Sunday, August 19, 2007

Hit #179 (Neoware)

On the same day that HP bought Opsware (see Hit #177), it also announced a deal to buy Neoware (NWRE). The cash offer, of $16.25/share, makes for a 36.8% gain over my average cost of $11.88.

I had mentioned Neoware in an earlier post (Hit #44) when Tarantella was acquired by Sun. Neoware has been one of my largest holdings, driven mainly by its takeover potential as well as its cash hoard. Given that Neoware had around $6/share in cash, the offer undervalues the company and its potential. Like with other such deals where investors got the short end of the stick, insiders must have gotten away with much more for agreeing to such a low price.

It is surprising that there haven't been other bidders. IBM, Sun, but especially Citrix, should be making an attempt to go after Neoware.

As noted in the post on Tarantella, Citrix itself remains a target - for IBM, Computer Associates or Symantec. But given its latest acquisition, of XenSource, it is unlikely to sell itself soon. Citrix now represents an alternative play on the growing virtualization trend. The leader in that sector, VMWare (VMW), just got spun off from EMC in a blockbuster IPO. Having been a huge fan of virtualization/VMWare for a while, I see tremendous long-term potential here. Citrix could deliver some magic if it were to successfully integrate its existing solutions with XenSource.

As for my proceeds from Neoware, I reinvested all of it into GateHouse Media (GHS), and promptly lost almost 15% - ouch! It wasn't meant to be a short-term investment, and hence will remain in my portfolio for a long time. As long as the dividend yield stays at or around 10%, I wouldn't have much to complain. GateHouse Media's large holder, Fortress Investment Group (FIG), is also a good value buy right now, given the depressed level of this stock following the turmoil in the credit markets, and the resulting increased potential for trouble in private equity land. Recent negative news related to Fortress' involvement in lending to Katrina victims hasn't helped either. But Fortress remains a saner alternative to the other public private equity group, Blackstone (BX).

Previous hit - Playtex (#178)


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