After Disappointing Report, Is Lawson Still Potential Merger Bait? (LWSN)

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Lawson Software (NASDAQ: LWSN) may be in a strange spot now as the enterprise software and consultant firm issued earnings. 

The company posted earnings of $0.08 EPS on a non-GAAP basis on an 11.3% rise in revenues to $212.9 million, while First Call showed consensus as $0.08 EPS and $217.2 million.  Lawson issued guidance for next quarter at $0.08 to $0.11 EPS on revenues of $225 to $230 million.  This is still sequential growth, but this lurks under the estimates of $0.12 EPS and $230.9 million from First Call.  As far as charges, Lawson reported an additional permanent impairment charge of $8.1 million.  It also reported a temporary impairment charge of $2.1 million to reduce the value of its auction rate securities.

The company is still growing and it isn’t an expensive enterprise software and consulting company if you are willing to stick by some longer-term forecasts out to Mid-2009.  But the problem is that this new drop might make the required premium to secure a vote approval too high, assuming the company would even go along with a buyout if it came.

If a buyout offer ever comes for Lawson, it has to be a "friendly" merger.  The company has both a blank-check preferred share provision and a poison pill provision according to Capital IQ.

If you would like to join our open email distribution list,we usually discuss other merger candidates, merger-arb, specialfinancings, and other issues that create special situations.  We havealso reviewed this for our weekly "10 Stocks Under $10" newsletter.

Lawson has been public for now more than 5-years and for most of that time it has traded between $5.00 and $10.00 per share.  The company’s stock closed up 1% at $8.00 in regular trading today, yet shares are down roughly 8% at $7.30 in after-hours trading.  Its 52-week trading range is $6.94 to $11.39.

Jon C. Ogg
April 3, 2008

Jon Ogg produces the Special Situation Investing Newsletter; he does not own securities in the companies he covers.