LSI Corporation (LSI) recently signed an agreement to sell its external storage systems business to NetApp, Inc. (NTAP) for $480 million in cash.
The storage business generated revenues of $705 million in 2010. LSI Corp will however retain the RAID adapter business, which develops MegaRAID and 3ware storage controllers and software for direct-attached storage environments.
Under the terms of the agreement, NetApp will purchase substantially all of the LSI external storage systems business, which develops and delivers Engenio external storage systems products and technology to a wide range of customers.
LSI Corp. expects to become a pure play semiconductor company which it believes will unlock more value for shareholders. Hence, the company has decided to divest the external storage systems business.
Management stated that the company is emerging from a multi-year investment cycle which has significantly increased the opportunities and potential of its core semiconductor business.
As a result of this sale, LSI Corp. expects to eliminate $35 million to $40 million per quarter of operating expenses upon closing of the transaction. LSI Corp expects to close the transaction in sixty days, subject to the satisfaction of customary closing conditions and regulatory approvals including those required by the Hart-Scott-Rodino Antitrust Improvements Act.
In addition, LSI Corp. announced today that its board of directors authorized a new stock repurchase program of up to $750 million. Management expects to fund the stock repurchase from the proceeds of the sale of the external storage systems business, available cash and short-term investments.
LSI Corp expects that the divestiture of the storage business, associated expense reduction, the new stock repurchase program and expected strong revenue growth in its semiconductor business going forward will be slightly dilutive to the bottom-line in 2011 earnings per share (EPS) and neutral to accretive to 2012 EPS.
LSI Corp. is currently focusing on fewer and larger end-markets. It aims to focus on established and growing applications and has narrowed its focus to market-leading customers.
We currently maintain a Neutral recommendation on the stock supported by a Zacks #3 Rank.
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