So, in the end, baby bought mama. SBC's $16 billion acquisition of AT&T is a painful insult to the old Ma Bell, which only five years ago paid $120 billion for its own cable and Internet acquisitions, but that's life and there's nothing that can be done about it.
This large and important merger has several consequences, in areas like VoIP, which is undoubtedly the technology the US business world is going to use, and also in things like billing and software protection. Most importantly, the merger will have a considerable indirect impact on what happens in wireless. SBC, together with BellSouth (NYSE: BLS), owns Cingular, the largest wireless operator in the US, and there's no doubt that the sectors I've mentioned will get a huge push in the coming years (the merger, incidentally, will not actually take place until mid-2006).
There are also consequences for Israeli companies. For example, is this merger the reason for the meteoric rise in the shares of Deltathree (Nasdaq: DDDC)? Yes, and no. Deltathree has risen by 140% since the beginning of September. At the end of July, the company announced a deal with wireless giant Verizon. Research company Blaylock & Partners upgraded its recommendation for the Israeli company (although it's registered in New York) from "Hold" to "Buy".
Deltathree is often mentioned in the same breath with 8X8 (Nasdaq: EGHT), which has a market cap exactly the same as that of Deltathree, $142 million, except that the Californian company's sales are about half those of Deltathree, and it makes losses eight times higher than the Israeli company's. Since 8X8 has become a well-known company in the US because of its aggression in VoIP, Deltathree has also been discovered, and its many admirers claim that it's a substitute better than the original.
In December, investment house Kaufman Bros discovered the company, and it too issued a "Buy" recommendation. Deltathree's business results certainly indicate a breakthrough, and yesterday, it announced an agreement with XO Communications (XOCM:OB) of Virginia. Don't be misled by the fact that its share is traded on the Bulletin Board. XO Communications was one of the analysts' hot favorites during the bubble period. The company has sales of about $1 billion, and it makes losses, but it has a presence in all the main metropolitan areas in the US, and it's working on data transfer via optic fiber. XO needs Deltathree because of VoIP, which is currently its hottest area of business. The deal opens the door for Deltathree to the metropolitan centers, and to a great deal of business all over the US.
Why do I think this has a connection to SBC and AT&T? Because, if you read the agreement between Deltathree and Verizon carefully, you see that, in essence, Deltathree gives Verizon a VoIP solution without huge infrastructure works, and I think that that is what the new merged company will also seek. I have no reason to believe that there are any agreements between Deltathree and the merging pair, but the idea came from New York, where some of the buyers bought for this reason, "and in any case," a New York friend said to me, "if they have the right software, how long will it take until someone acquires them?"
Lumenis (Nasdaq: LUME.PK) has done nicely since the end of 2004, rising 87% on interesting volumes. One certain reason for the rise is the industrial quiet that has at last descended on the company. The market doesn't know what's happening, and when the market doesn't know exactly what's happening, and alongside the company, which is the largest in its market, its neighbor and great rival from Yokne'am Syneron Medical Ltd. (Nasdaq: ELOS) is flourishing, then speculative investors, such as my friend Mike, come along and say, "It makes no sense that the leading company in laser rehabilitative surgery, which is itself undergoing rehabilitation, should be traded at a fifth of the market cap of its junior competitor. After all, if Bank Hapoalim isn't worried about how much the company owes it, and if this matter isn't weighing too heavily on the shoulders of Lumenis's management, and they are getting on with the job, then the chances of recovery are looking much better - so a fifth of Syneron? Even half isn't too risky."
I asked Mike whether the opportunity balanced the risk, and he pulled his trump card from his sleeve. "Haven't you seen what's going on at Gilat by any chance?" And indeed, Gilat Satellite Networks (Nasdaq: GILTF; TASE: GILTF) has risen more than 20% in under a month. Why? Mainly because of rumors that Bank Hapoalim has found a buyer for the Gilat debt it holds. "If there's a buyer, there's a chance," says the New York speculators.
"Believe me," says Mike, "if Genger and Frenkel hadn't been involved, a buyer would have come along ages ago. The neighbor down the road, for example, has enough money and ambition. But in any event, the fact that Bank Hapoalim is talking to potential buyers for Gilat says a lot about Lumenis, and believe me, rumors about a buyer here will be enough to provide me with a living for a year and more." I agree with him about that, and so I'm not selling either, despite the recent rises. I personally know at least one potential buyer who's interested, but there are certainly others sniffing around.
Published by Globes [online], Israel business news - www.globes.co.il - on February 2, 2005