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CarolinaMatt
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I am an individual investor who has managed my family's investments for about 20 years now. I spend the most time researching and selecting individual large cap stocks to create and manage that portion of our investments mostly minus mutual funds/ETFs.
  • RFMD, TQNT EPS Basic Calcs 0 comments
    Feb 25, 2014 8:30 PM | about stocks: QRVO, QRVO

    My rough EPS math for the merger of equals between (RFMD) and (TQNT) goes like this:

    Inputs:

    --Target is $150M cost savings over 2 years (so call it) $75M/year.

    --RFMD's 2014ish expected earnings were $158M (uses $0.59 estimate from Yahoo! with minor adjustment to $0.56 to line up with Dec fiscal year end).

    --RFMD's shares outstanding are about 283M. Converted at 1/1 yields same 283M shares of new company.

    --TQNT's 2014 expected earnings were $74M (uses $0.45 estimate from Yahoo).

    --TQNT's shares outstanding are about 164M. Converted at 1.675/1 yields 275M shares of new company.

    --Total earnings of new company projected at $307M ($158M RFMD + $74M TQNT + $75M cost savings).

    --Total shares estimated at 558M.

    --So EPS of new company (realizing it will not officially combine until end of year) is about $.055/share for 2014.

    For RFMD that is almost exactly equal to what was already expected. RFMD shareholders from the $75M cost savings but lose from the dilutive addition of a lower-earning TQNT business. For TQNT shareholders benefit (EPS-wise) from the $75M cost savings and also combing with a more profitable company.

    When I net out the math, I think the key takeaways are:

    1) If realized the $75M/year cost savings is significant. It is a 31% adder to the 2 companies earnings separate and added together.

    2) From a short-term, pure math standpoint focused on EPS, I am not sure that RFMD shareholders gained much.

    3) I think the 2 keys to driving value in this deal are first realizing the sizable cost savings projected and second finding/realizing revenue-increasing synergies (sales/cross-selling, product development, etc.) that improve the revenue/margin story significantly.

    Someone please check my math and holler if I missed something. :-)

    Disclosure: I am long RFMD.

    Stocks: QRVO, QRVO
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