S&P Picks and Pans: Salesforce.com, Avaya, AT&T
Maintains 1 STARS (strong sell)
Analyst: Zaineb Bokhari
Salesforce.com and Google (GOOG) announce a strategic alliance under which Salesforce.com will become an official distributor of Google AdWords in 43 countries. The news comes in conjunction with the launch of Salesforce.com Group Edition, which features Google AdWords, to the company's customers. We think the company will primarily derive revenue through sales of the application. We believe there is notable cachet in an alliance with Google. However, we think the recent run-up in Salesforce.com shares may have been in anticipation of a more profound link between the two. More details after today's analyst/press event.
Reiterates 3 STARS (hold)
Analyst: A. Bensinger
Avaya agrees to be sold to private investment groups Silver Lake and TPG Capital for $8.2 billion in cash, or $17.50 a share; a 33% premium over Avaya's 30-day average closing price ending May 25. The deal is expected to close in fall 2007, pending necessary approvals, and values Avaya at 27 times our fiscal 2007 (ending September) EPS estimate of 65 cents, the high end of peer p-e multiples. We view the deal positively for shareholders, given that Avaya was facing increased competition in its Internet telephony market and a decline in legacy TDM products. We are raising our target price by $1 to $18, on terms of the deal.
Maintains 3 STARS (hold)
Analyst: Todd Rosenbluth
With telecom equipment supplier Avaya agreeing to be sold to a private equity company, pending necessary approvals, we do not expect the buying power currently held by AT&T and other large telecom service providers to be dissipated, which could have occurred if Avaya had instead partnered with another large supplier. We believe AT&T will continue to leverage its capital spending budget to bring down pricing. We are forecasting the company will spend $17.3 billion in 2007, down from a pro-forma $18.6 billion that included recent wireless and wireline acquisitions.