Intel Investors - Wall Street will ultimately look at the Intel purchase of Level One on the FINANCIAL merits of the acquisition. Simply, they will most likely evaluate the IMPACT of Level One's bottom line to Intel's Earnings per Share.
To use REAL numbers - and NOT projections - we can get a good handle on this as follows.
First, Level One earned $11,700,000 (Before some misc. One Time Charges for its own acquisitions) in their most recent quarter (ended Dec. 31, 1998).
Intel earned $2,064,000,000 in it's most recent quarter - Q498. This produced a DILUTED earnings per share of $1.19 based on 1,739,000,000 outstanding shares.
Now, Intel will be ISSUING 18,600,000 NEW SHARES of Intel common stock - THE REAL PRICE PAID FOR LEVEL ONE - which will dilute the outstanding shares to 1,757,600,000.
To see what the COMBINED EFFECT of Level One's EPS WOULD HAVE BEEN on Intel's Q498 EPS, we simply SUM the individual NET PROFITS = $2,064,000,000 + $11,700,000 = $2,075,700,000
Now, we use the NEW TOTAL of Intel shares, after the 18,600,000 new shares are issued - which again is 1,757,600,000. outstanding shares POST BUY OUT.
The net Earnings per share is then = $2075700000/ 1,757,600,000. = $1.18 = "Theoretical" Combined EPS of both Level One and Intel.
Thus, the Q498 EPS would have been reduced by a mere PENNY - $1.19 --> $1.18 - if Level One's Net Profit was factored in to Intel's net profit.
This is probably referred to by the JINGOIST Wall Street Crowd as VERY MINOR - perhaps inconsequential - diluting of Intel's EPS. This is not "accretive" but it is NOT a SIGNIFICANT DILUTION either.
Because of this, assuming Level One's NET PROFIT grows ONLY as fast as Intel's, the acquisition will NOT DILUTE Intel's EPS after the acquisition.
For reference, INCLUDING the one time charge Level One took in their most recent quarter, they earned $0.25/share in Q498. Their Q398 earnings were $0.21. Thus, they grew EARNINGS at a 16% QUARTER TO QUARTER RATE in their past quarter.
Simply annualizing this to 4x 16% = 64% would put their earnings growth rate well above Intel's. Thus, any reasonably small perturbations in their growth rate will NOT have a material impact on Intel's EPS - either POSITIVE or NEGATIVE in the short term .
So, Wall Street should not find any GOTCHAs from a "bean counting" stand point.
Paul |
