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Read this re S3
*Extra* Hidden Assets at S3
and Alliance Semi Finally Get
Valued
By Herb Greenberg
Senior Columnist
6/14/99 3:23 PM ET
What good are stakes in companies if you can't put a value
on them? That's been the story for more than three years
with S3 (SIII:Nasdaq) and Alliance Semiconductor
(ALSC:Nasdaq), which partnered with Taiwan's United
Microelectronics to create United Semiconductor, a
separate Taiwanese company that builds and manages a
semiconductor fab in Taiwan. The deal gave S3 and Alliance
stakes in United Semi of 15.8% and 15.5%, respectively. To
investors, it was little more than a wild card.
Today that wild card was revealed when United Micro
announced that it was acquiring the outstanding shares of
several fabs, including United Semi. (No valuation was given
for the deal.) Using United Micro's stock as a guide, several
money managers who have done the math believe S3 and
Alliance are currently trading for less than the cash on their
books combined with their stake in United Semi. Officials of
S3 and Alliance couldn't be reached, but here's how some
investors, who have good credibility with this column and who
are long either one or both of the stocks, broke it down:
For Alliance, which currently trades for around 6 13/16, the
stake in United Semi alone is worth as much as $7.44.
Alliance also owns a small piece of United Silicon, which is
also being merged into United Micro and isn't part of that
calculation. What's more, through a recent acquisition,
Alliance acquired a stake of 538,961 shares of Broadcom
(BRCM:Nasdaq), which is valued at around $1.31 per share.
"That's $8.75 for their nonoperating stuff," says one Alliance
fan. Alliance's core SRAM business, meanwhile, is booming.
SRAMs are so hot that rival Cypress Semiconductor
(CY:NYSE) has been telling Wall Street that it is "capacity
constrained." Translation: It can't make enough to meet
supply.
S3, meanwhile, currently trades at 7 7/8. A money manager
long S3 puts the value of its United Semi stock at between
$6.50 and $8. The company has another $2 in net cash. "So,
basically, the stock is trading below the net value of its cash
and securities and what they're supposed to earn this year,"
the S3 investor says.
Consider that, according to these money managers, value
unlocked.
Herb Greenberg writes daily for TheStreet.com. In keeping
with TSC's editorial policy, he doesn't own or short individual
stocks, though he owns stock in TheStreet.com. He also
doesn't invest in hedge funds or other private investment
partnerships. He welcomes your feedback at
herb@thestreet.com. Greenberg also writes a monthly
column for Fortune. |
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