Archive for the ‘Sun Microsystems’ Category

Oracle ($ORCL) To Acquire Sun ($JAVA)

Tuesday, April 21st, 2009

10 days ago we made the argument that the withdrawl of the IBM ($IBM) acquistion offer for Sun ($JAVA) was a problem for $JAVA shareholders. The heading for the post was “Sun ($JAVA) needs IBM ($IBM)“.  The basis of our analysis was that the IBM acquisition offer looked much better than Sun as a standalone business.

It looks like we were half right – the important half.  Today Oracle ($ORCL) announced the acquisition of Sun ($JAVA) at US$9.50 a share – just above the revised $IBM offer of US$9.40 a share.  Sun did not need IBM because of Oracle.  The logic of being acquired in the board price range was still compelling.

$JAVA has found an acquirer and this still looks a higher value option for $JAVA shareholders than remaining an independent company.  This is a good result for $JAVA shareholders.

Disclosure: None

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Read more on Sun, Oracle, International Business Machines at Wikinvest

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Running The Numbers – Sun ($JAVA) Needs IBM ($IBM)

Saturday, April 11th, 2009

Last weekend IBM ($IBM) withdrew their acquisition offer for Sun Microsystems ($JAVA). Pre-offer $JAVA generic viagra

AQ:JAVA”>had not traded over US$6.00 since October last year. The original $IBM offer was at US$9.55 (subsequently dropped to US$9.40). With this offer $IBM was valuing $JAVA not as a standalone business – but as part of a combined entity. The premium to the pre-offer share price represented the synergies $IBM believed they could achieve with the acquisition (additional revenues opportunities – but more likely expense savings). These synergies are what allowed $IBM to make the offer they did. Upon announcement of the offer the $JAVA shares traded as high as US$9.27. With the withdrawal of the offer the shares fell back to close at $6.56 on 6 April – now US$6.68. So what does a valuation of $JAVA as a standalone business look like? This is the way to examine $JAVA – to compare with a US$9.40 offer from $IBM.

Valuecruncher Interactive Analyst Report For $JAVA – New Format

Valuecruncher produces a valuation of US$6.44 for $JAVA. This is a current valuation (an estimate of intrinsic value using a discounted cash flow model) not a target price. This valuation is 3.6% below the current share price of US$6.68. It is 31.5% below the US$9.40 $IBM offer.

Assumptions

  • Revenue: Reuters aggregates 15 analysts covering $JAVA and the mean estimates of 2009 and 2010 revenues are US$12.4 billion and US$12.2 billion respectively. For our analysis we have used US$12.4 billion in 2009, US$12.2 billion in 2010 and US$12.0 billion in 2011.
  • Profitability: We have used an EBITDA margin of 4.5% in 2009 rising to 5.5% in 2010 and beyond. Reuters has $JAVA‘s EBITD margin at -7.5% last year and an average of 5.5% over the last five-years.
  • Capital Expenditure: We have assumed capital expenditures of US$550.0 million in 2009 then US$450.0 million per annum moving forward.
  • Discount Rate: 10.0%.
  • Terminal Growth Rate: 3.0%.

Our analysis incorporates the cash and debt on the $JAVA balance sheet – Valuecruncher calculates a net debt number.

Based on our numbers – the $IBM offer looks very attractive for $JAVA shareholders. Play with our assumptions – what does your analysis say? Our model is interactive – you can change any of our assumptions.

Disclosure: None

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Posted in IBM, Sun Microsystems | No Comments »

Sun Microsystems (JAVA) – all about the profits

Thursday, July 31st, 2008

Sun Microsystems (JAVA) released their fourth quarter results on 16 July and is due to release full results on 1 August. With the release of the fourth quarter results Sun did not impress Wall Street analysts. We decided to have a look at some projected financial numbers using our on-line valuation tool to see how the current share price shapes up.

JAVA Valuation

JAVA grew revenues from US$11.19 billion in 2004 to US$13.87 billion in 2007 – a 7.4% compound annual growth rate. Our assumptions of revenues for the next three years are US$14.0 billion in 2009 growing to US$15.0 billion in 2011 – a 2.6% compound annual growth rate (2008-11). We have projected EBITDA margins to be flat at 10.0% to 2011. We have used a terminal growth rate of 2.5%. We used a terminal capital expenditure number of US$600 million. We have used a WACC (discount rate) of 12%.

Valuecruncher valuation model of JAVA with interactive assumptions

Our analysis incorporates the cash and debt on the JAVA balance sheet – Valuecruncher calculates a net debt number.

Our analysis gives a valuation of US$11.64 per share which is 14% above the current share price of US$10.21.

Based on our analysis the current share price looks undervalued. In our view the key assumption is the EBITDA margin moving forward. If JAVA can increase their EBITDA margin to 12% in 2011 that lifts our valuation to US$13.91 (36% above the current share price). However if JAVA’s EBITDA margin dropped to 8% in 2011 that lowers our valuation to US$9.38 (8% below the current share price). Play with our assumptions – what does your analysis say?

Valuecruncher has a database of over 1,000 companies on major international exchanges. You can explore, create and share valuations for any of these companies.

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Read more on Sun Microsystems at Wikinvest

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