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Still Neutral on Brightpoint

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Brightpoint Inc. posted mixed financial results for the second quarter of 2012. The company has slowly started gaining new orders, which may partially offset the loss of a major client of the company’s high-margin Logistics segment in the U.S. However, broader worldwide macro-economic volatility remains as a major near-term concern. In the second quarter of 2012, gross margin, operating margin, and net margin dropped 1.3%, 0.8%, and 0.4% year over year, respectively.

On July 2, 2012, Brightpoint Inc. has entered into a definitive agreement with Ingram Micro Inc. through which Ingram Micro will acquire all of the outstanding shares of Brightpoint common stock for $9 per share in cash. The transaction is valued at approximately $840 million, including the value of around $190 million of Brightpoint’s net debt as of June 30, 2012. However, the acquisition is subjected to certain terms and conditions and is expected to be completed before the end of this year.

Management has revised its financial outlook downward twice for fiscal 2012 in the last eight months due to a major client loss and macro-economic fluctuations. The market has become intensely competitive. Recent consolidation trend among wireless operators may also become a long-term negative for the company. We believe Brightpoint is currently fairly valued and, thus, reaffirm our Neutral recommendation.

Nevertheless, the impetus for continued financial improvement remains Brightpoint’s diversity, as the company provides a full range of sales & distribution, logistics, and activation services while expanding on a global basis. The company enhanced its portfolio of product offerings for customers, while developing new sales channels for its suppliers.

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