Wednesday, September 28, 2005

Deal spree in health benefits management sector continues

Wellpoint is acquiring Wellchoice for a small premium. Wellchoice had a spectacular run this year, so the small premium isn't much of a concern for early buyers.

This spree is likely to continue. We saw a few deals this year, including Pacificare's acquisition, that I detailed here.

A few of the targets I mentioned in that post still are worth buying. Specifically Molina (MOH), Centene (CNC), Amerigroup (AGP) and Medco Health (MHS) are at reasonable prices.

Humana (HUM), Sierra (SIE), Cigna (CI) are not cheap anymore. Wait for signifcant pullbacks to get in.

As a shareholder, I welcome the consolidation in this space. But as a long-suffering customer, I just wish my premiums were used to provide me with some care instead of just enriching the executives way beyond decency permits. Take Aetna for example - their customer account pages are amazingly primitive. Even a ten year kid can come up with a better website than that using free tools, at home, under half an hour. Where is all that premium money going ? Just where ?

Tuesday, September 27, 2005

Another defense acquisition

I named Engineered Support Systems (EASI) as a takeover target twice in this blog, most recently in this post.

It finally happened last week. DRS Technologies (DRS) is acquiring the defense contractor. I did not own EASI shares, having not found a good buying point. DRS seemed an unlikely buyer. In fact, I think that DRS itself is definitely a target. Keep an eye on it and buy some shares on any sharp pullback.

A few other targets I mentioned in that earlier post have since become attractive. Among them, Innovative Solutions and Support (ISSC), Acxiom (ACXM), Digimarc (DMRC) and OSI Systems (OSIS). I will be buying a few if they remain at or around current prices when I next get a chance to add to my portfolio.

HP acts, finally

HP announced last week that it is buying Peregrine Software for a tidy premium. While HP could have done better, by going after a more focused takeover target, it is now moving in the right direction.

I had posted a few months ago listing possible targets. With this buyout, Altiris loses a potential buyer. Altiris stock is still worth buying (I own a few shares), since someone like EMC, Novell or even IBM may be interested.

HP's stock is expensive at this point, especially since it has not yet acted on getting rid of its PC business or making its printer business more diversified by getting into the specialty/transaction printer markets.

Sunday, September 18, 2005

A Japan followup

A short followup to my post on PalmSource takeover, where I suggested that Japan should be an essential part of any long-term portfolio.

Koizumi's emphatic win should definitely make this investment decision easier. Wining on a reform/privatization platform, this has shown that the Japanese are really ready for and demanding reforms. The sun should really rise in this land soon.

Apart from tech, another area where the Japanese are likely to start looking at targets, is pharmaceuticals. Takeda, for example, has already announced that it is planning to grow via acquisitions. I can think of a couple of targets - Kos Pharmaceuticals (KOSP) and Human Genome Sciences (HGSI). Kos is expensive, and I wouldn't buy at its current price. HGSI is definitely worth buying in large volume now, especically since there is some supporting insider activity.

The cosmetic/fashion/retail sector also may start showing life again. 7-Eleven (SE)'s Japanese owners recently offered to take the company private at a healthy premium, which may be hiked before the deal is considered closed. I had been watching 7-Eleven for a while, but never found a suitable entry point.

Where are they now ?

No, I am not going to tell you about the drummer of a 80's long-hair band, who is now teaching yoga at a Orange County resort. I will leave that kind of reporting to VH-1!

I couldn't think of a better title than this for a post that suggests taking a second look at bubble-era darlings that are being ignored by the wicked world. After losing between 95-98% of their value, companies like Lucent (LU), Nortel (NT), JDS Uniphase (JDSU), Ciena (CIEN), Sonus (SONS) and 3Com (COMS) are at garage-sale prices. Some may still be headed towards bankruptcy, but having survived this far, I think all of them are worth opening positions in.

A few of them will get acquired, a few will make a dramatic comeback and a few may even recast themselves as China plays.

Recommending the acquirers

This blog has mostly recommended takeover targets. But there are buyers, who go on a disciplined acquisition spree, that makes them great value as well as growth plays in the long run. Part of the reason a serial acquirer's stock remains low is the (rightful) pessimism, as time and again such sprees have ended in trouble.

With their avoidance of takeovers during the bubble days and thus being able to buy their targets at mostly bargain prices after the bust, both Oracle and EMC have proved themselves to be exceptionally smart builders. In addition to the usual cost-cutting opportunities with takeovers, the targeted buyouts will yield them more satisified customers, something they can achieve with more bundled offerings.

If you have spare cash that you won't need to dip into for 5 or so years, consider buying both these stocks around current prices. I expect them to return 300-500% in that time period.

Told you so!

It is always nice to see a Barron's article following a similar recommendation in this blog. In my post on CP Ships' takeover, I had recommended a number of shipping companies at current depressed prices. Barron's today says much the same thing, though the emphasis is on one shipping company.

