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Merger of cell phone titans takes glow off Brightpoint

June 18, 2011
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Wireless phone distributor Brightpoint Inc. began 2011 with a bang. In February, the company reported fourth-quarter results that obliterated expectations, and a few days later the stock hit $13.22—up 125 percent from August.

But then, out of the blue, AT&T announced plans to purchase T-Mobile for $39 billion, and worried investors screamed sell.

The reason: Brightpoint is a major provider of logistics services to T-Mobile, but AT&T isn’t a customer. Under the worst-case scenario, Brightpoint would lose all the T-Mobile business, sapping millions of dollars from profit.

On March 21, the first day of trading after the weekend announcement, Brightpoint shares tumbled, a swoon that deepened in May as the overall market sank. The shares now fetch a mere $7.66. Since the stock’s February peak, the company has shed $379 million in market value.

But have investors overreacted? Some analysts say “yes” and in recent weeks have issued reports suggesting the stock is due for a rebound. Merriman Capital says the shares might even rise as high as $16.

Their rationale: It’s not clear whether the controversial deal will overcome antitrust concerns and close, but if that happens it won’t be for another 12 to 18 months.

And if Brightpoint does lose the business, it probably wouldn’t be for another year. That means the company would have the better part of two years or more to offset the setback with growth in other parts of its business—from tablets to international logistics.

“As with previous rounds of industry consolidation, we expect Brightpoint to continue to gain market share,” Sidoti & Co. analyst Gregory Burns said in a report.

Merriman’s Scott Searle estimated the earnings impact from losing the T-Mobile business would be “dramatically less than investors originally feared” and that impact “is more than adequately reflected in the stock price.”

Brightpoint CEO Bob Laikin declined to comment. But at an analyst conference last month, Director of Investor Relations Thomas Ward said: “We are not standing still and just assuming we’re going to lose 100 percent of that business. We’re making sure that we’re best positioned to show the value we provide to AT&T.”

Brightpoint began working with T-Mobile in 2006, striking a deal to handle part of the carrier’s handset logistics in the United States. Industry analysts estimate that Brightpoint’s T-Mobile center in Louisville handled 10 million to 15 million devices last year—a big chunk of the 99 million devices the Indianapolis company handled globally.

The company isn’t saying how much of the $30 million in profit it generated last year came from T-Mobile, and the investment community has come up with wildly varied estimates.

On one hand, logistics services—such as activating phones, customizing software and even operating call centers —has better profit margins than the nuts-and-bolts distribution side of Brightpoint’s business. But the services Brightpoint provides to T-Mobile are on the less sophisticated end of the spectrum and thus less lucrative.

Deutsche Bank analyst Brian Modoff figures losing that business entirely would chop “pennies, not nickels or dimes” off Brightpoint’s earnings per share, which totaled 43 cents last year.

Even so, no one is dismissing the importance of the T-Mobile relationship, which appeared poised to grow ever larger.

In December, Brightpoint paid $80 million to acquire Touchstone Wireless Repair and Logistics, a Pennsylvania firm specializing in fixing and refurbishing phones. Its biggest customer is none other than T-Mobile.

For now, Brightpoint executives can only guess how the merger will play out—or whether it will close at all.

But with the company’s stock price down and anxiety up, they’re under increased pressure to deliver on other growth initiatives, including striking logistics deals with other carriers and device manufacturers around the world.

PNC goes after Hofmeisters

It’s bad enough for the Hofmeisters that their jewelry business—Hofmeister Personal Jewelers—slid into bankruptcy in April.

But now lender PNC Bank is going after Gary Hofmeister and Carter Hofmeister personally, saying the father and son guaranteed repayment of a 2004 loan to the business that now has an unpaid balance of $2.5 million.

PNC filed the suit May 18, a month after Hofmeister Personal Jewelers sought Chapter 11 bankruptcy protection. While filing bankruptcy halts other litigation against a bankrupt entity, PNC says it can proceed with its suit against the Hofmeisters themselves because their obligations “are independent of those” of the business.

The Hofmeisters—who operate their Indianapolis store at 3809 E. 82nd St. and also have a location in Steamboat Springs, Colo.—could not be reached for comment.•

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