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Wednesday, September 06, 2006

Click Commerce Goes to Illinois

From The Average Joe Investor

Funny that this should happen right after I did my little "Joe Revisited" bit, but today Illinois Tool Works Inc. (NYSE:ITW) announced that it's going to make a tender offer for the outstanding shares of Click Commerce (Nasdaq:CKCM). ITW plans to offer $22.75 per share, which would be a 27% premium to Click's closing price on Friday.

For Click shareholders this should be a nice win. Sure Click is a nice company and shows a lot of promise for the future, but at the same time it's hard to be angry about a quick 27% gain. Unless, of course, you were a buyer at Click's peak earlier this year in the high $20's or low $30's. But either way it's 27%.

For ITW shareholders I'm not quite sure what to say. It's one of those situations where if you squint hard enough you can just about see anything. For a business like ITW, who manufactures everything from metal fasteners for residential construction to reclosable packaging for consumer food to swabs used in the pharmaceutical industry, using Click's software is an obvious fit since being able to keep a close eye on inventory and supply / demand chain is crucial in a business like this. But then why not just license the software instead of paying $292 million for the whole company?

In a press release today ITW's CEO said:“We believe Click Commerce represents a solid new growth platform for ITW. Click Commerce is well positioned to continue to expand its value-added software solutions and market presence across a wide range of industries, including several where ITW has a strong presence and where we have prospered over the years”

He also cited Click's strong financial performance over the past few years and their 128% revenue growth for FY2005.At the end of the day it may be tough to pull off some "bigger picture" strategic fit between ITW and Click here, and the potential for Click's projected $80 million 2006 revenue to be a big growth drive for a $13 billion business is also doubtful. But ITW has gone in a number of different directions in search of creating returns for their investors including mortgage investments, telecom and aircraft leases, affordable housing partnerships for tax credits, and even a $100 million captive venture capital unit, so the purchase could amount to little more than an opportunistic purchase of a good company at a depressed price that they will run as a fully owned subsidiary in hopes that it will produce good returns for ITW's shareholders.

How this jibes with ITW's stated "80/20 process" - where they spend 80% of their time on the most important 20% of their business - I am totally lost, but with $459 million of cash on the books and an ongoing business spitting off at least that much in free cash flow on a quarterly basis I guess they have to find something to do with their shareholders' money. I probably would have said increase the dividend, but I guess that's why I'm not a public company CEO, eh?

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