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Monday, November 13, 2006

Lexmark Heading for a Family Reunion?

By William Trent, CFA of Stock Market Beat

Sometimes what seemed like a good idea yesterday seems like a bad one today. And sometimes people simply forget why they did something in the first place and make efforts to undo what has been done. For better or worse, some are suggesting that may soon happen in the form of a buyout of printer manufacturer Lexmark (LXK) by computer manufacturer Lenovo (LNVGY.PK)

Analysts hint at Lenovo buying Lexmark - Finance -
Printer sales in China are growing so strongly that local firms may attempt to buy control of a major foreign printer maker to ensure a stake in the domestic market and a slice of international sales.Sales of laser printers in China are expanding particularly fast, driven by business users, according to recent data from Lyra Research.Total laser revenue, including hardware, cartridges and media, is expected to surpass US$5 billion by 2010.

Analysts suggest that a Chinese firm might attempt buy a foreign printer manufacturer to jump-start local printer manufacturing.

US printer maker Lexmark is the most commonly named target for such an acquisition attempt.
Giant Chinese PC vendor Lenovo is seen as the most likely buyer, perhaps as leader of a consortium, and almost certainly with government support.

Lenovo made headlines by buying IBM’s PC division, a deal that was completed 18 months ago. By buying a printer maker, Lenovo could match Hewlett Packard (HPQ) across all product lines. Since printers are generally more profitable than PCs, many consider the printer business to be one of HP’s key competitive advantages.

But the funny thing is, such a deal would simply bring Lexmark back to its roots (albeit under new management).

According to Lexmark’s website:
Since our inception in 1991 as a spin-off of IBM, Lexmark has become a leading developer, manufacturer and supplier of printing and imaging solutions for offices and homes. Lexmark’s products include laser printers, inkjet printers, multifunction devices and associated supplies, services and solutions.

So Lenovo may end up reuniting Lexmark with its former parent. Whether having a child move back in after 15 years of independence will make for a pleasant family reunion will remain to be seen. The author may hold a position in the securities discussed.

The author's current holdings are as follows: Long: Intuit (INTU) put options; Nasdaq 100 (QQQQ) put options; Bookham (BKHM; Ballard Power (BLDP); Syntax Brillian (BRLC); CMGI (CMGI); Genentech (DNA); Ion Media Networks (ION); Lion's Gate (LGF); Three Five Systems (TFS); Adobe Systems (ADBE) call options; Ceradyne (CRDN); IShares Japan (EWJ); StreetTracks Gold (GLD); Starbucks (SBUX); U.S. Oil Fund (USO); Plantronics (PLT) call options; Short: Lion's Gate (LGF) call options; Dell (DELL) put options; Ceradyne (CRDN) call options; Plantronics (PLT) put options.

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