A budding "going private" movement seems to be underway this quarter. The term means companies who prefer to cease trading on the stock exchange and go back to being private companies, in contrast to the dream of nearly every private company of "going public."
Goldman Sachs said this week that we can expect a wave of delistings in the semiconductor production equipment sector, because the sector stands out with low market valuations and strong company results.
I personally believe that behind the surprising resignation of SanDisk Corporation (Nasdaq:SNDK) founder and CEO Dr. Eli Harari lies an orderly plan to delist the company during the next year.
SanDisk president and COO Sanjay Mehrotra will replace Hariri as CEO on January 1, 2011, and director Michael Marks will replace him as chairman. Marks is, among other things, a past expert on delisting companies for KKR.
At SanDisk, they apparently already know that the frustrating gap between SanDisk's market valuation and its results, huge future demand for its products, and technological developments that it is working on, will only widen with time, and frustrate investors, employees, and management.
Therefore, delisting is preferable, even at a price double its current market price.
Analysts at Goldman Sachs, SanDisk's investment bank, are pouring cold water on the shares, three days before the company's results, and lowering their recommended price from $40 to $36, while leaving their recommendation at "Neutral".
In their opinion, SanDisk's results which will be released on Thursday will be below market forecasts for net profit of $1.05 per share (a 40% one year gain).
I believe that at Goldman Sachs they are making a mistake, but if they are correct, it will be sad to see Harari carrying out his last conference call for the company by reporting on the miss.
In any case, shortsellers also believe Goldman's scenario, and short interest at SanDisk rose to 18 million shares, the highest in the past year. A share price collapse, if it should happen, will hasten even more, in my opinion, the company's delisting. Paradoxically, it will also increase investment banking fees at its banker, Goldman Sachs.
Bungee jumping share prices
Among Israeli firms whose shares I hold in my portfolio tracked by "Globes", the first to report this season, tomorrow, are Mellanox Technologies Ltd. (Nasdaq:MLNX; TASE:MLNX) and AudioCodes Ltd. (Nasdaq: AUDC; TASE: AUDC), the former after trading opens, and the latter before trading opens.
One should praise new Audiocodes CFO Guy Avidan for succeeding in advancing the report. Audiocodes collapsed in the summer from its April record, and has returned nearly all the way back, nearly 90%. Certainly, not in the results, guidance, nor conference call with Audiocodes founder and CEO Shabtai Adlersberg, will there be an operational explanation for the bungee jump in the share's price this year.
Almost certainly, we will hear about linearity in growth, in sales, and in profit, and about gains, among other things as a result of collaboration with Microsoft.
Mellanox shares, too, had a bungee jump since the July conference call. However, in contrast to Audiocodes, the company has an explanation for the moves, in the form of a warning for the third quarter, and it is still 35% off its record of April this year.
After what we have heard recently from executives at Intel, HP, and Oracle about the strong demand in the server and storage markets in which Mellanox operates, I believe that in the results, guidance, and conference call, Mellanox founder and CEO Eyal Waldman will provide a message that the crisis was a one-time event, and that beginning with the fourth quarter, the company will return to what it got us used to many quarters: growth from quarter to quarter.
Published by Globes [online], Israel business news - www.globes-online.com - on October 19, 2010
© Copyright of Globes Publisher Itonut (1983) Ltd. 2010