Cramer on Lucent
>> B>Lucent Finds New Reward for Holders
James J. Cramer
RealMoney.com
5/9/2005
tinyurl.com
Lucent (LU:NYSE ) answered my questions about the warrants and then some, at least, according to the 10-Q that came out last week.
I've been pushing Lucent to use some of its bountiful cash to benefit shareholders. The capitalization is too darned big; there's too much stock. I thought the company should buy in the disastrous warrants, the ones issued last December for the sins of the fathers.
Instead, the company shrewdly bought back $201 million of the convertible securities that have been such a drag on the company since they were issued at the bottom in 2001. This 8% convertible preferred is a legacy piece of business that costs the company a huge amount of money and does nothing to help the current situation.
I argued my case to buy in the warrants as forcefully as I could, stressing the psychological impact of buying in something that could be a huge overhang if everything goes well.
However, the use of the $200 million in cash to close out a big chunk of a preferred that required money out the door makes more sense, if you are trying to create long-term enterprise value.
More important, Lucent chose not to use common stock to pay off this paper. It used cash. That shows several things:
1. That the solvency of this company is no longer in question
2. That the business itself is a good one that throws off enough cash that Lucent can afford to spend it on its own securities
3. That the financial team is pretty darned savvy in its use of its hoard.
I know that Lucent's been a huge drag of a stock. All I can say after reading through the 10-Q that just came out, is bravo. Management is doing everything right in a horrid industry. When things turn, and they always turn, this will be the horse to be on. I just wish I could double down right here, at $2.63, on the darned thing. <<
- Eric - |
