BREAKFAST WITH THE FOOL
Thursday, October 28, 1999
"When a subject becomes totally obsolete we make it a required course."
-- Peter Drucker
Harmonic to Scoop Up Divicom for $1.7 Billion
Richard McCaffery (TMF Gibson)
Fiber optic equipment company Harmonic (Nasdaq: HLIT) announced last night a plan to acquire the Divicom subsidiary of C-Cube Microsystems (Nasdaq: CUBE) in a deal that gives Harmonic a broader array of products to sell to communications companies worldwide.
Under the $1.7 billion stock deal, C-Cube shareholders will receive 0.542 shares of Harmonic stock for each share of C-Cube. The deal is about a 6% premium to the full price of C-Cube, which has a market value around $1.61 billion. Excluding goodwill amortization, Divicom is expected to be accretive to Harmonic earnings in the first year.
To complete the deal, C-Cube, which manufactures a specialized line of semiconductors, plans to sell off the assets related to its semiconductor business and merge Divicom with Harmonic. This will put the combined company in a position to focus on developing broadband equipment used to send streams of video, voice, and data over cable, telephone, satellite, and wireless networks. Divicom specializes in digital video compression while Harmonic develops advanced fiber optic systems.
The push to send huge amounts of information -- regardless of what form the information takes -- quickly across any communications network is one of the hottest sectors in the communications industry today.
Just look at Harmonic. Since late last year, the company's stock price has climbed from $6 in November to close at $59 7/8 yesterday (adjusted for splits and dividends reinvested).
Divicom has about 425 employees and had revenues of $134 million for the nine months ended September 30. It will be acquired using the purchase accounting method, and the goodwill will be amortized over the next five years. The deal is expected to close in March 2000.
News to Go
Shares of computer hardware and services manufacturer Hewlett-Packard (NYSE: HWP) tumbled after the company agreed with lowered analyst estimates for fourth-quarter earnings. The earthquake in Taiwan and fierce competition in the server business from rival Sun Microsystems (Nasdaq: SUNW) are contributing to the shortfall.
Online discount brokerage firm Ameritrade (Nasdaq: AMTD) reported fiscal 1999 revenue of $268 million, up 99% from $135 million a year ago. Net income was $11.5 million, or $0.07 per share, compared to $2 million, or breakeven, last year. The company's annual and fiscal fourth-quarter earnings met with analyst estimates, though it reported a fourth-quarter loss as the result of advertising and lower trading volumes.
Local and long distance communications company MCI WorldCom (Nasdaq: WCOM) reported 200% growth in quarterly profits as a result of increased sales in data, Internet, and international services, Reuters reported.
Pharmaceutical firm Pharmacia & Upjohn (NYSE: PNU) matched Wall Street expectations on Q3 earnings of $246 million, Reuters reported.
David Gardner on evaluating Amazon's and eBay's solid quarters... Bill Mann on banking deregulation and what it means for investors... Halloween at the Fool comes with an assortment of trick or treat stocks... True love: The couple that invests together saves together.
Remember to start each business day with Breakfast With the Fool at 9 a.m. Let us know what you think of this feature. Send all comments and suggestions (including Foolish quotes) to the Breakfast Fools.