Shares of CDW Corp, the old “Computer Discount Warehouse,” have been up more than 10% before pulling back on reports that Madison Dearborn Partners is the leader in talks to acquire the company. The WSJ said talks are sensitive and may come apart, and if the WSJ is reporting it then that sensitivity may have been breached. Whether or not the sensitivity has been breached is one thing, but shares are now up more than 35% since mid-March.
Shares nearly traded up to $80.00 earlier in May, but sold off in recent weeks as a takeover did not surface. This will also mark the fourth major gap-up phase for the stock and it just doesn’t look like on a 5-year and historic basis that the company would fetch much higher than current prices as $80.00 and higher puts this one back at the 2000 to 2001 all-time highs.
As of last look the founder still holds close to a 15% stake, although he is no longer at the helm of the company. The company is an attractive company and there are few who would argue that. CDW has been expanding offers to more customized units and has been selling more peripherals. The balance sheet is in fine shape, although the current stock price puts it at what appears to be between 4 and 5 times book value. That may be fine for more longer-term investors, but at some point you have to consider how much companies are worth and how high smart buyers are willing to pay. The forward P/E ratio of 21 at today’s premium is not at nosebleed levels but doesn’t scream bargain either.
If this company gets a buyout offer it would seem hard to justify a significant premium to today’s fourth round of gap up stock prices. The good news is that there is probably a significantly higher floor for investors compared to just a few months ago.
Jon C. Ogg
May 29, 2007
Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.
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