Symantec Corporation (SYMC) stock spiked as much as 7% on Friday and closed 4.5% higher to $24.52 on a buyout offer. The stock gained after two private equity firms, Permira and Advent International, made a buyout deal for Symantec’s consumer cyber safety business. From a recent Wall Street Journal report, the buyout deal price was $26 to $27 per share to Symantec shareholders. The two firms have valued the company at over $16 billion.
The stock rose 30.7% in the year-to-date period. Based on the closing price on September 6, Symantec shares are trading at a discount of 5.9% to its 52-week high of $26.07 and a premium of 40.7% to its 52-week low of $17.43. Notably, the mid-point of the proposed deal is 1.6% higher than Symantec’s 52-week high. At the closing price, Symantec’s market capitalization was $15.2 billion.
Symantec’s financial challenges despite buyout
Notably, Symantec, the antivirus software maker, is struggling with several challenges. Despite the optimism of the buyout, Symantec’s revenues have slowed down in the past few quarters. The company’s margins are draining and its top executives have left the company. Most recently, in May, the company’s CEO, Greg Clark, left the company. Last year, the company even had to face an internal investigation over its accounting practices.
On top of that, Symantec also has high debt levels, which has added pressure on the company. At the end of Q1 of fiscal 2020, ending in July, Symantec’s cash and cash equivalents were $1.5 billion while its long-term debt was around $4 billion. Hopefully, this doesn’t scare away the buyout firms Permira and Advent.
Revenue remains flat this year
Symantec projected its Q2 of fiscal 2020 revenues in the range of $1.155 to $1.205 billion. The average revenue guidance of $1.18 billion is almost flat from the year-ago quarter. The company further expects Q2 earnings in the range of $0.40 to $44 per share. This is flat from the year-ago quarter’s earnings.
However, Symantec is optimistic about the recent buyout and keen on selling its businesses to recover from its challenges. Notably, in July, chipmaker Broadcom (AVGO) showed interest in buying Symantec. However, in mid-July, the companies parted ways and stopped acquisition talks because of the pricing issue.
Symantec’s asset sale agreement after private buyout
The cybersecurity company is made up of the enterprise security segment and consumer cyber safety segment. Earlier in August, before the buyout, Symantec sold its Enterprise Security unit to the chipmaker Broadcom for $10.7 billion. The sale of the enterprise unit could generate approximately $8.2 billion after tax. Amid slow revenues, the asset sale could push up margins of the company.
Symantec also plans to use its sale proceeds to offer a special dividend of $12 per share to its shareholders. The company would give a special dividend in Q4 of fiscal 2020, ending in March. Also, the company plans to reduce its headcount by 7% and close some buildings to lower costs. Additionally, Symantec announced it would put a 67% hike in its regular dividend. The company approved an increase in the share buyback program. The enterprise acquisition deal is expected to close by the end of January after getting regulatory approval.
Consumer cyber safety segment up for sale
Now the buyout from the private equity firms comes as an opportunity for Symantec to sell its consumer cyber safety segment, too. Notably, the consumer segment deal will not change the terms of the sale of the enterprise unit to Broadcom. The consumer unit includes the LifeLock identity-protection brand and Norton antivirus software business. The consumer segment offers Device Security, Identity Threat Protection, and Privacy software to consumers and small businesses.
After the sale of the enterprise unit to Broadcom, the company believes that the Norton LifeLock business could generate annual earnings of $1.50 per share after the company buyout. Symantec also expects the consumer business to generate stable cash flow. This will help achieve revenue growth in the mid- to single-digit range on a year-over-year basis.