Stockcoach's Corner

The portfolio continues to march ahead, gaining 0.1 percent yesterday and another 0.3 percent today. Most of today's gain was due to Vodavi (VTEK), which popped up 8 percent in the last 30 minutes of trading. Then, shortly after the market closed, Vodavi announced that they will be acquired by Vertical Communications. Both Vodavi and Vertical surged in the last half hour of trading on high volume, in Vertical's case by 40 percent. It appears that someone got wind of the transaction before the press release was disseminated to the public. If that's the case, then someone broke the law and should go to jail.

Aside from the apparent insider trading, there is the matter of the deal itself. Vertical Communications is an unprofitable BB stock. What's more, Vodavi never bothered to announce to the public that it was interested in being acquired nor, as far as I can tell, to hire an investment bank to market the company. All we got is a "fair value" assessment, which in my opinion, is worth little more than the paper it is written on. Given how much money there is in private equity these days, I think if Vodavi had actively marketed itself, it could have gotten $10 per share for shareholders. That's my fair value assessment.

How will this play out? On the positive side, this is an all cash transaction and Vertical has already lined up the financing for the deal, so it's highly likely that Vodavi shareholders will get at least $7.50 per share. Hopefully, however, now that the deal has become public, a competitor or private equity fund will step in and offer a sweeter offer to shareholders. I wouldn't hold my breath on this, but I do think there is a reasonable probability (maybe 25 percent) that it will happen.