Infinera enhances Transmode offer

Investment Analysis Clubs Saul’s Investing Discussions
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Infinera enhanced their Transmode acquisition offer today to include an all-cash option for shareholder consideration.

http://www.investegate.co.uk/transmode/gnw/statement-by-the-…

I’d like to present some information as to why this updated offer may be a significant development with respect to the company’s financial position and a hint of what we might expect in the next quarterly earnings report.

First, during a recent presentation given at a William Blair growth stock conference, Brad Feller (CFO) divulged some interesting information.

http://investors.infinera.com/phoenix.zhtml?p=irol-eventDeta…

In this presentation Brad let the cat out of the bag that MSFT and GOOG (along with FB) are now customers.

Brad also gave out some info regarding their stance on margin quality preservation. Chiefly, he said they will only engage in deals that are profitable to the company at the desired margin levels and will only consider deviating from this position if there are long term appreciative benefits with respect to the customer’s future growth prospects.

Last, in a recent IHS scorecard announcement, Infinera was named a leader in the optical market due to their “outstanding customer perceptions, large market share gains and tight finances.”

http://investors.infinera.com/phoenix.zhtml?c=209747&p=i…

Given these key pieces of information we have evidence that Infinera seeks out only profitable relationships (and will turn down opportunities that are not profitable) and they run a tight ship with respect to their balance sheet. I do not think they would offer an all cash option unless they had the financial backing to do so with a large margin of safety. And, considering how precise the numbers worked out before with respect to the cash portion of the deal and the number of Infinera shares presented for every 10 shares of Transmode I would gather the original calculation was based on what was available in the company’s reserves at the time, and now three months later that financial equation looks to be quite a bit different.

I look forward to seeing next quarter’s earnings release on July 23 to confirm my suspicions, but my conjecture is what we have in the makings is a blowout quarter, especially if Google and Microsoft have become contributing factors.

Best,
Kevin
(Long INFN)

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Thanks, Kevin. How much do you think the all-cash option has to do with this?

The Board notes that Infinera in its press release today states that Infinera has decided not to proceed with a secondary listing of the Infinera shares at Nasdaq Stockholm. Transmode shareholders who receive Infinera shares as consideration in the Offer will thus not be able to trade in such Infinera shares at Nasdaq Stockholm.

Neil
Long INFN

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Neil, excellent follow on sleuthing. I missed that one.

I surmise from that statement Infinera may be encouraging the all cash option by making market liquidity a concern.

Or, they found the overhead associated with dual listing in the US and Stockholm was not worth the headache/expense and presented the all cash option as an appeasement.

Or, it may be a combination of the two. Regardless, I think having an all cash option actually available is the more significant development.

Would appreciate hearing thoughts as well.

Best,
–Kevin

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