Made a few mistakes in recent posts.
I've been reviewing the terms of the China plant purchase, and I find I made a few mistakes. The plant purchase is for $44M, not $40M. The owners can earn up to $40M more, if operating income is $13M over the year. The plant actually makes boards and does some consignment assembly work. At the current run rate of $40M, the board biz is about $35M and consignment work about $5M.
The combined business actually makes 20% operating margin, instead of gross margin as I had posted. If revenues remained level, the first year operating income would be $8M and the purchase price would be $40M. If the revenues grew to about $65M, then presumably the plant would make the $13M operating income earn-out. But the price would rise to $84M. Sorry for the confusion. But interesting that they feel the earn-out is do-able.
The acquisition of the HP board plant in Germany is scheduled to close this month. This plant is doing a run rate of about $60M now, and is expected to grow sales at possibly a 20-30% rate in 1999.
These two acquisitions aren't included in the current analyst consensus estimates for 99. Dii has instructed them to ignore their impact on 99 earnings for now. This is causing a bit of confusion among analysts. Two just dropped their estimates for next year to $1.50 after the press release last week; the rest are still closer to $1.90. I still believe that if these acquisitions perform as expected we will see north of $2.00, probably around $2.30. And if the Bay program is retained, we will see about $2.60.
I'm fascinated by the trading in the stock price. Look at a price chart, and you see a steady downward drop. Its although no one is really willing to support the stock by increasing their stake, so the stock steadily distributed.
Paul |
