Is Open Text the Next Takeover Target?

Now that Oracle's (ORCL) latest bid for BEA Systems (BEAS) has been endorsed by BEA management, the target on Open Text Corp.'s (OTEX) back just got a whole lot bigger, RBC analyst Mike Abramsky says.

The analyst said consolidation in the software industry will continue following Oracle's $19.38 per share (up from an Oct. bid of $17) acquisition of BEA with Open Text the most likely takeover candidate.

In a research note, he wrote:

Open Text possesses strong cash flow, customer base, broad business & product portfolio, recurring revenues, EBIT margins above peers, and may warrant a scarcity premium as the largest and only remaining pure-play electronic content management vendor.

The analyst said debt levels, integration risk and Open Text's complex product and divisional structure may, however, result in a discount on an acquisition for the company when compared with prior transactions.

He estimated a possible takeout valuation of $42 to $45 per share, and continues to rate Open Text shares as "outperform" with a price target of $38.

Comments

[Dan Jacome:]

OTEX -- heck yes, it's a target, mgmt will be setting the company up for a buyout, we like the cash flow and balance sheet; MSFT would be an ideal buyer, so it can catch to Ellison..... Traders are flagging the stock according to 2 contacts who trade software.

2008 Apr 11 06:54 PM