jeudi 24 mai 2012

LaCie (LAC)

English version : see below. En Français : voir en fin d'article (à venir).
Sorry for the telegram style, I don't have much time.

LaCie (LAC on Euronext) made the headlines today.
Seagate (STX on the Nasdaq) announced to it would buy LaCie (more precisely 64.5 % of the company, from Phillipe Spruch, one of the founders and CEO of the company).

Seagate will then make a tender offer for the remaing shares € 4.05 /share in cash.
LaCie stock jumped some 20 % today, closing around € 4.

This values LaCie at € 146 milion.
I'm interested because :
- I'm a LaCie shareholder : is it a fair offer ?
- it's interesting as a reference point for valuation.

My immediate reaction was that it's a lowball offer.

LaCie sells computer hardware storage solutions (external hard drives, but also flash drives ; the company recently acquired Wuala for cloud storage and a participation in Loewe AG, a german high-end electronics company).
Some valuation ratios (4.05 €/share)
Market cap : 147 m€
Entreprise Value (based on the latest HY report) = Market cap + short term financial debt + LT financial debt - cash and equivalent
EV = 147 + 2.1 + 4.3 - 44 = 109 m€
LaCie has almost no debt, and ample cash reserves.

2011 operational result 18.4 m€
EV/ROP 2011 = 6

With a last dividend of €0.33, current yield is 8.1 %.
According to the latest LaCie HY report, 2012 was not shaping up as a bad year. Lower sales but better margins.

So Seagate buys LaCie for 6 times 2011 EBIT. Pretty low on a first look and much less than what I expected when I bought LaCie a few months ago.
Note that in 2009 it was possible to buy LaCie for less than 2 €, it was a net-net then.

Is it a fair offer ?

If we have a look at the past results and free cash flow generation :
- LaCie has been profitable, even during the 2008-2009 crisis and after the 2011 floods in Thailand
- no growth in recent years ; temporary or the sign of a secular decline in a commodity business facing an intense competion ?

ROP = operational result
ROP/CA = operational margin
FCF = free cash flow

EV/2005 to 2011 mean ROP = 5
EV/2005 to 2011 mean FCF = 9

See this post at Gurufocus

Note that the point of the original gurufocus article was that WDC was a bargain. So if WDC is a bargain, LAC is a bargain ?

LaCie is a dwarf compared to these market leaders, which somehow distorts the analysis.
EV/Sales (LAC) 0.4x
EV/EBIT (LAC) 5.9x

WDC recently bought Hitachi Storage for EV/Sales = 0.7x and EV/EBIT=6.8x

Interim conclusion

It will be interesting to read the "independent expert" report on the tender offer.
For having read a few of these, my impression is that it's possible to justify about any price by adjusting some parameters in the DCF evaluation process.

STX offer does not seem un-reasonable when looking at comparable companies but rather low on an "absolute" basis and decidely ungenerous. Good timing on their part in the midst of the current European crisis (scared shareholders and drepressed valuations).

Here is an interview by Phillip Spruch on financial channel BFM.
It's in French but to sum it up :
- STX was at the same time a supplier and a competitor of LaCie. Only 3 actors in the hard drive industry now (STX, WDC and Toshiba) => difficult situation
- we could have made the choice to downsize (from 400 to 150 people) and focus on high-end products
- we have choosen to bounce back and go to Seagate ; we'll be in charge of all the external hard-drive division
- it's a good offer and it's the best solution for LaCie employees.

I'm not selling at this price on a first analysis. It'll be interesting to see if the independent expert judges the price fair for a squeeze-out procedure.

Regarding the second point (reference point for valuation, valuation methodology) my post is obviously not complete. In the interim, see this post by Geof Gannon on WDC.

Feedback welcomed.

Version en Français  : demain !