The old adage of 1+1 = 3 has certainly been overused and abused in the M&A game. But, there are exceptions, and yesterday's merger between Powerwave Technologies
In the deal, shareholders in LGP Allgon will receive 1.1 shares of Powerwave stock for each share they own. That values the deal at roughly $400 million. The net result: Powerwave shareholders wind up with 54% of the combined entity.
Both companies deal in the complex area of wireless infrastructure. Powerwave is a leader in power amplifier technologies; LGP Allgon, meanwhile, is a leader in tower-mounted amplifiers and site optimization.
OK, not very clear, huh? Essentially, the merger allows for a complete offering of technologies for wireless infrastructures. Moreover, this is vitally important as next-generation and 3G technologies start to roll out.
Enough of the techno jumbo. The financials of the deal also look attractive. The transaction is expected to generate at least $15 million in annual cost savings. There are revenue synergies as well. Combined revenues for 2004 could reach about $600 million, compared to $527 million for the past 12 months.
Powerwave has finished restructuring its business model. The company now outsources a large part of its manufacturing to Asia, thus boosting margins. It also has about $253 million in the bank.
There is little overlap in the product lines of both companies. Interestingly enough, according to a Morgan Stanley
In light of this, Powerwave sees immediate results. In fact, the company believes the merger will be accretive in its first quarter of completion -- yes, it's 1 + 1 = 3 transaction.
Tom Taulli is the author of six books on investing, such as Investing in IPOs (Bloomberg Press), as well as a professor of finance at the USC School of Business (don't worry, he does come out of his ivory tower). You can reach him at[email protected].
