Comverse On Pink Sheets: Takeover Bait

by: Shlomo Greenberg

Comverse Technology (CMVT.PK) took a blow last week on Wall Street, and the reasons for this ought to be of interest to anyone who looks at this company’s economic side.

Let’s start with the fact that over the last month or two, many investors on Wall Street stopped believing that the company would meet Nasdaq’s listing requirements and remain on the stock exchange. In fact, several investment managers have been telling me since the beginning of the year that they did not think that the company had any chance of unraveling the options tangle before the Nasdaq Listing and Hearing Review Council meeting on its delisting from Nasdaq. This can be seen in the behavior of the company’s stock, which has been slowly falling since the beginning of the year, despite the fact that nothing untoward has happened to Comverse’s business. Quite the contrary.

Comverse Technology’s subsidiaries, Verint Systems (Pink Sheets: VRNT.PK) and Ulticom (Pink Sheets: ULCM.PK), will also be relegated to the Pink Sheets today together with their parent. To continue following these three companies, you will have to add the suffix PK to their familiar tickers. Comverse Technology, for example, will now trade under the ticker CMVT.PK.

The interesting question now is whether this has created an opportunity for an investment at an economic level, and I think it has. All three companies have problems with their images, not their businesses. As in the case of Mercury, which since its relegation to the Pink Sheets has been acquired by Hewlett Packard Co. (NYSE:HPQ), so in the case of Comverse Technology and its two subsidiaries - Wall Street is always going against what’s happening on Main Street, and this is always an opportunity to make some money. In the case of Mercury, anyone who bought the stock two weeks after its move to the Pink Sheets made more than 50% on their investment within a short time.

Comverse at the time of writing these lines, is traded at $19, or a market cap of $3.86 billion. The company ended its fiscal year yesterday, January 31. It is expected to post annual sales of $1.6 billion and earnings per share of $0.90. It has $2.33 billion in cash, excluding profit from the last quarter. Each share is covered by around $12 in cash.

As I see it, both 2007 and 2008 are likely to be excellent years for Comverse Technology on Main Street. 10 out of the 24 analysts covering it apparently believe as I do, while most of the others remain on the sidelines and three recommending selling the stock. I intend to do that, wait a few days, and then buy the stock. Why wait? Because of the commentators and the media, of course. Who knows? Perhaps Jim Cramer will have a few bad words to say and he’ll bring the price down for me.

No review of Comverse Technology is complete without mentioning the one option that has been in the background constantly, but which could now become a more serious prospect. I refer to the possibility that the company could be acquired, since the more its stock falls, the more tempting this idea becomes, not just because of its business, but also because of the amount of cash it has.

It will be interesting if, at the end of the day, Amdocs (NYSE: DOX) acquires Comverse and NICE Systems (Nasdaq: NICE; TASE: NICE) acquires Verint. Why? First, because of the synergy and secondly because this would mean that events had now come full circle.

Amdocs was not interested in talking to Comverse about a merger when the idea was first broached, while Verint was not willing to make an offer to NICE, which was in a crisis at that time. Verint’s reasoning was that it would wait until NICE went bankrupt and then acquire it cheaply.

So the wheel really has come full circle.

Published originally by Globes [online], Israel business news -
© Copyright of Globes Publisher Itonut (1983) Ltd. 2006. Republished on Seeking Alpha with full permission.