Transportation, Distribution & Logistics

BEHIND THE NEWS: Private equity fever fuels talk of Brightpoint buyout

February 12, 2007

Brightpoint Inc. shares have shed 60 percent of their value since April 2006. But the distributor and logistics provider for the wireless phone industry continues to turn a tidy profit, and in recent months has cut a flurry of deals that bode well for the future.

Don't think the nation's private equity fund managers haven't noticed. Flush with billions of dollars to invest, they're poring through spreadsheets in search of undervalued acquisition targets.

So no one should be surprised that investing message boards are speculating about a buyout, or that company CEO Bob Laikin was asked about the topic during a Feb. 6 conference call with analysts.

He artfully sidestepped the question. "We have never commented on any rumors in the marketplace," Laikin said at one point. When pressed by an analyst on whether he'd be open to "these types of conversations," he added: "We will just not answer that question."

He was no more illuminating in an interview with IBJ the next day.

"My responsibility is to the shareholders and maximizing shareholder value," Laikin said. "That's my No. 1 job at the end of the day."

It doesn't take a math whiz to figure Laikin surely has been approached, probably by both private equity firms and other IT distributors.

After all, Plainfield-based Brightpoint posted 2006 profit of $35.6 million on revenue of $2.4 billion. More important to the private equity crowd, its EBITDA-earnings before interest, taxes, depreciation and amortization-was a robust $60.7 million.

These days, it's not unusual for private equity firms to purchase companies for 11 times EBITDA. In Brightpoint's case, that works out to $668 million, or $126 million more than its current stock market value. On a pershare basis, 11 times EBITDA equates to $13.20 a share, $2.50 higher than where the stock now trades.

"I wouldn't say I'm swayed one way or another. But from a stock-valuation perspective, at current levels it is relatively inexpensive," said SooAnn Roberts, an analyst with Kaufman Bros. in New York. "I could see it being an attractive potential acquisition target."

That's not to say company founder Laikin, 43, or the company's board would view this as an attractive time to sell.

The stock has taken its knocks for a variety of reasons, including the company's disappointing performance in certain geographic areas, and concern over the speed with which the overall wireless market will grow.

But a lot also is going right. In August, Brightpoint cut a colossal deal with T-Mobile USA to provide phones to its distributors and subscribers. Four months later, it agreed to buy the U.S. and Latin American operations of rival Cellstar Inc. for $88 million.

The deals could pay off in a big way-for one thing, the Cellstar purchase enhances Brightpoint's relationship with Illinois-based phone-maker Motorola Inc.-but there are no guarantees.

As analysts note, assimilating an acquisition and ramping up to support a huge new contract won't be easy. Nor is managing a business with operations scattered around the globe.

"We see a company built for longterm gains with many compelling opportunities, but faced with several near-term and critical execution challenges that bring uncertainty to 2007, particularly for the first half of the year," Ittai Kidron, an analyst with CIBC World Markets in New York, said in a report.

Taurel's stock option stash

The $15 million Eli Lilly and Co. CEO Sidney Taurel earned in 2006 is nothing to sneeze at, but if he really wants to swell his bank account he needs to spark the company's stock price higher.

Lilly's newly filed proxy statement shows Taurel has amassed a huge trove of stock options-which give him the right to buy Lilly stock in the future at the price on the date of grant.

In total, the options give him the right to acquire 2.8 million shares.

Trouble is, not a single option is "in the money." Lilly shares are trading at around $54. Exercise prices for the options range from $55.65 to $88.41.

Biomet bit on lower offer

The board of Warsaw-based Biomet Inc. passed over a higher offer when it accepted a $10.9 billion buyout proposal from a consortium of private equity investors in December, a new regulatory filing reveals.

Biomet, a maker of orthopedic implants, was concerned that the higher offer, from British-based competitor Smith & Nephew, faced additional regulatory hurdles and was unpopular with its network of distributors, the filing says.

As negotiations wound to a close, Biomet asked both bidders to raise their offers. The private equity group bumped its offer from $43 a share to $44 a share. Smith & Nephew, meanwhile, declined to boost its $45-ashare offer.

Even though Smith & Nephew's $1-a-share premium would have added $245 million to the value of the deal, Biomet's board concluded that the private equity group's bid was best.
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