Tuesday, September 13, 2005


That was my reaction to yet another senseless acquisition in the software sector - eBay's acquisition of Skype. The excuse - improved ability for buyers and sellers to communicate with each other. The verdict - tell me another.

A natural buyer for Skype would have been one of the cable companies - News Corp, Comcast or Cablevision, to compete with the Bells.

This continues a string of major software buyouts recently that are hard to comprehend. Veritas buyout by Symantec is still hurting the latter's shareholders. I think this one definitely will have to be undone at some stage, with a likely spinoff of Veritas down the road! If you are willing to wait, probably for 2-3 years for that to happen, you should buy Symantec shares now, since they will definitely appreciate when this blunder is corrected.

Sun's buyout of Storagetek also falls in the same category though for a slightly different reason. Sun's entry into storage was the right move, but it could have picked much better targets, at a lower price too.

Hit #63

Siebel (SEBL) was finally put out of its misery by Oracle in a buyout valuing Siebel at around $5.8 billion, which comes to $10.66/share. Siebel as a company deserved a much lower price; Siebel investors deserved much better. Siebel, the owner, and the Board don't deserve anything - they failed everybody.

This offer price represents a 7% discount to my average cost of $11.44/share. If I get a chance to opt for Oracle shares instead of cash, I will go for them.

Siebel did make a pitiful attempt recently to keep investors happy. Too little, too late! What were they thinking ?

Siebel spent more time making up dress codes and deciding where its employees could eat, than producing decent software. In fact, the story here is much the same as in most other Valley-based enterprise software companies - self-styled visionaries using innovation as an excuse to come up with ever-more complicated solutions that live in a closed world.

As Salesforce says, we need the "end of software". Customers don't need to be chained and gagged by these enterprise solutions, even if the chains are golden and the gag-fabric is cashmere.

Oracle will likely retire Siebel solutions down the road. The world will be a much safer place when that happens.

How will SAP go about reacting to this one ? SAP can definitely play a mock bidding battle, increasing the cost of takeover for Oracle! It worked once before, with Retek!

Previous hit - TeleSystem Intl (#62)

Saturday, September 10, 2005

Everything on sale at ...

... Albertson's!

Albertson's (ABS) announced that it is looking for a buyer. News late this week indicated that a few private equity players are interested. This sent the stock soaring to around $25.

I had bought a few shares at $20.6 not too long ago - the yield of about 3% also made it attractive then. I did not expect private equity buyers to show interest. A bigger retailer like Kroger or even Safeway seem like more natural buyers.

Albertson's is unlikely to receive a large premium to its current price.

Safeway (SWY), with its ownership of prime real-estate all over California, is a perfect fit for private equity groups. I own some Safeway shares too, bought at a much lower price (~ $18.7). It is still attractive, at around $25 today, but be prepared to buy more on a pullback after its recent runup.

Hit #62

Telesystem International Wireless (TIWI) recently sold all its assets to Vodafone and is distributing the cash to shareholders, followed by a liquidation.

The distribution will amount to around $15.8/share, with another tiny distribution possible, if any cash is left after paying claims, in a few weeks.

The planned distribution represents a 9% premium over my average cost of $14.52/share.

This wasn't a core takeover play. It was in my international portfolio. I was expecting more long-term growth, rather than a outright sale of assets.

Telesystem, through its majority stake in MobiFon and Oskar Mobil had a good share of the Romanian and Czech mobile market. With this purchase, Vodafone (VOD) becomes an attractive long-term play on growth in Eastern Europe. Vodafone will likely be going after more assets in Eastern Europe as governments sell their ownership in various telco ventures. I will be adding a few Vodafone shares soon.

Why did Telesystem sell its assets at such depressed values ? Did the owners just want to cash out and retire ? The transaction smacks of desperation to me.

Previous hit - PalmSource (#61)

Friday, September 09, 2005

Hit #61

PalmSource (PSRC) is being acquired by Japanese software maker, Access for $18.5/share in cash. This is a whopping 83% premium over today's close of around $10!

My average cost is around $12.1/share. Today's offer represents a 53% premium over that price.

I had mentioned PalmSource a few times in the past, most recently when I wrote about the Cisco/Nokia merger rumor.

Are Japanese companies finally coming out of their shells ? A recovery in Japan is long overdue.

Japanese equities and real-estate represent a great opportunity now, after a 15 year slump. Japanese companies are well-positioned to benefit from China's long term growth. Japan should be a part of any long-term investing strategy now.

What will happen to Palm next ? They must be on the block too. I was expecting PalmSource to go back and become part of the parent company again. Since that isn't happening, Palm itself must definitely be considering a sale.

Openwave (OPWV), Jamdat Mobile (JMDT) and Infospace (INSP) remain targets. Infospace is definitely worth buying now, after their stock took a deep dive recently following an earnings miss.

I own a few Openwave shares, but at its current price it is expensive. I would definitely be a buyer of Infospace stock today. Jamdat is fairly priced, and opening a small position now makes sense.

Previous hit - NDC Health (#60)