Toshiba TEC (TSHTF.PK) will acquire IBM's (IBM) retail store point-of-sale solutions business. The agreement allows both to tap the growing smarter commerce opportunity. A multi-year business partner agreement between IBM and Toshiba TEC would integrate retail store solutions for smarter commerce. The transaction of approximately US $850 million is expected to close late in the second quarter or early in the third quarter of 2012.
Toshiba TEC is Japan's leading maker of point-of-sales systems and related technology for retailers. Under the agreement Toshiba TEC will acquire IBM's Retail Store Solutions (RSS) business, which offers retail point-of-sale solutions worldwide. Upon closing of the transaction, Toshiba TEC would become the world's foremost retail point-of-sales systems company, offering hardware, software and integrated in-store solutions, and will team with IBM to bring the Smarter Commerce experience to retailers and their customers worldwide.
"Together, IBM and Toshiba TEC represent the broadest multi-channel offerings worldwide," said Craig Hayman, general manager, Industry Solutions, IBM Software Group. "The pace of retail expansion requires a strategy to serve this dynamic marketplace. This acquisition by Toshiba TEC creates not only the world's largest point-of-sale company, but also a key business partner for IBM in its strategically important Smarter Commerce initiative. Retailers can invest with confidence in the proven abilities of these two leaders to deliver multi-channel commerce to more demanding consumers who want the same experience shopping online, in-store, mobile, social or by any other means."
A new holding company will be established in Japan. This company will hold the equity of a number of companies organized in countries around the world. Toshiba TEC will acquire an 80.1 percent stake in this holding company. Eventually, the holding company will become a wholly owned subsidiary of Toshiba TEC.
A portion of the aggregate purchase price will be paid on the closing date and on the first anniversary of the closing. The remaining portion will be paid on the third anniversary in exchange for IBM's 19.9 percent equity interest.
The Retail Store Solutions revenue in 2011 was approximately (U.S.) $1.15 billion with approximately 1,000 employees worldwide plus maintenance specialists.
IBM received 74 percent of 2011 sales for its RSS business or 67 percent of estimated 2012 sales. Fundamental value estimates are in the $1 - 1.2B range. Toshiba paid less than estimated intrinsic value for IBM's RSS business.
Notwithstanding, RSS is less than 1 percent of revenue for IBM thus the sale doesn't impact valuations of IBM materially.
That being said, IBM is trading close to fair value right now. We like the firm's long-term prospects given its patent portfolio and outstanding research and development that have translated into cutting-edge innovation.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.