Are Lexmark Shareholders Getting Hosed in the Buyout?

Lexmark International Inc. (NYSE: LXK) just came out with a definitive merger agreement with a consortium of Apex Technology, PAG Asia Capital and Legend Capital Management. Usually mergers and acquisitions bring some pretty good returns to shareholders, but this might not be the case with Lexmark.

The parties involved believe that this will enable Lexmark to continue to focus on strategic initiatives it has embarked upon while substantially expanding its access to vast market opportunities in Asia.

The group has agreed to acquire Lexmark for $40.50 per share in an all-cash transaction with an enterprise value of roughly $4 billion. Also the transaction is expected to close in the second half of 2016, but it is still subject to shareholder and regulatory approval.

Although the transaction is going at a premium of 17% from Tuesday’s closing price and 29% from the 50-day moving average of $31.40, it is still 15% below the 52-week high. With the broad markets currently approaching their all-time highs, this deal might seem a little undervalued. Shareholders might be able to get more out of this so to speak.
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In 2014 this was a $50 stock, and even 10 years ago it was a $70 stock. Although the printer industry is not exactly high growth, the current valuation for the buyout is debatable.

Jackson Wang, chairman of Apex, commented:

We are very excited for this strategic union between Lexmark and Apex. We believe it is most compelling as the two businesses are highly complementary to each other. Lexmark’s passion for excellence and unwavering commitments to customers, employees and communities represent a tremendous cultural fit for us. Apex has traditionally been successful in emerging markets and in cost-effective production.  We are excited to work alongside Lexmark as they continue to invest in advanced technologies and solutions to best serve their customers and business partners, while simultaneously pursuing untapped opportunities in emerging markets particularly in Asia for future growth.

So far in 2016, Lexmark has outperformed the broad markets, with the stock up 8% (excluding Wednesday’s move). However, over the past 52 weeks the stock was down 16%.

Shares of Lexmark were trading up 10% at $38.13 Wednesday morning, with a consensus analyst price target of $30.20 and a 52-week trading range of $24.11 to $47.69.