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 (NASDAQ:PWAV) and LGP Allgon looks to be a case in point.
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 (NYSE:MWD) study, Powerwave's addressable market will go from under $2 billion in 2004 to about $17 billion.
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].
