Market's reaction to dealI'm surprised that the market has been so negative on this deal. On one side of the aisle, LTRX has gone down--and stayed down--on the news. This is weird given that LTRX makes clear in their CC that the deal will be accretive right away. And LTRX seems to me to make a strong case that this is a good fit in terms of customers, products, etc.
Following the immediate jump in the ITC share price on the news, that stock has also drifted lower. And not only has it gone down in sync with LTRX, but it has persistently stayed at about a 5 cent discount to the deal value given the LTRX price.
The market's pricing of ITC seems to me especially strange given the possibility that:
(1) some competing bidder may yet go after ITC at a higher price in spite of the $850,000 break fee;
(2) LTRX, fearing that ITC shareholders may reject the deal, agrees to raise the price.
Huge numbers of ITC shares have been offered for sale. This is in striking contrast to the apparent enthusiasm of ITC board members who have signed lock-ups totalling 14% of ITC shares. Do the ITC board members not know what they are doing? I doubt it. I suspect they (correctly) like the (fomrerly Microsemi) leadership of LTRX as well as the scale and product range of the resulting entity. Their thinking is probably that the deal may not look so great with LTRX currently around US$3 but that, looking out a few years, LTRX will be a terrific stock to own.
The market seems to be thinking that either:
(a) the deal will be approved and the resulting LTRX will simply not be a desirable story to own--hence it's better to get out now at a discount;
OR
(b) the deal will NOT be approved by ITC shareholders and the ITC share price will go back down to the $1.30 - $1.40 range.
So which way am I planning to vote? I'm not sure yet. One thing--I'm certainly not afraid of voting against. ITC has made it clear that their fourth quarter will be very strong. That alone, I would think, should be enough to get the stock north of $1.50--i.e., exactly where it is now. Also, if the deal is defeated, the world will know that ITC remains "in play." You would think, given ITC's terrific 5-year growth record and recent positive announcements, AND that they're now the subject of a takeover bid, AND that the market for tech buyouts is currently at historic highs . . . you would think that ITC would be trading for something more than $1.53. This is not even close to the 1-year high of $1.71 or, for that matter, the 3-year high of $2.83.
If I do vote in favour it would be primarily because I think the market is now seriously undervaluing LTRX.
Two things to keep in mind. First, if ITC shareholders reject the deal there will be no break fee. A break fee is paid only if a higher bid comes along, thereby leading the locked-up ITC directors to exercise their "fiduciary out."
Second, don't count on ITC board or management to say anything that might be seen to question the merits of this deal--in light of the market's reaction or otherwise. They have signed on to it and they CANNOT now say anything that is not supportive of it. If ITC shareholders reject the deal they will have to do it entirely on their own.