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On March 21, Avid Technology and Pinnacle Systems announced that Avid entered into a definitive agreement to acquire Pinnacle in a cash and stock transaction.
The press release states, "Under the terms of the agreement, Pinnacle shareholders will receive .0869 shares of Avid stock and $1.00 in cash for each Pinnacle share. At closing, it is expected that Avid will issue approximately 6.2 million shares and pay $71.3 million in cash, for a total estimated value of $462 million based on Avid's stock price of $62.95 at market close on Friday, March 18, 2005. Upon completion of the transaction, the 6.2 million shares to be issued to Pinnacle's former shareholders will represent approximately 15 percent of Avid's outstanding common stock. The acquisition is subject to satisfying a number of closing conditions, including shareholder and regulatory approvals, and is expected to close in the second or third quarter of 2005.
"The purchase price represents a 30 percent premium over Pinnacle's closing stock price of $4.97 on March 18, 2005. Assuming a closing date of July 1, 2005, Avid expects the transaction, excluding acquisition-related charges, to be dilutive to its pro-forma earnings per share in the third quarter and accretive in the fourth quarter, resulting in full-year 2005 pro forma earnings per share of approximately $2.70 per diluted share. In 2006, Avid expects the transaction to be approximately 10 cents accretive, resulting in pro forma earnings per share of approximately $3.20 per diluted share. After payment of the cash portion of the purchase price, Avid expects its cash position to be $280-$300 million at the end of 2005."
The press conference is still available in audio form on the Avid Investor Relations website at http://phx.corporate-ir.net/phoenix.zhtml?c=82844&p=irol-audioarchives. (Windows Media Player is required.)
The announcement was a bit startling and unanticipated. Wall Street appears to be questioning the purchase price more than the acquisition itself - as are many, including myself. Of course, the big question is why Avid decided to do this. There are many possible reasons, and it seems unlikely that Avid will explain its actions in the near future. This leaves many pondering. There are strict SEC regulations about what Avid can reveal and when.
In any case, here are some given and hypothesized reasons for...