Companies Ready for Acquisition

Karen is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Sometimes when bad things happen, good companies can find themselves unable to recover their former glory.  Although the reasons may be different, the companies analyzed here have become very attractive to investors looking for acquisition candidates.

In April 2010, FDA approval of Provenge drove Dendreon’s (NASDAQ: DNDN) shares to a company high of $57.67.  Provenge therapy was designed to “teach” the human immune system to recognize and eliminate cancer cells.  Each treatment would cost about $90,000 and the company expected to realize huge revenues from this treatment.

The stock now trades at under $5 .  So what happened to this once high flyer?  Physicians were expected to front the $90,000 treatment cost and wait to be reimbursed by Dendreon several months down the road, an arrangement they found most unappealing.  Also, Provenge proved most effective when the cancer was detected early on, which further helped to dampen treatment sales. 

Dendreon’s financials are terrible.  Starting with a ROE of -96.96%, the company has cash of $432.24 million, debt of $578.76 million, and operating cash of -$135.21.  Annual revenue for 2011 was $341.6 million, well over 2010's $48.1 million, and this helped to lower the net loss from -$439.5 million in 2010 to -$337.8 million in 2011.

What makes Dendreon an acquisition candidate?  They hold patents on their intellectual property and own FDA-approved manufacturing facilities in New Jersey, Georgia and California. The company is developing treatment for bladder cancer and breast cancer, and early trial results are very promising.  The company is ready for someone with deep pockets to develop and profitably market Dendreon’s cancer treatment and reap the substantial rewards.

Leap Wireless’ (NASDAQ: LEAP) second quarter earnings report was disastrous.  The company lost over 289,000 customers as compared to last quarter while share price fell 22%.  The stock is down by 40% this year and continues to make new lows.

Leap Wireless’ woes started with their gross overstatement of income back in 2007.  Since then, they’ve continued to lose ground to other carriers, including T-Mobile, which just started offering unlimited talk, text and data plans designed to eat away at Leap’s customer base.  In an effort to boost revenue, Leap started selling iPhones but without the subsidies offered by their competitors.

Leap carries an ROE of -43.26% and reports cash of $524.38 million, debt of $3.22 billion, and operating cash of $336.49 million.  Annual revenue for 2011 was $3.071 billion, somewhat higher than the $2.697 billion for 2010, but the company continues to operate in the red, with net income reported as -$314.6 million and -$871.9 million, respectively.  Approximately 43.2% of the outstanding shares are held short.

What makes Leap attractive is its wireless spectrum worth about $3 billion. The most obvious buyers would be AT&T and Sprint, but at this point, Leap appears open to all suitors.

Micron Technology’s (NASDAQ: MU) internal problems make it an attractive acquisition candidate.  As a manufacturer and seller of semiconductor devices, the company continues to lose ground to competitors Intel and SanDisk.

Fiscal year end revenue rose in August 2011 to $8.788 billion from September 2010's $8.482 billion, while net income dropped steeply to $167 million from $1.850 billion.  The company reports cash at $2.32 billion, debt at $3.20 billion, and operating cash at $2.02 billion. 

Micron lags far behind competitors Intel and SanDisk and the chart below shows why.

<table> <tbody> <tr> <td> <p> </p> </td> <td> <p>ROA</p> </td> <td> <p>ROE</p> </td> <td> <p>Profit Margin</p> </td> <td> <p>Operating Margin</p> </td> </tr> <tr> <td> <p>Micron</p> </td> <td> <p>-2.18%</p> </td> <td> <p>-9.97%</p> </td> <td> <p>-10.99%</p> </td> <td> <p>-5.98%</p> </td> </tr> <tr> <td> <p>SanDisk</p> </td> <td> <p>6.56%</p> </td> <td> <p>9.58%</p> </td> <td> <p>12.27%</p> </td> <td> <p>19.63%</p> </td> </tr> <tr> <td> <p>Intel</p> </td> <td> <p>15.37%</p> </td> <td> <p>25.42%</p> </td> <td> <p>22.73%</p> </td> <td> <p>31.23%</p> </td> </tr> </tbody> </table>

Micron’s problems stem from management's inability to maximize growth and revenue, not because the company has an inferior product.  And this is exactly what makes Micron such an attractive acquisition candidate. 

Dendreon, Leap Wireless and Micron Technology should be on investors' radars as potential acquisition candidates should these companies prove unable to right themselves.  All three have products which, if well-managed, could prove very lucrative to their investors.


kprogers has no positions in the stocks mentioned above. The Motley Fool owns shares of Dendreon. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

blog comments powered by Disqus