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Stock Market - Lexar Bid Is Inadequate
By John | August 14, 2010
On Friday, flash media maker Lexar Media (LEXR) received a higher revised takeover bid from Micron Technology (MU) The revised bid locations the all-stock exchange provide at all-around $10 a share, up marginally from the initial bid.
But main shareholders including billionaire investor Carl Icahn along with hedge funds and portfolio managers have deemed the original bid to be inappropriate. Elliott Associates believes the original bid “significantly undervalues Lexar,” and feels Lexar is worth between $1.5 billion and $2.4 billion. The estimate is well above the revised takeover bid of about $827 million.
I should concur and say the revised takeover bid is way as well low and wants to become rejected by shareholders. Micron wants to pay all-around 1.10x sales for Lexar whilst the marketplace leader SanDisk (SNDK) is trading at 4.35x sales. Lexar also features a $400 million patent infringement lawsuit against Toshiba that it had previously won but is now subject to an appeal by Toshiba.
Think about it this way, a successful $400 million settlement in favor of Lexar would equate to around $4.83 per share in additional cash to add for the current $0.54 in totally free money following debt that Lexar has. This indicates Micron would pay less than $5 a share for Lexar’s assets, which is lower.
There’s also speculation that SanDisk is seriously thinking about taking a run at acquiring Lexar. This would make sense because SanDisk would solidify its leadership position.
Furthermore, SanDisk features a close working relationship with Toshiba, which could see SanDisk drop or decrease the settlement if it managed to acquire Lexar.
Stay tune. A special shareholder meeting to review the takeover bid has been moved to June 16. In my view, the $10 bid undervalues Lexar. Question is will a white knight surface?
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