Adaptec / Roxio Spin-off ADPT W
April 09, 2001 - 12:08pm EST by
brus383
2001 2002
Price: 8.50 EPS
Shares Out. (in M): 0 P/E
Market Cap (in $M): 0 P/FCF
Net Debt (in $M): 0 EBIT 0 0
TEV (in $M): 0 TEV/EBIT

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Description

Adaptec has been around since 1981 and developed the first protocol to
allow computer devices to send information between one another. For
example, your computer sends information to your printer most likely using
SCSI (small computer system interface) which Adaptec pioneered. The
company is currently viewed by Wall Street as behind the curve in
networking storage devices together.

There are many schools of thought in terms of which technology will win -
Brocade is viewed as the leader in Fiber Channel while propenents of newer
technologies see the market moving towards IP Storage (to the benefit of
ADPT and Cisco in particular). To cover all the bases, ADPT has an
alliance with Agilent for a fiber channel product.

The gem in the story is Roxio, a software firm that is scheduled to be
spun-off tax free on April 27th. Roxio has a 70% share in the CD recording
market (CD burners and DVD writers). Roxio sells to PC manufactuers and
through distributers. In the LTM ended December, Roxio did $115 million in
sales (up 77%) and $32.6 million in EBITDA (up more than 2x).

At $8.50, Adaptec has a market cap of $869 million. They have $381 million
($3.71) in net cash leaving $488 million ($4.78) for Roxio and the base
Adaptec business. Software firms are valued numerous ways - to be
conservative lets estimate that it trades at 1.5x LTM sales ($115 million)
That leaves the base Adaptec business worth $258 million ($2.53)

Adaptec today $8.50 $889 million
Net Cash $3.71 $381 million
Roxio (1.5x LTM sales) $230 million
Adaptec stub $2.53 $258 million

Consensus estimates for fiscal 2002 (YE March) Adaptec earnings are $.94
That number needs to be heavily discounted due to uncertainty, so lets cut
it in half, $.47. Under these conservative assumptions an investor is
paying 5x '02 earnings for the stub.

Roxio
Gross Profit Margin 80.8%
Operating Margin 16.1%
EBITDA Margin 28.7%
Net Margin 9.8%

Debt to Equity N/A
Accts. Receivable DSO 59

Asset Turnover 1.9
Assets to Equity 1.4
ROE 26.1%
ROA 18.6%

Sales growth 77.0%


Adaptec (includes Roxio results)
Gross Profit Margin 59.3%
Operating Margin 6.9%
EBITDA Margin 16.8%
Net Margin 13.1%

Debt to Equity 33.9%
Debt to Assets 20.3%
Inventory Turnover 85.4
Accts. Receivable DSO 40

Asset Turnover 1.3
Assets to Equity 0.8
ROE 12.5%
ROA 16.7%

Sales growth (11.9%)

Please let me know if you have any questions.

Catalyst

Spin-off at the end of April of software division.
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