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Avid Technology, Inc. Message Board

  • cancunguyus cancunguyus Oct 28, 2008 3:14 PM Flag

    Setting itself up for an eventual sale

    They sell two components of their company SoftImage and Pinnacle.
    They bought back 4.3 million shares for $93.2 million (about $21.67 a share).
    They still have $122 million in cash on hand.
    They are in a transformation stage to shore themselves for what looks like to me a buyout.
    The stock has a small float and continues to have a huge institutional following, with very little liquidation of shares.
    What would be the right buyout price? At one time it looked like $43.00, but of course now it will probably be lower. Would Microsoft be the logical buyer. Any thoughts?

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    • Let´s look at some points here:

      Blum, one of the largest institutional holders of AVID shares just purchased 237,425 shares at $14.495 per share
      Technology (AVID) Blum Capital Partners LP BO 237,425 $3,441,472
      So the institutions are not selling but averaging down.
      There have been no heavy volume, or sales by insiders, nor by the institutions holding shares.
      Hollywood and the Music Industry are the businesses buying this equipment to enhance their special effects and editing procedures to upgrade the quality of their products in the market and have the $$$ to do so.
      The only competitor right now to AVID is Apples editing technology, which is not yet up to AVID´s according to friends that I speak with in the business who like the ease and continuity of AVID´s products.
      If this stock is going to $5.00 usd, which is what they have in cash, it would be way under book value, don´t you think? What would warrant a $5.00 usd price tag?

      • 1 Reply to cancunguyus
      • My wild-ass, cabernet-loaded, late-night guess figured their cash would continue to decline. In the cold light of morning, it still will. I don't think they'll have $5 per share of cash and short-term investments(!) by then, 12/09. I don't even thing the inventory and receivables can evade writedowns. They have product in music stores and Circuit City, for example. You've cited the music industry as the customer... I was rather under the impression the the music industry is no longer rich. Hollywood, I don't know, but it's only part of their business.

        "Goodwill" is the big item on the balance sheet's Assets, reflecting what they paid for acquisitions, whose value, I'd hazard a guess, have declined. If you marked it to market, what would it look like? It go down, and the be balanced by a nasty gash to retained earnings. Retained earnings is key, and it's negative, and getting worse each quarter. What's the pathology that lets this happen?

        This balance sheet's foundation is "Capital Surplus," the source of which is, well, over. The assets are in decline, and I'm betting will not generate bubble-era profits. The equity market was exceedingly kind to AVID for a long time, and allowed them to get their hands on lots of cash. The big, fat, expensive buyback indicates the the BoD was intoxicated with assumption that the equity market would last forever. Now, that buyback money is gone, and what's left if paper.

        Summary, Goodwill (the asset), and Capital Surplus (the now-static, historical equity account) are now set in stone. What you'll see is current assets, mirrored by retained earnings, moving adversly in lock-step.

        This wasn't a credit bubble company, it was an equity bubble company. Cicso was an equity bubble company in 2000 That's where I learned the pattern...the hard way.

    • - Mkt Cap $545M. Plenty of cash, $5/share. Low debt. Margins are high. Sales slowing ( This is the most telling). Couple of quarters with losses.

      - Very wide product mix, like a tech conglomerate. Wide channel mix. Lotsa brands. Seems like any buyer would find himself in too many new businesses.

      - Who'd want to invest 500M in this? Seems to me that MSFT wouldn't figure they could run AVID, e.g stadium screens are pretty far afield from MSFT. Sony has its own problems! Samsung or Panasonic don't want all these Americans on the payroll, even if they'd like take these markets. Besides, every big company on earth has become guarded of its cash. Nobody's feeling playful with $500M.

      - Capital markets are too screwed up to support spinouts, etc.

      - The board overpaid (!) for its buyback. Not in the mood to screw up again. They wish they had that $92 M in the bank, but now they have stock, which is entirely dependent on Goldman, private equity, and a bunch of mutual funds. If a few of them sell a few million shares...

      - Imagine what's it's like to be the VP Sales. Will people keep paying them $0.25B/qtr for audio/video gear? Consumers? Broadcast? Are tools budgets frozen?


      => AVID may indeed be seeking a buyer(s), but I'd bet a buyer will be impossible to find.

      => There's no way out, other than downsize and try to wait it out.

      => Seems likely that a few or more of those 1M+ share institutions will want out, soon. Conclusion I'll bet that this will be a $5 stock by 12/09.

      I'd appreciate it if you'd list the factors that indicate they're grooming for a buyout. I don't know how to tell.

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