Hit #175 (Rural Cellular)

Rural Cellular (RCCC) is being acquired by Verizon in a cash deal. The $45/share offer represents a gain of 733% over my average cost of $5.4 (bought a bit more than 2 years ago).

I have mentioned Rural Cellular a couple of times in the past, first when the then SBC bought BellSouth, and later when the original AT&T got acquired by SBC (the new AT&T).

The other targets mentioned in those posts have all been acquired in the recent past. Dobson Communications was bought by the new AT&T, and Alltel by private equity.

Centennial Communications (CYCL) remains a target, though not sufficiently attractive to be a buy right now. Citizens Communications (CZN) is another rural operators that, with a current yield of 7% and trading near its 52-week low, looks like a bargain.

Windstream (WIN), which recently bought CT Communications (CTCI), is itself a very compelling buy now for long-term holders. I expect Windstream to get taken out eventually. In the meantime the 6.5% yield, and hoped-for appreciation, will do a good job of contributing to juicy returns.

Warwick Valley Telephone (WWVY) and North Pittsburgh Systems (NPSI) are also speculative bets, though not stocks I am comfortable buying at present. A buyer for these may come from others listed in this post!

Still keeping the focus on rural service providers, cable/broadband providers like Mediacom Communications (MCCC) and Knology (KNOL) will be natural targets now. I have owned Mediacom shares for a while now, though nothing much has really happened to the shares since I bought them. I will be holding till the buyout.

Time Warner Telecom (TWTC) and recently spun off Time Warner Cable (TWC) are also worth watching, with the latter still making for a good buy.

---

Previous hit - Greater Bay Bancorp (#174)

Hit #174 (Greater Bay Bancorp)

One of Bay Area's last independent regional banks, Greater Bay Bancorp (GBBK), is being bought by Wells Fargo for $1.5 billion in a cash & stock transaction. The offer, amounting to around $28.5/share, translates into a gain of 15.24% over my average cost of $24.73.

I have mentioned Greater Bay in the past, when the company put itself up for sale and in another post on bank mergers.

With this, the remaining two Bay Area banks, Bridge Bank (BBNK) and Silicon Valley Bank (SIVB), should naturally become targets. I do not own either of them, and would be looking for a good entry point. Another bank with a large Bay Area operation, First Republic Bank (FRC), is being acquired by Merrill Lynch in a transaction that involved a large premium.

Identifying smaller banks that are takeover targets is more fun than one imagines. See earlier posts on going after a particular buyer (Who is next for Rabobank) and profiting from road-trips (Feeling Arizona and Revisiting Arizona).

The latest subprime related scare has created a few buying opportunities in high quality and well-managed banks. I have been buying or watching a number of them. An incomplete watchlist is here:

• PrivateBancorp (PVTB)
  
• Bryn Mawr Trust (BMTC)
  
• Trustmark (TRMK)
  
• Renesant (RNST)
  
• UnionBanCal (UB)
  
• Umpqua Holdings (UMPQ)
  
• People's United Financial (PBCT)
  
• Virginia Commerce Bancorp (VCBI)
  
• Severn Bancorp (SVBI)
  
• Farmer's Capital Bank (FFKT)
  
• New York Community Bancorp (NYB)
  
• Capital Bancorp (CBC)
  
• KeyCorp (KEY)
  
• National City (NCC)
  
• Heritage Oaks Bancorp (HEOP)
  
• Capital City Bank (CCBG)
  
• Vineyard National Bancorp (VNBC)
  
• PFF Bancorp (PFB)
  
• Huntington Bancshares (HBAN)
  
• Popular Inc. (BPOP)
  
• Old National Bancorp (ONB)
  
• Bank of Florida (BOFL)
  
• Pacific Valley Bank(PVBK)
  
• Hampton Roads Bankshares (HMPR)
  
• Texas Capital Bancshares (TCBI)
  
• Colonial Bancgroup (CNB)
  
• Lakeland Bancorp (LBAI)
  
• LNB Bancorp (LNBB)
  
• Bank of Granite (GRAN)
  
• German American Bancorp (GABC)

---

Previous hit - Bisys (#173)

Hit #173 (Bisys)

Bisys Group (BSG) is being acquired by Citigroup for around $1.5 billion in cash. A special dividend of 15 cents/share was also announced subject to completion. The total offer price is a discount of 12.8% to my average cost of $13.75.

The offer is unusually low, even for a company like Bisys that may have more regulatory troubles ahead. Bisys has already agreed to a $66.5 million settlement with shareholders over allegations of misleading financial statements. There has also been a $25 million fine by the SEC over improper accounting and reporting. Having been a customer of Bisys myself, I have nothing positive to say about the experience. Given all this, it is surprising that no executive has landed behind bars.

