IONA Technologies plc
(NDAQ: IONA) shares moved up on the day after the company announced
that it had hired Lehman Brothers to evaluate a broad range of
strategic alternatives that could include a sale or merger. The stock
is trading nearly 50 percent off of its 52-week highs after becoming
one of Ireland’s top technology success stories back in the dot-com
boom. Since then, shares have declined and many investors are now
looking for some kind of catalyst in order to unlock value in the
stock. So, is this evaluation of strategic alternatives the answer that
shareholders have been looking for?
IONA grew from obscurity in the distributed computing group labs at
TCD to a major player that counts large corporations like Boeing among
its clients. In fact, the middleware technology firm became the fifth
largest NASDAQ IPO of its time in 1997. The company withered during the
technology downturn, however, and is now struggling to retain
profitability despite new software and a series of acquisitions in the
space. IONA’s most recent earnings report showed a loss of $1.7 million
for 2007 compared with a profit of $3.6 million a year earlier. Since
the company’s revenues only declined modestly, this can be attributed
to rapidly shrinking margins that could continue to erode value until
something changes.
Takeover speculation has filled the gap left by under performance
and recently sent shares substantially higher. Earlier this month, the
company confirmed that it had received an unsolicited “expression of
interest” from a third party interested in acquiring the firm. Now, the
company is taking the process one step further and launching a full-out
evaluation in order to find the best possible price for any
acquisition. There is no guarantee that a sale will result, but with a
professional advisor shareholders can be sure that the best value will
be sought. In the end, this could make IONA a stock worth holding.
The question then becomes: How much is IONA worth in the event of a
takeover? Well, the company has very little to offer an acquiring firm
financially, but it does have no debt and valuable technology. The
company is also solid in terms of its revenues but is struggling with
share compensation and other expenses that can be easily cut by an
acquirer. As a result, the company’s technology and customer base may
warrant a takeover price based on revenues instead of the usual EBITDA.
This could mean a buyout price 25% to 30% higher than the current
market price. Combined, these factors make IONA a stock worth watching!
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