Cost Cutting At Comverse Could Be A Prelude to Breakup

Woodbury, Connecticut-based Comverse Technology (CMVT.PK), which makes billing and other back-office software, seems on the verge of increasing cost-cutting measures, including cutting staff by 15% to 20%, four times the 5% staff reduction announced by chief executive Andre Dahan, said Friedman, Billings, Ramsey analyst Daniel Ives in a note Tuesday.

Ives reiterated his Outperform rating on the stock and his $27 price target.

Citing the Israeli paper Ha’aretz, Ives says the cuts could come in the company’s Comverse Network Services [CNS] unit, which Dahan says he believes could be a preparation for selling the entire CNS unit. CNS accounts for the vast majority of Comverse’s revenue.

Eliminating CNS would be a prelude to a total breakup of the company, and Dahan cites Ha’aretz as saying that Comverse is ready to sell its 65% stake in Verint Systems (VRNT) for the “high $20s/low $30s per share,” depending on who’s willing to buy Verint for its data mining software that analyzes fax and email traffic.

Dahan says the current share price is a cheap opportunity to get in on the breakup value of all those transactions:

While the shares have been under significant pressure during the last month (down +20%), in light of current market conditions/removal of LBO premium, we believe that investors should use recent weakness as a strong buying opportunity.