The second largest shareholder in the company, Okumus Capital, is opposing the deal saying it signficantly undervalues the company - I couldn't agree more. It would be interesting to find out what kind of sweet package to Bisys executives got them to agree to a deal that is clearly not in the interests of the shareholders.

I had mentioned Bisys in a couple of posts a long time ago - once when Intercept (Hit #22) was bought out, and later when NYSE and Archipelago merged.

A related player I would highly recommend at this point is Broadridge Financial (BR). Barring a Bisys-like sellout, this should be bought for a considerable premium down the road. I mentioned Broadridge earlier when Ceridian (Hit #169) was acquired.

---

Previous hit - Cytyc (#172)

Hit #172 (Cytyc)

Hologic (HOLX) is buying Cytyc (CYTC) in a deal that is set to create a powerhouse in women's health. The part cash / part stock offer, of $6.2 billion translates to $46.46/share, representing a gain of 189.4% over my average cost of $16.02.

This sector has seen incredible activity over the last year. In spite of the activity, and in spite of Even Ensler, there is a stubborn unwillingness to talk about things like endometriosis, menorrhagia or cervical cancer. For most men, and an overwhelming number of investors are, these topics are downright scary!

Here is a glimpse of the recent activity in this sector. Cytyc had bought Adeza not too long ago, paying a sizeable premium (I had missed Adeza by just a few days!). The furious bidding battle over Biosite ended just recently - Beckman Coulter and Inverness Medical were fighting with ever higher offers. Qiagen bought Digene just weeks ago. Going a bit further into imaging/diagnosis, MDZ bought Molecular Devices a few months ago. Ventana Medical just got a hosite bid from Roche. And now Hologic is itself rumored to be a prey after its stock fell following the offer for Cytyc.

The pace is set to continue. There are still a large number of takeover candidates out there, including recently public companies. To understand the trends and leading edge research in this sector is critical for long-term investors. I would recommend reading books like End of Medicine, Inside the FDA and Survival of the Sickest. They give a great summary and they are well-written too.

I expect to see a huge shakeout in this sector, and the broader diagnosis/automation/equipment/reagents sector. Companies like Invitrogen (IVGN), Cepheid (CPHD), Beckman Coulter (BEC), Quest Diagnostics (DGX), Inverness Medical (IMA), Bio-Reference Laboratories (BRLI), Dade Behring (DADE), Sigma Aldrich (SIAL), Qiagen (QGEN), Invacare (IVC), Varian Medical Systems (VAR), Becton Dickinson (BDX), MDS Inc. (MDZ) are worth following to buy on serious dips. I have recently opened positions in Invitrogen and MDS.

An attractive buy at this point would be Genomic Health (GHDX) which develops genomic tests to determine the odds of cancer recurrence and the nature of response to chemotherapy. Genomic's test for breast cancer is now formally approved by various health insurance providers. The company went public about a year ago, and hasn't been noticed much. I have been buying shares regularly, and will continue to buy.

Quidel (QDEL) and Iris (IRIS) are also recommended buys given their growth potential, and eventual buyout likelihood.

Meridian Bioscience (VIVO) looks like another target, and has been on my watchlist for a while. Branching further into imaging and related areas, companies like Vital Images (VTAL), Digirad (DRAD), Microvision (MVIS), Volcano (VOLC), American Medical Systems (AMMD), Urologix (ULGX) are worth watching, though except for Vital Images and American Medical, I would consider them to be speculative.

---

Previous hit - Oakley (#171)

Hit #171 (Oakley)

Oakley (OO), the purveyor of stylish glasses (with MP3 players now), is being bought by Luxottica (LUX), the Italian house that owns, among other brands, Ray-Ban. The cash offer of $2.1 billion, translates to a price of $29.3/share which is a 86.27% gain over my average cost of $15.73/share.

I have owned Oakley for a while now, with the first buy at around $13.5 following an earnings miss a few years ago.

I don't own any Oakley products (I am still waiting for the glasses to carry satellite radio receivers!), but my few visits to the stores (see Yelp review) have been very informative. The glasses with mp3 player look and sound great. Wonder what is next! Oakley has been able to maintain an image as being different from the rest of the crowd, by promotion via lifestyle mags, by using cult icons and by never discounting merchandise.

Going into other similar plays, True Religion (TRLG), Deckers Outdoors (DECK) and Tiffany (TIF) are great targets. All of these are expensive currently, with Tiffany being the only one still worth buying. I would like to see a deeper pullback and/or large insider buys to get into True Religion and Deckers. Unlike fine jewelry from Tiffany, there is also the question of being able to continue commanding premium prices for jeans and Ugg boots. Just as with any fad, they may fade away in a flash.

