Wednesday, December 16, 2009

All In?

Interesting news on GIGM today (GigaMedia: Strategic Alliance with European Leader by Sale of 60% of Software Unit). Their software unit is primarily a platform for online poker. It may be time for the courageous to go all in on GIGM (despite the paucity of earnings releases of late). Here is the simplistic way I think about it:
  1. they sold the 60% share for $100m plus any gain in value over the next two years.
  2. That would imply as a floor the value of the software unit is $165m.
  3. I am not sure how the fair value will be calculated, but they'll be rolling the poker platform as part of a already branded gambling name and will have access to additional large markets such as France. I have to think that partnership is worth another 20%.
  4. That gets you to a nice round $200m value for the software unit.
  5. They have $1.80 (97m) in cash already.
  6. They will still have the Asian gaming unit, which contrubuted about 1/3 of their recent EBITDA and is the faster growing component. I gotta figure of their current $4 share price, that has to be worth a $1 at the very least.
  7. So you have the software piece, worth $200m or $4 a share, + cash and Asian gaming unit getting you to a conservative $6 a share.
Given they're at $4 right now, it seems a pretty good deal. Anyone from the peanut gallery have anything to add (besides the obvious it would be nice to see their most recent quarterly earnings)?
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1 comment:

  1. jedi11:15 AM

    even with no gain from the deal in the next few years, it appears to me that they're not too far from cash after including the $100 million. wang's comments in the media after the deal indicate strength in the company. the main risk i see is if they improperly deploy the capital very fast. best case, the way i see it, is that they hold the cash, allow the stock price to stabilize and deploy slowly or buy back shares/dividend payouts.

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