www.globeandmail.com

The Globe and Mail
leaftheglobeandmail

  Iomega drives home a healthy return

BENJ GALLANDER and BEN STADELMANN

Friday, May 16, 2008

The nature of glory is that it fades over time, unless one is "lucky" enough to die young like Marilyn Monroe or James Dean.

The Toronto Blue Jays, the best in the world in the early '90s when the team captured two World Series, are now a band of the mediocre, their Springsteenesque glory days long gone, their management a muddling bunch. While trying to return the team to the top level of competition, they have made false starts with retreads like Kevin Mench, Shannon Stewart and Brad Wilkerson. None of those guys were ever primo ballplayers, and all are in the twilight of their careers.

Why the Jays don't turn to a blueblood like Barry Bonds, who led the majors with a mind-boggling .480 on-base percentage last season while hitting for average and power, is beyond us. Well, not completely beyond us, given his legal problems and his sometimes-surly comportment.

However, the key is that he would give the Jays a hitter to be reckoned with, which they desperately need, and put more bums in the seats. The team could use both. Gee, one wonders if the Babe would be allowed to play today, given his penchant for speakeasies during Prohibition days. Oh no, not that demon alcohol!

A company that we bought for $3.31 (U.S.) at the end of the year also is searching for a return to its prime. Iomega Corp. was a high-tech superstar that had been relegated to the bushes. This enterprise took the portable computer storage world from the ubiquitous floppy disk to the Zip drive, which could hold 70 times more data and was fast, rugged and ideal for quick backups.

They soon sold over 50 million units, but by 2003, the outfit was like an aging veteran, being outrun by rookies with names such as flash memory sticks, rewriteable CDs and DVDs, removable hard drives and online backups. The new players were bulked up as if on steroids, luxuriously roomy with capacity with which the gnarled veterans could not compete.

The new crop aggravated Iomega's revenue drop from $831 million in 2001 to $229 million in 2006. Finally, the trend was broken in 2007, as acceptance of new corporate products to replace the venerable Zip drive grew. Sales rung the bell at $336 million, and after years of heavy losses, the enterprise made a bit of money.

With the hard lifting done, ExcelStor Group offered to merge with Iomega. The non-cash transaction would have seen Iomega swap 84 million of its shares for all of the outstanding shares of the Chinese manufacturer of hard drives. While we contemplated this resurrection of IOM, a real player in the storage business, with revenues in excess of $1 billion, EMC Corp. decided to take a kick at the can and offer $3.25 cash per share.

Iomega refused to swing the bat, and also laid off a sweetened offer of $3.75 in favour of the high, hard one: an offer of $3.85 that sealed the deal. That certainly worked for us, and this week we tendered our shares, confident the deal will close shortly.

A 16 percent gain in less than six months is nothing to be sneezed at. And while this deal does not restore Iomega to former greatness, it demonstrates a comeback from the recent time when suitors would not sully their uniforms to check out their wares.

We are proud of the fact that if this transaction closes, it will be 16 years in a row that our little portfolio has had a takeover. Given the premiums on many of these deals, it leads to many of our grand slams. Quite simply, spotting future takeover targets is very good for financial returns.

If we were betting on the next stock in the portfolio to be acquired — and any wager like this comes with no guarantees — it would be Analysts International. This company, which works primarily in the staffing and technology services field, has been fending off a suitor for better than a year now. The new chief executive, Elmer Baldwin, tends to join a company, turn it around, and then see the outfit sold at a premium.

The stock currently trades in the $1.65 range, and it would not surprise us to see an offer eventually arise at about 50 percent above this level. Longer term, if nothing transpires, our target price is $10.84.

The odds of this scenario coming to pass are far greater than the Blue Jays embracing Barry Bonds. But the latter event is more likely than the team winning the World Series this year, without some major league help.


back