Retailers like Sharper Image (SHRP) and Restoration Hardware (RSTO) also fall into a niche/premium category. Both are turnaround candidates, though they both seem sick as ever.

Sharper Image especially seems to be in a mess of its own making. The stores are small and packed like a garage. The staff seem to be completely uninterested in responding to questions, and this is from personal experience at more than a handful of locations. What Sharper Image needs is larger stores, with elegant and organized displays, and staff who know about the stuff on sale, and are geniunely intereted in giving demos. If they don't realize that, somebody else will, and make a bid for them, though at this point such a bid will not be very rewarding to investors and will not reflect the long-term value in the company.

Restoration Hardware fares better when it comes to both displaying their wares and having friendly, with room for improvement, staff. But somehow they don't seem to be able to do much to get out from the slump. The housing slowdown will not help them either.

One particular product company that should follow the Oakley model of having its own stores is iRobot (IRBT). Selling through other channels just doesn't do justice to their growing range of products, especially since buying them needs convincing casual customers, and that needs friendly/enthusiastic/knowledgeable people. Did I mention that Sharper Image doesn't fit the bill ?

I would recommend all the three, Sharper Image (SHRP), Restoration Hardware (RSTO) and iRobot (IRBT), especially iRobot, to patient investors.

---

Previous hit - 1-800 Contacts (#170)

Baby you can drive my iCar ...

It looks like I am the only one to not say anything about the new iPhone. Feeling a bit lonely, I decided to take a shot at what is next for i.

We have seen an iCeo, but not an iPresident yet. Anything would be better than the current lame-duck one.

iRobot is already taken. So that can't be it.

How about iCar ? At this point, anything less than that would be a disappointment and cannot be a true follow-on act to the iPhone.

What would the iCar have ? Unlike the iPhone, I hope a GPS. Unlike the iPod, I hope it is available in more colors, right away. A makeover for the VW Bug or the Mini would fit the bill. Then again, Silicon Valley's very own Tesla may be the best candidate to collaborate with Apple on it.

As for the iPhone, I was shocked to see that a GPS was not included, and that was enough to make to stay away. Having the ability to use only the slow EDGE network is another disappointment. As some have started guessing, the next version will likely fix both. But then, it would be almost time, and waiting for the iCar may be more worthwhile.

Hit #170 (1-800 Contacts)

Contact lens seller, 1-800 Contacts (CTAC) is being acquired by Fenway Partners for $380 million. The $24.25/share cash offer represents a gain of 23.98% over my average cost of $19.55.

I am happy to see this taken out, even at this not-so-juicy premium. Having my eye fixed via Lasik recently, I just do not see contact lenses surviving much longer, unless of course some previously unknown side-effects of Lasik surface.

Among Lasik providers, LCA Vision (LCAV) has performed very well. The stock is somewhat expensive, though for long-term holders that should not matter much. TLC Vision (TLCV) is more speculative at this point, and the insider selling doesn't make things better.

Advanced Medical Optics (EYE), which recently acquired laser correction equipment maker Intralase (Hit $138), is a compelling buy now. The stock is depressed after a recent recall of a lens care product. A potential bid, which now seems unlikely, on Bausch & Lomb (BOL) from Advanced Medical, also may have scared away investors. I have opened a position recently, and would continue to buy around its current price.

An extremely speculative play, but with lots of supporting insider action, on eye-care solutions, including post-Lasik care, is Insite Vision (ISV). I have owned shares for a long time now, and have added more recently.

---

Previous hit - Ceridian(#169)

Hit #169 (Ceridian)

Ceridian (CEN) got a $5.3 billion cash offer from Fidelity National Financial and Thomas H. Lee Partners. The deal may yet be in trouble due to strong opposition from a large holder, Pershing Square Capital, who contends, rightly, that the offer is too low.

The $36/share offer translates to a gain of 102% over my average cost of $17.79.

Like a number of other investments, my first encounter with Ceridian (as my employer's payroll processor) was what piqued my interest. Along the same lines, I have invested in, and would still be a buyer of, Administaff (ASF), which would make for a very nice target for someone like Paychex or Fidelity.

A few others in this sector are also worth looking at. Paychex (PAYX) at its current price provides an attractive entry point for long term buy-and-holders. H & R Block (HRB), which has tried to offer payroll processing but with limited success so far, is also a good investment, both as a takeover target and as a turnaround candidate after its recent exit from subprime lending. H & R Block will be a perfect buyer for Administaff as a pathway into payroll processing.

Automatic Data Processing (ADP), the largest player in the sector, recently spun off Broadrange Financial (BR). The latter is likely to be taken out down the road, and makes for a good buy today.

---

Previous hit - Acxiom(#168)