News: UTStarcom to explore strategic options

[Updated from an e-mail message I sent to my friends, which I also try to file as a blog but failed repeatedly.]

As a long-time follower of UTStarcom, I am not surprised by today's announcemnt that the company is exploring strategic options (News and also see my previous posts). I do have a question on the timing however: why do the management do this now, instead of "letting the earning do the talk (and pushing the market price higher gradually)". They really don't have to do this now [One plausible explanation is that the upcoming Q3 earning will miss the target, so the management wants to set a floor on the price. Another possible reason could be that the management is afraid of a hostile takeover by someone with a low premium over the current price.].

While I can only guess on the timing, now we should turn the focus to what options the management will consider and what price we as shareholders will get when the potential deal is done. Right now I can think of several options:

1. To seek a public company which can buy UTSI with a combination of cash and stock. As I stated previously ZTE can be a candidate.
2. Management buy-out (MBO) or, more likely a leveraged buyout (LBO) by private equity firms, in effect making it private.
3. Split the company according to product lines and/or markets. For example they could spin off the US division - the former Audiovoxx, that sells mostly low-margin personal communication devices, leaving the China division to focus on wireless infrastructures, PHS, broadband and IPTV. The IPTV itself can be a separate company. The combined market cap can be at least twice of the current value of $1.2 billions.

Of the three options, I like the third one best from my own standpoint view as a current shareholder. The worst is the second one for I fear that the offering price will be in the low teens and that there is nothing I can do to stop the deal. The first option, while good for the acquirer, may not swallow well with the ego of UTSI's management.

I also liked the news that Mr. Wu will NOT serve as the global CEO for the company next year. He is a China expert and let him do what he does best. Hire someone who is more at ease with the international business.

As for the price action for the following days or months, I will stick with my practice that I do not predict price target, except to say that it's most likely to go higher. Some people who have been accumulating the shares leading to the news, which have bid the price up over 50% during last three months(?), may "sell on the news". If the Q3 earning is a disappointment, it could cause a temporary dip which can be a buying opportunity. I also noted that the last time Mr. Wu purchased the company's stock a couple of years ago, he paid for about $15. Obviously he, as a good business leader and entrepreneur as he is, made a bad investment decision at the time. As most inexperienced investors do, he may have that purchase price in mind when he wants to sell: "I will only sell if you pay me at least $15". Another factor to consider is the conversion price for the convertible bond holders which I believe is around $13. Thirdly, the shorts (22 mil shares short?) will surely affect the price. The question is by how much.