By Calvin Biesecker
Burdened by debt and unhappy with how the investment community is valuing the company, L-1 Identity Solutions [ID] is expects to hire a financial adviser or advisers in the next week or two to help it explore its strategic alternatives, the L-1’s chief said yesterday.
Robert LaPenta, chairman, president and CEO of L-1, said earlier this year that the company would begin looking at its strategic alternatives, reminding investors that one of the company’s goals is to provide value to its shareholders and that 2010 has always been looked at as a pivotal year for the company. Yesterday, he provided additional color and insight about the process L-1 is undertaking.
One option that has already been eliminated is a “piecemeal” sale of a part or parts of the company, LaPenta said yesterday. However, one option is to sell L-1 to an international firm, which would raise issues of foreign investment in the United States, in particular the company’s government services business that provides expertise and support to the intelligence community.
LaPenta said that there would be a lot of interest in just L-1’s intelligence business.
He also said that an international buyer is an attractive option because it would provide L-1 with an expanded marketing force and “political clout” overseas, where it is already generating revenues and sees its opportunities expanding, he said.
L-1 expects to make headway in its strategic review rather quickly, possibly within two months. The process is not going to “drag on,” LaPenta said.
“I should reiterate that we don’t have to do anything and I think that that’s an advantage to us because we’ve got a great company and we’ve got a great future,” LaPenta said. “We’ve all worked very hard to put this company together and it’s not something that we are going to auction at a bargain price.”
LaPenta said he has no plans to discount the company and “cashing my chips,” adding that he wouldn’t bother to hire a banker if he were going to sell the company at $7 or $8 per share or even between $10 and $11.
L-1 grew from the acquisition of the former identity solutions business Viisage in 2005, which was followed by a number of other acquisitions including biometrics solutions provider Identix in 2006. Once the deal for Identix concluded in August 2006, L-1 began trading under its current stock ticker symbol “ID.” At that time, the company’s stock was trading above $15 per share and peaked above $21 per share in May 2007. Since then, the stock price has steadily declined, falling below $5 per share early in 2009 before rising slightly.
Following yesterday’s discussion by LaPenta, which was part of the company’s fourth quarter earnings call, the stock was up 78 cents, or nearly 11 percent, to close at $8.15.
“I think the fact that Wall Street doesn’t get it is just kind of reflective of the state that Wall Street and the rest of the world’s economic environment is in,” LaPenta said. “It’s a trading world. People don’t care about long-time quality and building value. They only care about what the next trade is and I think that’s a product of the buy and hold mentality and what made America great no longer exists on Wall Street. And I think we’ve seen that.”
However, LaPenta also said that L-1’s “debt structure is burdensome” and without a higher valuation from Wall Street that makes it harder to de-lever the company. L-1 expects to generate significant free cash flow in 2011 and 2012, which will go toward paying down its debt. Long-term debt stood at $419.3 million at the end of 2009, down about $10 million from 2008.
In its fourth quarter, L-1 narrowed its losses to $540,000, one cent earnings per share (EPS), versus $549.6 million ($6.56 EPS) a year ago. Sales increased 9 percent to $160.2 million versus $147.5 million, well below the $180 million to $190 million forecast last fall. L-1 blamed the sales miss on a delay in a contract for its biometric matching software that had been expected during the fourth quarter. After the Defense Department announced its plan to award L-1 the sole-source contract, a competitor threatened a protest, which resulted in the ongoing delay, LaPenta said.