Herb on TheStreet
Extra: Ancor's Acquisition by QLogic: Is It Really Game Over?
By Herb Greenberg
Senior Columnist
5/8/00 3:03 PM ET
URL: thestreet.com
No matter how good the research is on a company, suggesting that its stock -- and story -- are overheated, none of that matters when a company gets acquired. In a snap of the finger it can be game over for short-sellers. That is, of course, unless one set of problems is merely being transferred from one company to another. That's an important question in the wake of Monday morning's announcement that Ancor Communications (ANCR:Nasdaq), a maker of fiber channel switches, has agreed to be acquired by QLogic (QLGC:Nasdaq) in a stock deal valued at roughly $1.7 billion, or $52 a share, based on QLogic's close on Friday.
But that was Friday. Today is today, and at last check QLogic was trading at 80, which makes the value of the deal more like $1.3 billion, or $42 a share.
Hardly the dream of investors who had bid up Ancor's stock as high as 94 1/8 as recently as December 7, on news that Intel (INTC:Nasdaq) had bought a small stake in the company.
Ancor, of course, is no stranger to this column. For the better part of a year, the shorts had been providing one piece of evidence after another that the company was nowhere near what it was cracked up to be on Wall Street. Which is why the shorts, so far, haven't conceded defeat and thrown in the towel despite Monday morning's news. Says one, "This QLogic has got to be one desperate company to acquire Ancor." Says another, marveling at QLogic's P/E of nearly 160 times last year's earnings: "You're trading two $10 cats for one $20 dog."
Indeed, for Ancor, whose stock traded as low as 14 1/4 just three weeks ago, the sale is a graceful (and, some would say, long-needed) exit strategy. The company's revenue hasn't grown and earnings haven't materialized as quickly as some investors would have liked, and it's unclear how successful it can be cutting into Brocade's (BRCD:Nasdaq) gargantuan share of the fiber channel market -- a market itself, whose future is uncertain.
The strategy for QLogic, however, is less clear. QLogic, which makes electronic connector components used to build high-speed data storage networks, says the deal is designed to deliver "total storage solutions" to the marketplace. Both companies, for example, already supply products to Sun Microsystems (SUNW:Nasdaq).
Interestingly, though, that adds another twist to this story: Ancor's prime cheerleader is Ashok Kumar of U.S. Bancorp Piper Jaffray. Back in November, in a report to clients, he wrote, "Short-term, the biggest problem for Ancor is for Sun Microsystems to get its act together. The issues converge around implementing the right adapter board. Sun is adamant on using its own S-bus boards, which do not work well. Also it would behoove Sun to utilize [boards from] Emulex (EMLX:Nasdaq) and JNI (JNIC:Nasdaq) for the higher-end solutions rather than QLogic. Ancor's switches work well with Emulex and JNI's boards."
If so, then what's it doing selling itself to QLogic?! Kumar couldn't be reached, but this much is certain: Short-sellers are likely to start taking a close look at QLogic in the wake of the deal to see if they should be pouncing on QLogic once the merger is complete. Still fresh in their minds are examples of such hyped-up companies as The Learning Company and LHS Group (LHSG:Nasdaq). The Learning Co., filled with problems that made it a favorite of shorts, was acquired by Mattel (MAT:NYSE); TLC then almost did Mattel in! LHS, meanwhile, another favorite of the shorts, agreed in March to be acquired by the Sema Group. At the time LHS was trading at 39; it then shot up to 57 on the takeover news, before reality set in and reality caught up with LHS's stock, which currently trades at around 39.
That's just a reminder of what could happen, not what necessarily will. In the meantime, Ancor won't go down as a landmark investment for Intel. Intel paid $52.86 a share for Ancor stock. At last check Ancor was trading at 40. |
