| |||||||||||||||||||||||
| |||||||||||||||||||||||
Ailing storage technology company Iomega Corp. is pinning its hopes for a comeback on cracking China's massive market, on Wednesday announcing a deal to buy ExcelStor Great Wall Technology Ltd., a subsidiary of Beijing's Great Wall Technology Co. Ltd., for $305.8 million. The deal will more than triple annual revenues for San Diego-based Iomega, which has struggled in recent years to expand its business beyond selling computer hard drives and other external storage devices. Iomega said that ExcelStor, which makes a range of storage technologies, including some that it already manufactures for Iomega, had sales last year of $707.1 million. Iomega's 2006 revenue totaled $229.6 million and has been on the decline, falling from $264.5 million in 2005 and $328.7 million in 2004. "We believe that this business combination significantly strengthens the growth profile of Iomega," Cantor Fitzgerald analyst Boris Markovich wrote in a research report. As a result of the acquisition, Markovich raised his 2008 revenue forecast for Iomega to $374.6 million, from $347.3 million, and increased earnings per share forecasts to 15 cents from a previous estimate of 13 cents. But the deal will also greatly dilute Iomega's equity and shake up its ownership. The company will issue 84 million shares to complete the transaction. Upon closing the deal, Great Wall Technology will become the largest Iomega shareholder, with a 43% stake in the company. In addition, the deal will also give a Chinese government technology conglomerate, China Electronics Corp., an indirect stake in Iomega. China Electronics Corp. holds a 62% stake in Great Wall Technology. Shares of Iomega, which has a market capitalization of $206.4 million, closed at $3.77, up 3.5%. Salomon Kamalodine, an analyst with B. Riley & Co. in Chicago, said the deal represents the first time that a publicly traded U.S. company will be majority-owned by the Chinese government. "The Chinese government is guaranteeing itself a distribution channel in the U.S. and Europe," he said. For Iomega, the deal breathes life into a long-declining company that has been slow to replace its once popular, but now outdated, "Zip" drive technology with more modern storage products. Although Zip drives continue to generate strong gross margins, Kamalodine stressed that Iomega's Zip drive revenues are falling fast, projected to total $15 million this year, less than half of last year's $31.2 million. Although Iomega's revenues have grown of late, the company has struggled to control costs and has had net losses for the past few years. In 2006, Iomega sought to slash costs by cutting jobs and streamlining its research and development, while also working to build new products. The company said last year that it would also evaluate strategic alternatives including alliances, partnerships and mergers and acquisitions.  Deal Video
    Community
 Elsewhere on The Deal.comDealwatch
The Deal MagazineCorporate Dealmaker
The Deal VideoCategories
Blog roll
Archives
| |||||||||||||||||||||||
| |||||||||||||||||||||||
