing shareholder approval because the price would mean that every holder out there ever is profitable on the deal.  $5 billion may seem like less of a bolt-on deal here, but the company is expected to return to higher revenues.

There are two wild-card names which have routinely come up in the past as far as components for the trends of smartphones that could be bolt-on targets for an acquirer…. OmniVision Technologies Inc. (NASDAQ: OVTI) designs the chips for many of the cameras on your smartphones and Synaptics Inc. (NASDAQ: SYNA) designs the interface solutions that enable so much of the trends of touch-screen technology on many of the existing smartphones on the market.  OmniVision has a market cap of $1.15 billion and Synaptics has a $987 million market cap, but no deal has ever emerged on either despite speculation for owning patents and the technology behind the guts of features that make many of the popular smartphones so cool.

Regardless of today’s prices on many of these names, keep in mind that this is after a strong V-shaped market.  We had endless selling in June and then after the 4th of July we saw six straight days of gains for an 800 point move in the DJIA from trough to peak.  Now that the market has stabilized and with the tax rates likely to change after this year, it seems logical that increased M&A activity should be around the corner in technology, communications, and telecom.

As with all rumors, caveat emptor!

JON C. OGG

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