The stock of NaviSite opened the market with a large jump yesterday and kept the high levels until market close. Thus, the 7.20% increase in the price was realized already in the beginning of the day and the total number of shares traded was by far a record for the past 52 weeks. Over 4 million shares changed hands as compared to an average amount of 166,000, though the closing price of $2.83 could not touch the resistance level from June.
There was a filing on Monday that probably brought confusion to the market. It said that an investment company that already owns 36.7% of NaviSite’s outstanding shares intends to acquire the company completely. A letter has been sent to the Board of Directors, in which the institutional investor proposes to buy all of NaviSites’ common stock at a price of $3.05 per share, the amount to be paid in cash.
In fact, apart from the stock price, this should raise a lot of questions about Navi’s future business plans as well, especially in the background of the latest quarter results filed in the middle of June. For the nine months ended April this year revenues have declined, working capital is not enough to cover the urgent liabilities and the company has given up some of its business. The main source of funds in that period was the sale of two data centers in February and in March.
Moreover, the further strategy of IT provider includes selling additional “non-strategic” data centers, which will lower the revenues even more. Hopefully, the cost will also decline by the appropriate amount, since the current operating margin of 2.50% reveals extreme levels of inefficiency and does not suggest the business is growing.
