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Technology Stocks : SILI - Siliconix -- Ignore unavailable to you. Want to Upgrade?

To: dmccoach who wrote (136)	2/24/2001 10:26:31 AM
From: Mark L.	Respond to of 152

There is little point in tendering your shares. Either VSH forgets the offer or raises it: either way you're liable to do better than accepting it. Valuing SILI is relatively easy, because unlike most semiconductor companies it doesn't make ridiculous capital expenditures every year, which have the effect of increasing apparent earnings every year...until... In other words, SILI is not subject to the "it's time to pay the piper" scenario which is affecting other semiconductor companies. SILI makes money internally, has had at least $40,000,000 of operating cash flow since 1994, and has always re-invested less than that in the business. I would estimate that SILI had at least $50,000,000 of FREE cash flow in 2000, maybe a lot more. Let's suppose that SILI has a real crappy year in 2001; let's figure on $30,000,000 of free cash flow. That's more than $1 a share--of money that you can literally put in the bank. Obviously reported earnings would be higher. Now how much would you pay for a business with reported earnings of, let's say, $1.20/share, that even with a crappy year in 2001 has been growing at a compounded rate of more than 30% per year since 1994, and which has a segment, automotive, that probably won't be affected by an economic slowdown? I would say you'd pay more than $28.82 a share. And, mind you, all my assumptions about 2001 were pessimistic--no "recovery in the second half" stuff. If SILI has a year that in any way resembles 2000, we're talking $3/share in earnings. Okay, a supposedly independent panel will evaluate SILI's offer. I don't think they'll be that independent, but, one way or the other, they'll either come up with $28.82 or more. Even if they don't come up with more, VSH still has to get 50% of the shares in the float. And the worst case for an untendered stockholder is that he gets the same deal as the tendered stockholders. If the deal falls through, SILI will eventually trade at its fair value like any other stock--not like other technology companies that have no free cash flow and are in the business of increasing meaningless metrics like revenues. So ultimately there is no point to tendering the shares. What this offer has made me take a closer look at, however, is VSH. They have exactly the kind of cynical, opportunistic, larcenous management that I'd like to have working for me. I am now considering making a large investment.

To: dmccoach who wrote (136)	2/24/2001 1:11:28 PM
From: WTMHouston	Read Replies (2) \| Respond to of 152

Dan: I agree completely with Mark's assessment. $28.82 is wholly insufficient in my opinion. VSH is making this offer because it is good for VSH shareholders, not because it is good for SILI shareholders. VSH can make this offer because it is around where the stock was trading before the offer. In fact, I'd bet that $28.82 is an exact average of SILI's trading price for some number of days before the offer. As I recall, Fidelity owns around 8% to 10% of ALL SILI stock. If my recollection is close to accurate and if Fidelity still owns this stock, the results of this "tender" will really come down to Fidelity's decision. I expect SILI to have EPS of at least $2.50 this year. I am being very conservative in this estimate and it could end up at $3.00 or more. However, at $2.50 per share, VSH is only offering 11.5x 2001 EPS -- darn cheap for any tech company. Moreover, on a trailing basis, the multiple being offered is only around 8. This, of course, is for a company who grew EPS by over 50% in the last 12 months and grew EPS by several hundred percent over the last 24 months. The strange part (and why I suspect that VSH will offer cash rather than stock) is that the offer is actually dilutive to VSH, which is trading at a lower PE than SILI. This would be the only acquisition recently made by VSH that was not immediately accretive. You will notice that VSH has said nothing about the accretive-dilutive affect of this offer. The ONLY reason that VSH would make an offer for SILI that is facially dilutive is if they expect it not to be dilutive very soon. VSH management is smart. They fully understand that the time to buy good assets is when the "market" price is depressed. SILI's valuation is currently very depressed. The "tender" price makes sense for VSH but not for SILI shareholders. Buy low-sell high timing is good for VSH right now -- not so good for the rest of us and especially not so good for anyone who bought SILI ay ANY time in the last 18 months. I have a decent position in VSH, but nothing compared to my SILI exposure. I might have some interest in an offer at greater than $50 a share. Until then, my vote is NO to VSH's silly offer of $28.82. At less than $50, I would just as soon hang on to the stock and see where it is a couple years. Hopefully Fidelity will also say NO. That said, I wonder what conversations VSH has already had with Fidelity since it is unlikely they could pull this off without their agreement. I bet that Fidelity has given VSH a price at which is would support the offer and I bet that it is not $28.82. I will be surprised if the "independent" board accepts the $28.82 offer. This board is only facially independent. They would not be on the board if they were truly independent. I will be surprised, however, if they ratchet the required offer up much either -- $40 may be optimistic. So far, the market has said that it is willing to pay at least $31 for SILI and that is in a VERY depressed stock market. Finally, it will not surprise me to see some lawsuits from this if the buyout goes off at anywhere near the current "tender." These independent board members have fiduciary obligations to all non VSH shareholders. Those duties and obligations will be tested, in my opinion. I would like to continue in depth discussions on these issues. Troy