mergers/acquisitions 101:
First, let me begin by saying that I have no clue if LU will buy ASND.
However, I do think this acquisition would make a ton of sense for LU since the remote access functionality is being integrated into the class 5 switches. This will be *especially* true as ADSL proliferates. There is just not enough real estate in the central office for ADSL to have it's own box. ADSL will be integrated into the class 5 switch along with the remote access functionality.
Now having said THAT....let's move on to some financial stuff....
I read over the April 28, 1997 joint proxy statement for the ASND/Cascade merger. I strongly recommend this for bedside reading:-) Included are lotsa details about how these buyout prices are calculated by the powers that be.
While numerous factors are obviously involved in the final $/share or exchange ratio, it appears that PRECEDENT TRANSACTIONS in the Networking Industry provide significant weight in the final price.
The two financial parameters that are compared in all transactions are PSR (forward and trailing) and EPS (forward and trailing) .
In the Spring of 1997, DMG(Deutsche Morgan Grenfell) reviewed the publicly available financial terms of 69 precedent transactions in the networking sector.
The DMG finding was that the average takout price of the 69 transactions was at a trailing PSR=5.4 and a forward EPS=28.3.
Getting more detailed, I note that the takeout price of Stratacom was at a trailing PSR=11.1 and forward EPS=58.1.
Since ASND has margins above the industry average but below the old Stratacom, I would speculate that the take out price would be found north of the average, but lower than Stratacom. Thus, my best guesstimate for a takeout price would be the lower value of these two equations :
ASND trailing PSR takeout = (PSR industry avg + PSR Stratacom) / 2
ASND forward EPS takeout= (EPS industry avg + EPS Stratacom) / 2
Thus, the hypothetical buyout calculations:
PSR trailing= 8.25, or $48.
EPS forward= 43, or $49.
Thus, ladies and gentlemen , *IF* (that's a big IF) ASND would get taken out, I think the price that ASND would take would be $48.
Remember, you heard it here first:-)
Leeza Rodriguez
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