This seems to be the deal. C-Cube share holders get $32.5 worth of HLIT stock, at today's closing prices, for Divi.(HLIT got a bargain at 9X trailing sales) Divicom was 48.4% of revenue last Q. The other 51.6% stays as C-Cube until March. It may be a company, if they don't sell to enhance shareholder value. At today's close, that 51.6% was worth $20.8 per share. The Semi side will need the analysts to increase that value. If the semi side is valued 1/2, the deal means C-Cube is worth $53+. A 5 month wait will be discounted. Max value tomorrow is $50. If HLIT moves up tomorrow, the price could be better.
Divicom will trade at a discount to HLIT for the next few months. If you want it, buying C-Cube is a good idea.
This sale of Divicom seems to address the concerns we had in 1996. Divicom has won DirecTV from GI. They are winning cable headends from both GI and SFA. Those companies don't want to buy C-Cube chips for settops because Divicom is taking their headends.
Next year, the Semi side will sell over $250M.(it could be $50M more)
on $250 revenue, The new C-Cube looks like this:
Revenue $250
COG 110 (56% gross margins)
Gross 140
SG&A/R&D 64 ( Last Q rate of run was $14.7M,
I added for the increases)
Operating 76
Tax 23 (at the same rate)
Net 53
On 45M shares, that's $1.18 EPS next year. Higher revenues could push another $.40 to the bottom line.
Semis accounted for only 38% of the expenses last Q, Mesh in the call.
With any luck, gross margins could move up from 56%.
Tomorrow. If I wanted to buy the Divi/HLIT deal, I would buy C-Cube shares and wait. It's a better buy than direct HLIT shares.
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