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News Alert from Reuters via Quote.com
Topic: Top Securities News Stories
Quote.com News Item #2167488
Headline: U.S. Robotics (NASDAQ:USRX) seen selling itself cheap
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By Susan Nadeau
CHICAGO, Feb 27 (Reuter) - As the market begins to digest
the proposed merger of computer network leader 3Com Corp
(NASDAQ:COMS) and modem maker U.S. Robotics, some analysts say U.S.
Robotics is losing out in the near term.
"We thought this company was worth in excess of $90 (a
share)," said Eric Buck, an analyst with Donaldson, Lufkin and
Jenrette. Earlier Thursday, the firm downgraded its ratings on
both 3Com and U.S. Robotics to market perform from buy.
Late Wednesday, the two said they signed a definitive
agreement to merge in a stock deal valued at $7.3 billion,
which includes the purchase of outstanding U.S. Robotics shares
and options.
The deal gives U.S. Robotics shareholders 1.75 3Com shares
for each share owned. Tuesday's 3Com closing price of $39.125
was used to value the transaction, meaning the price per U.S.
Robotics share was $68.47 as of Tuesday's close.
"That's not much of a premium," said Rakesh Sood, an
analyst for Hambrecht & Quist.
U.S. Robotics initially shot higher on the news, trading in
the after hours market as much as 10-1/2 higher, but on
Thursday it was up just 1-1/2 from Wednesday's close at 62-1/2.
3Com traded higher after hours as well, but on Thursday was off
three at 36.
"Both price and timing are not particularly favorable to
U.S. Robotics shareholders," Buck said.
U.S. Robotics earlier this week shipped its 56 kilobit per
second "x2" modem, making it the first to market with the new
high-speed technology.
At the same time, 3Com has warned of weaker revenues for
its fiscal third quarter and recently cut prices of its adapter
cards, its chief product.
"Clearly the company was headed toward the $75 to $80 (a
share) range in the next 12-month period assuming the (x2)
rollout is going well," Sood said.
"If you believe that, you certainly can call into question
why now," Sood said.
The stock offer is roughly 20 times annual earnings
expectations, even though U.S. Robotics has typically traded
higher than that, analysts said.
"They're at the start of an exciting new product roll-out
where they have a clear lead over the competition. They're the
leader in the industry which is growing," Buck said.
"That all by itself it's worth more than 20 times
earnings," he said.
But analysts also pointed out the combined company is
likely to be a powerhouse in the longer term, and will take on
the likes of Cisco Systems Inc (NASDAQ:CSCO), which U.S. Robotics
would likely not have been able to do on its own.
"I think it's great," said Amar Senan, an analyst with
Volpe, Welty & Co.
He said the long-term outlook for 3Com remains healthy
despite the recent revenues warnings and subsequent fall in its
stock price. And, given the agreement is for a fixed stock
ratio, a rise in 3Com stock means a better deal for U.S.
Robotics' shareholders.
"They felt this is the best way to go forward because they
have to compete against Cisco and others," Senan said.
Copyright 1997, Reuters News Service |
