Ian, my reaction to your comments:
<<I sought to underscore the point that MIFGY holders are experiencing a similar level of pain in share price %age decrease - where I felt that the drift of the discussion was that is was just ISLI holders that were hurting. Of course we have a fixed "exchange rate".>>
I am basically arguing that MIFGY's correction has pulled ISLI down with it by virtue of the fixed exchange rate. I do not argue that ISLI would not have been under pressure in this market even without the merger. My view is simply that MIFGY was overvalued and is in the process of correcting (not too unlike a lot of Y2K stocks in the U.S.). I suppose you would view MIFGY's decline as being the result of ISLI pulling it down...? Perhaps we can just agree to disagree on this point.
<<So, ISLI would do far better on their own. A view I contest. Their performance I describe at best as patchy. Not to say that MIFGY are world's better - but better.>>
Of course, ISLI's past was patchy. This allowed many of us (including MIFGY) an attractive investment opportunity. But stocks of course are valued primarily based on their future prospects, prospects that were fast becoming brighter for ISLI (increasing dominance of their growing PVCS and DD businesses). ISLI investors could also take comfort in the quickly improving quarterly results (due to better management focus, cost controls, some difficulties at competitors, increasing market acceptance of PVCS and DD as "standards").
Now...turning to MIFGY...the market again focusses on the future in assigning a value. In my opinion the market has now recognized that, while MIFGY is a reasonably well run company, with some software tools and service offerings that have a long term future, much of the growth the company has experienced recently will not last long beyond 2000. The market has revalued MIFGY accordingly (the damage would have been worse if MIFGY had not linked itself to ISLI more viable LT growth).
ISLI's decision (or capitulation) to sign the agreement without a floor or collar was probably incompetent, given that the market was already showing an inclination to shoot some of the high-flying systems integrators at the first sign of slower growth or hint of too much reliance on Y2K for growth. Perhaps ISLI management gave up the on a collar or floor in exchange for a little better fraction in the exchange rate. It doesnt matter. The mistake was made and signed by ISLI's board. Now its up to shareholders.
As for the institutional owners, perhaps Sorin or others could forward their thoughts in a mass E-Mail to the relevant analyst at each shop. On Bloomberg I counted 34 mutual funds, pension managers, individuals, etc. with 100,000 shares or more. But no one should underestimate the ability of these investors to accurately assess the situation. At least that thought gives me some comfort.
Ian, I do not think that the combined ISLI/MIFGY is a bad investment. I simply believe that the exchange rate shifted too much value from ISLI holders to MIFGY holders. I don't mind making a little money WITH you. But I would rather make a LOT of money and have you fend for yourself (no offense). I know it must be very difficult for you to imagine that, as bad as the performance in MIFGY's stock has been (especially for what is basically, now, a well-run business), it could have been even worse. Perhaps it would be easier to imagine if you were in the U.S. and had witnessed some of the dramatic corrections in many software tool/service stocks in the past 6-9 months.
One question...MIFGY's balance sheet seems a bit bloated in a couple spots....how comfortable are you with earnings quality ? I am quite comfortable with ISLI's (recent) earnings quality.
I also see little in the way of synergy except for cross-marketing each other's services and products. I still wonder why ISLI management was willing to sell out when they were turning their ship around so nicely. Perhaps they were tired ? Perhaps they just wanted to cash in (this seems to occur a lot among people who get too familiar with Y2K). Who knows.
Does anyone have any idea ? (other than "they thought this merger was such a wonderful opportunity blah blah blah")
I would also rather see ISLI remain primarily a U.S.-focussed company. Byron Wien of Morgan Stanley once referred to Europe as a "vast open air museum". For some reason that always comes to mind for me when I think about Y2K. |
