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Technology Stocks : S3 (A LONGER TERM PERSPECTIVE) -- Ignore unavailable to you. Want to Upgrade?

To: JAG who wrote (9144)	2/1/1998 1:53:00 PM
From: Bill Lin	Read Replies (2) \| Respond to of 14577

OK, since people want to persist in this rumor of an S3 takeover, lets take a look at how one would value a takeover, its competitive advantages, and how S3 would try to bid its takeover price up. S3 has $117.7mm in cash as of last earnings announcement (12/31/97). AR-AP= %60.7mm-$42.8MM = $17.9mm short term debt = $4.8mm convertible debt = $103.5mm (w/ strike at 19.375 or so = 5.34mm shares out) shares outstanding = 50.4mm. fully diluted w/ converted debt, its about 55.7mm shares. looking at 1996 10K, we see the following: options avg. strike price 1,140,236 $1.60 186,585 $3.23 870,111 $5.56 973,410 $5.71 54,095 $9.77 3,522,846 $10.05 203,527 $12.49 1,969,289 $14.97 1996 shares out to 1997 shares out (48.33mm to 50.44mm) assuming no shares were sold except thru options exercise... = 2.1mm shares net increase. Total options of 8.92mm minus 2.1mm = 6.81mm options outstanding. (so, look at $5.71 strike price down to determine options outstanding) At $5, the enterprise value equals market cap $252mm plus convertible debt $103.5mm, plus notes payable $4.8mm, minus cash $117.67mm, plus AR-AP ($17.9mm) minus current notes payable ($26.7mm) = $234.03mm. Net cash adjustment is about $17.97mm. So we get the table below share $ shares mkt cap cash adj c debt tot value $5 50.5 $253 17.97 $271 $6 51.5 $309 17.97 $327 $7 51.5 $361 17.97 $378 $8 51.5 $412 17.97 $430 $9 51.6 $464 17.97 $482 $10 55.1 $551 17.97 $569 $11 55.1 $606 17.97 $624 $12 55.3 $663 17.97 $681 $13 55.3 $719 17.97 $737 $14 55.3 $774 17.97 $792 $15 57.3 $859 17.97 $877 $16 57.3 $916 17.97 $934 $17 57.3 $973 17.97 $991 $18 57.3 $1,031 17.97 $1,049 $19 57.3 $1,088 17.97 $1,106 $20 62.6 $1,252 17.97 -103.5 $1,166 So, if you are AMD, NSM, whoever, you now know what you will have to outlay in terms of stock or cash. Best case for 1998 is cash flow neutral. Worst case is severe cash flow negative. Monetization of the rest of USC investment is $144mm cash to $230mm cash (taxed at 35% will net $93.6mm to $149.5mm) This is net of the original $72mm sale of 1/3 USC. The $40mm purchase of CRUS patents payment of taxes, leaves a net cash balance of $18mm from the sale (cash increase of $18mm from cash balance of Dec. 31. 1997). This essentially eliminates the previous $17.97mm cash adjustment calculated previously. So we are essentially looking at shares out plus options times price to determine the takeout price. So how much will you (generic term) be willing to pay for S3? see next post