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Technology Stocks : Zitel-ZITL What's Happening
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To: Steven M. Kaplan who wrote (17233)10/6/1998 1:24:00 PM
From: Mark L.  Read Replies (2) of 18263
 
Could you please take a moment and post what the virtues of this transaction are for Zitel? The virtues to Matridigm are clear to me.

I've tried to look at the pluses and minuses from Zitel's perspective. This is what I came up with:

Drawbacks:

1) Jack King is no longer CEO. After Y2K, when the earnings driver will probably not be Y2K-related, this seems strange.

2) It's quite a steep valuation -- several times what the company was valued at when Zitel made its first investment. And it doesn't seem on the surface as if the new valuation is justified by Matridigm's performance.

3) Short-term, the merger looks dilutive to earnings.

4) There was a certain magic, if you will, to Matridigm's being a private company. Because its financials were not reported, people could use their imagination and press releases to get a sense of its value, and I think these estimates were probably optimistic. The publication of Matridigm's financials and its merger with Zitel would seem to deprive Zitel of an important factor supporting its stock price.

The only possible virtue to the transaction that I could see from Zitel's perspective is that they are quite confident that Matridigm will be making money soon and that the profits will wipe out Zitel's red ink.

I would be very interested in your comments. Thank you.
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