Mitel investors unlock value
Mitel Corp. (MITL, Financial), a unified communication play, has agreed to be acquired by Searchlight Capital Partners in an all-cash transaction of $2 billion. Searchlight will also assume the company's debt. Shareholders will receive $11.15 per share once the deal closes, translating to an upside of 11% over yesterday’s closing price. Mitel will go private as a result of the transaction, which will allow the company to flexibly deploy its transition to cloud, management noted in a press release.
A recent valuation piece quite accurately predicted Mitel's market value.
“The revised valuation based on new earnings consensus reveals a price of $11.5 for Mitel, an upside of 19% over the current stock price.”Â
The deal seems to be a win for Mitel’s shareholders as it unlocks value. Investors were worried about its transition to cloud despite consistent growth in the business. Note that the unified communication market is set to reach $57 billion by 2024.
Point of interest
With Mitel going private, investors have to look for alternative exposure to unified communication growth. There seems to be no direct exposure as two of the top players in the space are private companies.
Investors can, however, gain exposure through buying Microsoft (MSFT, Financial) and Cisco (CSCO, Financial). Both blue-chip stocks are leaders in Gartner’s magic quadrant for unified communication. IDC MarketScape also rates these companies as leaders in the space. The industry is in a transition phase as large enterprises are moving toward private cloud, while smaller enterprises are adopting secure cloud solutions.
Morgan Stanley defends double ordering comments
Morgan Stanley analyst Joseph Moore recently commented on the upcoming weakness in semiconductors amid double ordering. Double ordering refers to the practice where customers order double the amount needed, only to cancel one of the orders later. Moore argued that double ordering might be at play, and semiconductors, specifically analog component suppliers, will take a hit in near future.
The analyst was forced to defend his position after strong response from some investors. Moore said survey respondents saw high incidence of double ordering. Note that 46% of the survey respondents saw high incidence of double ordering compared to only 24% in a previous survey.
Point of interest
The risk of double ordering relates primarily to analog and multipoint control unit component providers. Despite weakness, Morgan Stanley will reportedly add Analog Devices (ADI, Financial), Broadcom (AVGO, Financial), Lam Research (LRCX, Financial), Micron Technology (MU, Financial), Nvidia (NVDA, Financial) and TE Connectivity (TEL, Financial) on current weakness.
Facebook: The big short?
Jeffery Gundlach, chief investment officer at Doubleline Capital, told investors at a conference to short Facebook (FB, Financial). He argued that 2.2 billion users equate to 2.2 billion compliance risks. He also noted the apologies from CEO Mark Zuckerberg amount to nothing as he has apologized for similar breaches in the past. Gundlach thinks it’s a good time to be in commodities due to risk of an imminent recession.
Although Gundlach proposed to short Facebook, his direction doesn’t carry much weight. He mentions there’s a threat of compliance, but fails to quantify the impact of compliance risk on the company's revenue.
Point of interest
Facebook plays by the book; the Federal Trade Commission cannot ban or fine the social media giant as long as it complies with stated regulations.
In the data situation involving Cambridge Analytica, user data was shared by a professor in a breach of his agreement with Facebook; this alleviates the company’s legal liability. Second, Facebook has revised its policies regarding sharing data with third-party apps. Moreover, neither Congress nor the FTC has a clear view on how to regulate Facebook. The company has already been following standard privacy practices as far as user data is concerned.
In a note to the FTC, PwC noted:
“In our opinion, Facebook's privacy controls were operating with sufficient effectiveness to provide reasonable assurance to protect the privacy of covered information and that the controls have so operated throughout the Reporting Period, in all material respects for the two years ended February 11, 2017, based upon the Facebook Privacy Program set forth in Management's Assertion."
The worst-case scenario for Facebook is more regulation regarding disclosure and frequent communication of data-sharing policies with its users. This could, at most, have a marginal effect on the company’s operational costs.
Disclosure: I have no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.
