Tuesday, July 28, 2009

Another good deal, and reporters screw it up (IBM, SPSS)

AlphaNinja - More good news in the M&A space. Following yesterday's "good for all involved" buyout of Varian by Agilent, today IBM(IBM) announced a cash buyout of SPSS (SPSS), for $50, a 43% premium to yesterday's closing price. Far from giving the company away at the lows, SPSS is trading this morning at an all-time high - cheers to management and shareholders.

And I said "reporters screw it up" because $50 a share does not equal $1.2billion when there's 19.4million diluted shares outstanding. It's just math folks...(the $1.2billion cited likely includes debt retirement)

Moving on - from the press release:

ARMONK, N.Y. and CHICAGO, July 28 /PRNewswire-FirstCall/ -- IBM (NYSE: IBM) and SPSS Inc. (Nasdaq: SPSS - News) today announced that the two companies have entered into a definitive merger agreement for IBM to acquire SPSS, a publicly-held company headquartered in Chicago, in an all cash transaction at a price of $50/share, resulting in a total cash consideration in the merger of approximately $1.2 billion.

"With this acquisition, we are extending our capabilities around a new level of analytics that not only provides clients with greater insight -- but true foresight," said Ambuj Goyal, general manager, Information Management. "Predictive analytics can help clients move beyond the 'sense and respond' mode, which can leave blind spots for strategic information in today's fast paced environment -- to 'predict and act' for improved business outcomes."

While IBM cites "a total cash consideration in the merger of approximately $1.2 billion," one could say it's closer to $900million, considering SPSS' $311million in cash, or $11 per share.

-->> Net of SPSS' cash, IBM is offering 19times 2010 estimate earnings of 1.98, quite a healthy multiple.

-->> $50 a share times 19.4million diluted shares outstanding is $970million. Subtract out the $311million in cash and that's $659million. With expected Free Cash Flow of $63million in the next couple years, IBM is paying a 10% FCFY(Free Cash Flow Yield) -->> fair for both sides.

Nice deal, despite the "murkiness" of the $1.2billion cited above. SPSS' recent 10Q:

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