Tech Data Corp. (TECD - Analyst Report) has now gained complete control over Brightstar Europe Limited (“BEL”), the joint venture between Tech Data and Brightstar Corp. Tech Data has paid Brightstar $165 million to take over its 50% stake in the joint venture.
Tech Data will also be repaying all loans provided by Brightstar. This financial transaction will reduce Tech Data’s additional paid-in capital within shareholders' equity by $86 million to $90 million, according to the company.
BEL provides distribution and supply chain solutions across Europe and has a distinguished vendor list that comprises companies like Hewlett-Packard Co. (HPQ - Analyst Report) , Samsung and LG Electronics, to name a few. With the present consolidation, Tech Data’s fiscal 2013 net income and earnings per share are expected to improve.
Tech Data is focused on diversifying its operations in Europe, as it faces stiff competition in the domestic market from Ingram Micro Inc. (IM - Analyst Report) and SYNNEX Corp. (SNX - Snapshot Report) . Tech Data generates the majority of its sales from European countries (approximately 60% of total sales). Research firm Gartner expects IT spending in Central and Eastern Europe to be positive, which is expected to generate revenues of roughly $158 billion in 2012.
Thus, to grab a share of this billion-dollar opportunity, Tech Data has been expanding its operations in Europe. Recently it acquired some distribution companies of Specialist Distribution Group (“SDG”) for $350 million. Tech Data will be acquiring shares of SDG, IQ Sys and ISI Distribution in the UK, ETC and Best'Ware in France and ETC in the Netherlands.
However, sales from the European region dropped 5% year over year in the recently concluded quarter where economic concerns continue to weigh on IT investments. Other than the volatile European market, there is also a lack of visibility in government spending in the U.S. Sluggish PC shipments are also expected to hurt Tech Data’s top-line.
Moreover, we believe that Tech Data is well positioned to achieve strong top-line and bottom-line growth over the long term, as information technology (IT) spending picks up and its new technologies start contributing.
Thus, we maintain our long-term Neutral recommendation on the stock. Currently, the stock has a Zacks #3 Rank, implying a short-term Hold rating.