Hewlett-Packard (NYSE: HWP) is swallowing Indigo NV (Nasdaq: INDG) for $830 million. This will probably be Israel’s most prominent high-tech deal this year. We are not talking about a start-up without sales, because Indigo has $200 million in sales a year. In any event the $35 billion computer and printer giant, which owns 13.4% of Indigo following a $100 million investment at $6.75 a share last year, is now offering company shareholders two alternatives.
The first and simpler choice is to exchange Indigo shares for $7.50 in a share swap. HP will allocate its shares to Indigo shareholders, based on the average price on the 20 trading days terminating three days before the final date to respond to the offer to purchase, on condition that the average price is not less than $16.69 or greater than $23.68 per HP share. HP is currently traded at about $18.
The second and more complex choice is for Indigo shareholders to receive $6 in HP common stock and contingent value rights certificates (CVR) to be distributed in three years, whose value will depend on the revenue from new products based on Indigo's technology. The CVRs will have zero value up to revenue of $1 billion over the next three years. Their value will grow linearly up to a maximum value of $4.50 on Indigo sales of $1.6 billion. In short, investors choosing the second alternative will receive $6-10.50 per share, reflecting a market value of $663 million-$1.16 billion for Indigo.
The Landa family, which owns 44% of Indigo, have already chosen the second option, based on Indigo NV chairman and CEO Benzion (Benny) Landa's confidence that Indigo can realistically achieve $1.6 billion in sales over three years. However, many other investors will probably choose the first, safer, choice. Either way, Indigo jumped 10% to $7 following the announcement of the acquisition. On the other hand, risk takers have the chance of sacrificing $1.50 for the chance of earning triple this amount, i.e. $4.50. The question, of course, is how much HP will contribute to sales based on Indigo technology.
As mentioned above, Indigo has $200 million in sales and expects to grow 30% a year. In other words, the company forecasts $1 billion in sales over the next three years. HP might help sales surge, but it should be remembered that printer giants Xerox (NYSE: XRX), Heidelberger Druckmachinen, and Kodak are only now entering the digital printers market, and a bitter price war is expected.
Published by Israel's Business Arena on 9 September 2001