Excellent SmartMoney.com article on Icahn and VISX (excerpt)
SMARTMONEY.COM: This Won't Hurt A
Bit
By ROBEN FARZAD
(This report was originally published late Tuesday.)
NEW YORK -- The economy's booming, the Bush campaign is shaking
off its slumber, and Carl Icahn is raiding companies. Throw in a little
Debbie Gibson and it'd be 1988 all over again.
Yes, Icahn is at it again. News that the billionaire was ready to pony up
$15 million for a nearly 15% stake in the laser-eye-surgery concern Visx
(VISX), one of the most flea-ridden dogs of the Nasdaq, sent the stock up
- you guessed it - 15% Monday to $25.19. The Santa Clara, Calif.-based
company hastily summoned its legal team Friday to create a 'poison pill'
stockholder-rights plan that would strengthen its board's hand in fending off
its new aggressor.
Icahn styles himself a shareholders' rights activist, though he has often been
styled rather differently - greenmailer, corporate raider and other choice
epithets - by his targets, their employees and labor unions. Icahn is known
for his ability to force companies whose stock he holds to take measures
to boost their share prices - most notably in the cases of Texaco (TX) and
Phillips Petroleum (P). But investors will also remember the financier's
bruising dance with Trans World Airlines (TWA) and his attendant battles
with labor leaders and visits to bankruptcy court - all of which made Icahn
an infamous fixture on the evening news. More recently, he agitated to
have RJR Nabisco's food line separated from the albatross of its cigarette
business, a move that set the stage for his own head fake for Nabisco
(NA) and Philip Morris's (MO) ultimate acquisition of the snack brand for
$14.9 billion. Icahn fetched a $589 million profit on that deal, a 173%
return on his investment of $341 million - not bad for less than a year's
worth of management pestering. In shopping terms, that's roughly 196
million boxes of Snackwell's Golden Devil's Food Cookie Cakes.
Which brings us back to Visx. Its excimer-laser vision-correction
technology is no longer news; these days, lunch-hour lens-zappings are
routine. But despite booming demand, Visx's once-unique stock has
become mired in an astigmatic blur of patent battles and trade court
skirmishes, free-falling from a 52-week high of $102.50 to a recent low of
$14. Particularly painful was a December 1999 ruling by the International
Trade Court that allowed Japanese laser manufacturer Nidek to continue
exporting its rival devices to the U.S. Investors, fearing that Visx could be
crushed by competition, responded with a share-dump of epic
proportions.
So what are we to make of Icahn's latest move? 'There's one clear
message,' offers Chase H&Q analyst Robert Faulkner, who doubts Icahn
is interested in devouring the company outright. 'Visx is practically a value
stock.'
With 600 of its patented lasers installed coast-to-coast, Visx commands a
towering 70% market share. Its envied VisionKey card system, moreover,
allows Visx to keep valuable tabs on doctors who employ its technology -
and who pay Visx a licensing fee for each surge2y. Otherwise, at roughly
$2,000 a cornea, the temptation for doctors to squeeze a couple of
buy-one-get-one-free specials out of its STAR S2 Laser System could
Napsterize the company into obli6ion. This pay-to-play method was a
masterstroke by Visx.
Faulkner, who rates Visx a Buy with a $40 target, stands by the company
for its ownership of a market swee4 spot in which Visx customers are
growing at a faster clip than non-Visx patients. 'Even as other companies
place many lasers,' he says, 'Visx's volume is concentrated in the
high-volume, low-price space, where it is inordinately strong.'
Factor in the expected growth of the market for laser vision correction -
around 50% this year and 20% to 25% a year for much of this decade -
and market domination looks all the more critical. Despite determined
competitors like Bausch & Lomb (BOL), Allergan (AGN) and Summit
Technology (BEAM) breathing down its neck with aggressive laser-unit
placement, Visx is bent on placing even more units to boost volume. And
its competitive pricing will help it beat back upstarts trying to play
catch-up.
Visx's valuation is, well, eye-catching. It's trading at roughly 14 times 2001
earnings before interest, taxes, depreciation and amortization, or EBITDA,
with a projected $55 million in free cash flow. Still, Visx is hardly the kind
of tired old smokestack company with billions in steady assets that has
historically beckoned Mr. Icahn; his simultaneous attempt to snatch up a
large chunk of CSX (CSX), the railroad company, is far more indicative of
the Icahnian template. But as a market leader trading 75% off its 52-week
high, Visx must look awfully under-appreciated to Icahn. |
