KKR is putting $700 million into Sun Micro (SUNW) in the form of convertibles with a strike price of $7.21. Sun’s stock is now just above $6.
But:
A) Sun is not growing very fast. Revenue for the most recent quarter was up 7% over a year ago to $3.57 billion.
B) Sun’s earnings turned positive but the profit was very small at $126 million.
C) Sun does not need the money, so why take on potential dilution? The company already has $3.4 billion in cash and very little debt.
D) Sun said that its next quarter would be sequentially down to $3.388 billion $3.459 billion. So, where is the big recovery?
Getting KKR in the door makes good PR sense, but its a bad bet for the private equity house, and Sun’s investors should wonder why they are shouldering the cost of money the company does not need.
Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.
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