Is a Gateway Inc. bidding war in the offing?
That might overstate it a bit. But there could be more interest coming after eMachines founder Lap Shun “John” Hui offered $450 million to buy the Irvine-based company’s retail business.
Hui is Gateway’s second-largest shareholder after founder Ted Waitt. In 2004, he sold low-cost PC maker eMachines of Irvine to Gateway for $290 million.
Following word of Hui’s bid, Andrew Neff, an analyst with Bear Stearns & Co., made an unusual move of late for analysts: Neff upgraded Gateway.
The upgrade was from “underperform to “peer perform.”
He wrote in a research note that Hui’s interest should give investors some assurance that the stock only will fall so far. He said other companies, including Taiwan’s Acer Inc. or Legend Group Holdings, which has a majority stake in China’s Lenovo Group Ltd., could be interested in Gateway.
“We believe this proposal (and potentially from others) limits the downside risk of the stock,” he wrote.
Equity Investment Ideas, a blog, also thinks Gateway could be a good acquisition candidate. Hardly a new thought, of course. But Hui’s move has the water stirred again.
Also, don’t forget an investor group led by Harbinger Capital Partners Master Fund I Ltd., a Cayman Islands-based fund that’s affiliated with Birmingham, Ala.-based Harbert Management Corp. It has taken a 10.2% stake in Gateway. Harbinger isn’t a passive investor.
Gateway hardly is a bulwark in computers, Neff said, pointing to “challenging fundamentals.”
One issue: The market is getting even tougher, given the retail dominance of Hewlett-Packard Co. and the potential entry of Acer into stores.
Other issues, according to Neff, include operating losses, the difficulties with Gateway’s professional and direct businesses,and a “lack of a clear strategy.”
That’s never good.
Hui might bring some permanent leadership into the executive suite. Although the price tag is less than what Hui got from Gateway (based on sales), it’s a starting point for negotiations.
The stock has been near $2 recently, up from its all-time low of $1.30 earlier this summer.
M-Flexing
You got to give this to Multi-Fineline Electronix Inc.: The company hasn’t been short on drama.
The Anaheim company has been up, down and now is trying to backpedal on its plans for a combination with its sister company, Singapore’s MFS Technology Ltd. Its early efforts to call off its buy of MFS have failed.
I don’t understand Singapore regulatory rules. But they appear to be much more stringent than those of the Securities and Exchange Commission.
Multi-Fineline, which goes by M-Flex, said its request to withdraw its buy has been denied by Singaporean regulators. It plans to appeal.
The news didn’t please investors in MFS. The day after M-Flex said it was looking to get out of the deal, Singapore-traded shares of MFS dropped by as much as a third, though they gained back some of the losses, dropping 18% by the end of the day, according to Reuters.
The decline points to why M-Flex wants out in the first place. M-Flex officials thought they were getting a healthy company to drive sales. Instead, M-Flex is more of a lifeline for MFS.
Investors have had their concerns about the deal since it was announced back in March.
First, it’s unusual to see one company buying its sister company. Both are majority owned by Singapore’s WBL Corp.
Also, the move wouldn’t do a lot to diversify M-Flex’s customer base. MFS has 50% of its sales wrapped up in Motorola Inc. M-Flex has 80%.
Then there’s the concern with MFS’ sales growth.
In July, MFS said revenue would be 28% lower in the quarter than in the prior period.
The company blamed slowing demand and weaker-than-expected sales of products that use the company’s circuit boards, according to a report by Channel NewsAsia.
M-Flex has seen its stock fall by more than 50% in the past several months, partly on concerns over the deal and its own sluggish financials.
The stock had been one of the hottest in Southern California prior to the MFS announcement.
M-Flex makes flexible circuit boards, the guts of popular phones such as Motorola’s Razr. The bendable boards allow Motorola to make stylish designs.
After the announcement that M-Flex was backing out of the buy, its shares climbed as much as 18% before pulling back to a gain of 7%. M-Flex counted a market value of nearly $500 million as of last week.
Iteris Drives Profits
Anaheim-based Iteris Inc. has been racking up some net income gains of late, albeit slight ones.
Iteris, which makes software and other gear to improve traffic, hasn’t reported an unprofitable quarter since its last net loss of $155,000 in the quarter ended Sept. 30, 2005.
In the latest quarter, which ended June 30, the company said it posted profits of $279,000 compared to a loss of $726,000 a year earlier.
Still that was off more than 60% from the previous quarter.
The company, which has a market value of about $73 million at last check, has watched its stock rebound the past few months, though it is still off more than 20% in the past year.
