Since Lucent was in the market to buy a VM company, I'm a bit surprised that they didn't buy CGRM. The two companies have developed close ties recently. And we have all pointed out how undervalued CGRM is, especially with regards to other VM companies. I saw a report recently where the average price/book ratio for VM companies was 4, but CGRM was less than 1. Also, CGRM has 50 million in cash and accounts receivables, but the market cap is only about 90 million. So one can buy CGRM , which has annual revenues of 100 million, for 40 million dollars.
Perhaps the established size of Octel was more appealing to Lucent.
One downside to the deal is that Lucent and CGRM had formed close ties recently. A recent agreement had Lucent "recommending" CGRM to all interested customers. Obviously, that's out the window now.
From a shareholder's standpoint, I agree with David that CGRM would probably be better off on their own, assuming that they can turn things around. If they can show good growth in earnings, they should approach the same multiples as other VM companies, which would result in more gains in the long run than a one time pop from a buyout. |
