Credit Suisse: HP Takeover of BEA Systems 'Wishful Thinking'

Credit Suisse’s Jason Maynard this morning downgraded shares of both BEA Systems (BEAS) and Tibco (TIBX) to Neutral from Outperform. In both cases, Maynard sees little chance of a near-term acquisition, despite Street sentiment to the contrary.

In BEA’s case, Maynard writes that “the recent market speculation about an HP (HPQ) takeover is more wishful thinking than reality.” He says a recent bounce in the stock to the $12 level “adequately reflects the value of a business on a standalone basis.” He also cut his estimates for the January 2008 fiscal year; he now sees $1.49 billion in revenue and EPS of 59 cents, down from $1.53 billion and 62 cents.

He continues:

BEA may ultimately end up being acquired, however, we think that path will at the very least take some time and won’t be as easy as one might hope. While we believe BEA Systems ought to be part of another company, we aren’t sure the recent disappointing Q1 is enough to push the management team and board to engage in any serious discussions. Our sense is that it will take a concerted effort by shareholders to move any process forward.

Meanwhle, in Tibco’s case, Maynard says he is concerned about increased risk to fiscal 2007 earnings, asserting that achieving synergies in its recent acquisition of Spotfire “will be difficult.” Maynard adds that he doesn’t see Tibco as an acquisition candidate, “since the Spotfire acquisition will make a deal more complicated.”

If you really want to play the two stocks as takeover targets, Maynard advises, you should use options, rather than the common. His suggestion: for BEA, buy the January 12.50 calls, recently priced at $1.35; a $16 takeout would provide a gain of 159%. For Tibco, he suggests the January $12.50 out of the money calls. To state the obvious: the risk here is you lose the entire premium paid if the stocks fail to move up.

This morning, BEA is down two cents at $11.75; Tibco is down 16 cents at $9.01.

BEAS 1-yr chart:

Comments

[Dan Jacome:]

TIBX common is @ a 52 wk low, and yet:

The Jan 2008 10 strike calls for TIBX are going for 30c, on the ask. Tempting, that is 2 months out, going for 30c, and the upside on the common to be @ the $ is a 25% move from here. Someone SERIOUSLY thinks TIBCO will be acquired by the 3rd week of January....

2007 Nov 24 09:01 PM