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Friday, September 29, 2006

Further Implications on the Talk America Buyout

We have already covered this Talk America (TALK) acquisition yestrerday and last week, so this will likely be the last note on the company.

This Talk America (TALK) that was recently given a buyout offer from Cavalier Telephone is up above even the new-higher $9.00 bid submitted yesterday by Sun Capital Securities Group. This traded above that level yesterday on the potential raised-bid for the company from Cavalier.

Here are the guts of the SEC Filing this morning to help determine if a new-higher-higher bid may be forthcoming:

On September 28, 2006, Talk America Holdings, Inc. received an unsolicited letter from Sun Capital Securities Group, LLC proposing "to purchase for cash all of the outstanding shares of Company Common Stock for $9.00 per share," subject to the terms and conditions set forth therein, including Sun Capital's satisfactory completion of due diligence. A copy of the Letter is filed as Exhibit 99.1 to this Report and the foregoing summary of the terms thereof is qualified in its entirety by reference thereto.

Also on September 28, 2006 and in response to the receipt of the Letter, the Company's Board of Directors, as permitted by an exception to the general "non-solicitation" terms of the Agreement and Plan of Merger, dated as of September 22, 2006 (the "Merger Agreement"), among the Company, Cavalier Telephone Corporation and Cavalier Acquisition Corp., made the necessary determinations in respect of the Letter and the proposal contained therein so as to permit the Company to furnish information about the Company to Sun Capital and its representatives pursuant to a confidentiality agreement with Sun Capital and to participate in discussions and negotiations with Sun Capital in respect of its proposal. The Company does not know whether any further or other proposal will be forthcoming from Sun Capital and the Company's Board of Directors has made no determination in respect of the proposal contained in the Letter or any other proposal of Sun Capital other than the limited determinations described above.

Here is a full link to the Sun Capital stake and offer.


Sun Capital Partners, Inc. is a leading private investment firm with more than $3.5 Billion under management. It focuses on leveraged buyouts, equity, debt, and other investments in market-leading companies that can benefit from its in-house operating professionals and experience. Sun Capital affiliates invest in companies which typically have the number one or two market positions in their industry, long-term competitive advantages, and significant barriers to entry. The company has made 10 new transactions this year, and made 5 add-on investments. Sun Capital has offices in Boca Raton, Los Angeles, New York, London, and Shenzhen.


This stock has just crossed into new higher territory than yesterday's highs. The 52-week high on TALK is $10.20, and the company was just at its 52-week lows earlier in September. What a difference a couple of weeks can make. Sun Capital Securities is a subsidiary of Sun Capital Partners, Inc. and the subsidiary is already a 13.9% stake holders in TALK.

If the Sun Capital's mantra is accurate and their intentions are not just to get a higher buyout price, then it is obvious that the price of poker just went up. The company now has a $292 Million market cap, and it may be an issue for Cavalier to do this much more. Cavalier itself could actually be a longer-term candidate for a deal now, or it is possible that Sun will do this acquisition to repackage it for another Telco down the road. At $275 million, $9.00 per share in cash, the stock is trading at a decent premium to the deal. Based on some remedial calculations it would seem as though a bid of $9.75 to $10.00 could come without breaking the bank, but then what happens while the deal is waiting to be closed. It is obvious that TALK will sell for a higher price than the Cavalier $8.10 bid, but this probably won't end up being sold at much higher than $10.00. The company has been profitable in the past, but profits have been dwindling. So while it seems obvious that this is going to sell at a much higher price than $8.10, it may not be worth the risk at $9.60 plus compared to the new $9.00 bid.

The other top 3 large holders appear to be Eton Park Capital, Barclays, and Dimensional Fund Advisors. We will probably not get to hear anything from these fund management groups today, and this is a smaller company for those fund managers. At this point and based on past buyouts it would seem prudent to cut and run. We are in the midst of an unprecedented private equity craze and this is a fairly small price tag for any serious buyer, so anything is probably in the realm of possibilities.

Jon C. Ogg
September 29, 2006

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