Ace information technology (IT) distributor Ingram Micro Inc. (IM) has signed an agreement to acquire Brightpoint Inc. (CELL), a leading distributor of wireless devices, for a cash consideration of $840.0 million. The purchase price, including Brightpoint’s $190.0 million debt burden, equates to $9 per Brightpoint’s common share and reflects a 66% premium over last Friday’s price.
The Brightpoint Story
Brightpoint specializes in providing wireless communications technology globally. The company also provides customized logistics services to mobile network operators, mobile virtual network operators, resellers, retailers and wireless equipment manufacturers.
In April, the company reported a modest first quarter, with the bottom line missing the Zacks Consensus Estimate by 5 cents, and the top line comfortably beating the same. Looming macro uncertainties and a major customer loss in its high-margin Logistics business resulted in the earnings miss.
Brightpoint has tie-ups with heavyweights such as Research In Motion Ltd. (RIMM), HTC Corp and Nokia Corp. (NOK). It has also been winning deals from the likes of MetroPCS Communications Inc. (PCS) and Sprint Nextel Corp. (S).
The company has sales operations in 75 countries, accumulating 25,000 customers and generating $5.2 billion in revenue (up 46.0% year over year) and earnings per share of 71 cents (up 65.0%) in 2011.
A good deal for Ingram
Ingram’s intention was to broaden its distribution network and augment its high-margin Logistics business, to which Brightpoint’s offerings will fit in perfectly. The expansion of Ingram’s customer base in the mobility market is a bonus.
Ingram has been increasing focus on its Logistics business. To make the business more profitable, Ingram has resorted to the elimination of unprofitable lines of business, while concentrating on select contracts and the acquisition of new clients. The addition of Brightpoint will help boost Ingram’s Logistics revenue.
Brightpoint’s offerings will be complementary to Ingram’s portfolio, but customer overlap is negligible, which is a very big positive Moreover, lesser the integration time and cost would make the transaction accretive to Ingram’s earnings per share by the beginning of 2013.
Conclusion
The deal looks beneficial for Ingram, but Brightpoint’s major customer loss and weak guidance are concerns. Also, Brightpoint will add to Ingram’s existing level of debt.
Though we have a long-term Neutral recommendation on the stock, significant European exposure and debt burden lead to a Zacks Rank #4, implying a short-term Sell recommendation.
BRIGHTPOINT INC (CELL): Free Stock Analysis Report
INGRAM MICRO (IM): Free Stock Analysis Report
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SPRINT NEXTEL (S): Free Stock Analysis Report
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