Foolish Forecast: Sayonara, Scientific-Atlanta

All good things must come to an end. Thursday, we may hear the last word from one of my favorite companies, Scientific-Atlanta (NYSE: SFA  ) . The maker of set-top cable boxes will report its fiscal Q2 2006 earnings moments before being subsumed into tech giant Cisco (Nasdaq: CSCO  ) .

As fellow Fool Rick Munarriz observed when the buyout was announced last November, this deal is expected to close some time prior to April of this year. Two weeks ago, we learned from Scientific-Atlanta itself that the major U.S. regulatory hurdle to the deal's completion had been dealt with: The waiting period required under the Hart-Scott-Rodino Antitrust Act has expired. All that remains now is to get the European Commission, and a few other foreign regulatory agencies, to sign off on the merger.

With so little time remaining before completion, and much of the regulatory-approval work out of the way, it's not surprising that Scientific-Atlanta's stock price currently sits just a few cents away from the announced buyout price of $43 per share. What does raise some questions -- at least in this Fool's mind -- is why the stock price is sitting to the north of $43. Ordinarily, the market builds in a sort of safety cushion of a few cents per share below a buyout price, which deflates as we approach the completion date without anything upsetting the deal's applecart. For some reason, that's not the way things are working so far.

The likely culprit? Someone, somewhere, thinks that Scientific-Atlanta will receive a higher bid than the one that Cisco made. The catalyst for such a bid might just be Thursday's earnings release. At last report, analysts are expecting that Scientific-Atlanta will report a year-over-year profit increase of 13% in its fiscal second quarter 2006 -- $0.43 per share in all.

With sales projected to rise 16% over the same period, that does seem a likely way for the quarter to play out. In fact, given that Scientific-Atlanta has managed to improve its gross margin year over year for two quarters running now, I'd say it's possible that the company will beat analyst estimates (at least before you count in any extra legal and accounting costs that the company incurred in assisting Cisco with its due diligence.)

Will good results spur a competitor like Motorola (NYSE: MOT  ) or NDS (Nasdaq: NNDS  ) to attempt to trump Cisco's bid? The market seems to think so. Tune in Thursday to see if Scientific-Atlanta can give them an incentive to try.

Read more about the buyout in Rick Munarriz's Cisco's Scientific Discovery.

On the hunt for top-notch tech stocks? Join David Gardner and theMotley Fool Rule Breakersteam in their quest for companies with explosive growth potential. Sign up today for a 30-day free trial.

Fool contributorRich Smithhas no position in any of the companies mentioned in this article.


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