Great couple of days for ALU, glad I have accumulated 41K shares of ALU, the original shares were at a bargain price in the 2.50s, could not be happier to see the due diligence paying off.

 

I figure the sale of the wireless unit should bring in at least $5B (one times revenue for that division, maybe more), which would seal the turnaround for ALU.  The typical Price to Sales ratio in the Networking Equipment sector is closer to 2, so I am thinking conservatively it brings in $5B, anything else would be giving it away on the cheap.  The fact that the negotiations have been on and off for years tells me ALU has stood its growung and now they may be getting the money they wanted all along.

 

NOK It would give it all kinds of options.  If the sale goes through, a few that come to mind:

 

1 Pay off Debt

2 or be able to issue bonds at much reduced interest rates (should not be a problem now that the balance sheet is solid) and extend debt period, thus reducing the cost of capital

3 Invest more in R&D

4 Share buyback (not my first choice, but an option nevertheless)

5  An eventual return to paying dividends

6 Aquire a small company in the SDN space

 

With this huge money injection, ALU will have about 40% of its market cap in cash, a very strong balance sheet.

ALU winning wireless contracts in China give the wireless unit much more appeal to NOK, and should be more valuable to them.  Assuming the division has not had great gross margins, it allows ALU to further reduce the drag on gross margins and profits from a division with high costs.  NOK on the other hand will over time have an easier time laying off some of the workers, thus extracting better gross margins than ALU had been able to.