NetApp (NTAP) Higher On Takeover Chatter Following Analyst Note

Shares of NetApp, Inc. (Nasdaq: NTAP) are 5% higher today, and the strength is being attributed to comments from Broadpoint.AmTech analysts Brian Marshall discussing a potential takeover of the company.

In a research report today, Marshall discusses the widely speculated view that NetApp could be an attractive takeover target for more mature IT companies like Cisco (Nasdaq: CSCO), HP (NYSE: HPQ) and IBM (NYSE: IBM). He said, "while we have no insight as to the validity of these speculations, we do believe that it would make sense." A takeover is not a key point to the firm's bullish thesis on NetApp, but does limit downside risk in NTAP shares.

Discussing the "anatomy of a hypothetical deal," Marshall argues that, "an acquirer could pay a significant premium (~75%) for NetApp and still be paying roughly the same forward pro forma
P/E multiple (~10x) for the new earnings stream (assuming 20% operating expense reductions)."

In a conservative "back-of-the-envelope" analysis of what a hypothetical deal would look like if NetApp is bought for a 75%, AmTech's Marshall shows that a deal would be immediately accretive Cisco and only slightly dilutive to HP and IBM. He said a Cisco deal looks best on paper, but HP makes the best strategic fit.

As a side note, in September, Footnoted.org highlighted an amended change in control agreements for NetApp CEO Daniel Warmenhoven and other unnamed executives. Amendments to change in control agreements sometime precede takeovers.

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