We initiated a position in the common stock of Symantec Corp. (SYMC, Financial), a leading provider of security, backup / recovery and storage management software. The company's products are sold to both consumers (through its Norton product line) and corporations. Symantec's end markets seem to be generally healthy and growing, and the software business is very attractive owing to recurring maintenance revenue, high margins (gross margins in excess of 80%) and robust cash flow generation. Symantec has a very strong financial position with $4.1 billion of cash and investments, compared to total debt of $3.0 billion. During the quarter, the company issued $1 billion of long-term debt at very attractive rates (2.75% and 3.9% for five and ten year maturities, respectively). Owing primarily to the weak near term outlook for enterprise IT spending, particularly in Europe, the Fund purchased shares of Symantec Common at only about five times earnings before interest, taxes, depreciation and amortization ("EBITDA"). Transactions in the software industry typically occur at much higher multiples, including, most notably, Intel's purchase of Symantec's competitor, McAfee, in 2011 at about 15 times EBITDA. Subsequent to quarter end, Symantec's CEO was replaced by Chairman Stephen Bennett, who was formerly Intuit's CEO from 2003-2007. The move was in response to the weak stock performance of Symantec Common over the last couple of years and enhances the possibility of some type of resource conversion activity to increase shareholder value.
From Third Avenue's third-quarter letter, by Ian Lapey, portfolio manager.
From Third Avenue's third-quarter letter, by Ian Lapey, portfolio manager.
