interesting times for nvt

nvt is supposed to be purchased in an all-cash deal by nok some time in the next few months. the market, however, obviously has doubts about the transaction, as the stock's at about 66 now. the deal looks to have antitrust concerns in the eu. and today nok seemingly declined to submit any remedies to dispel those supposed antitrust concerns.

i think this is a very attractive entry point in nvt shares for a bit of arbitrage action. amtech thinks the shares could stay under pressure, and they might be correct. it should be noted that there has been some exceptional put activity on nvt with the march 65 puts. however, i like the situation here 12 dollars under the deal price and am going to try to raise some $$ to buy some longer-dated call options with a strike at 75.

what i think happens is the deal goes through at 78 or nok walks away completely. i believe nvt as a stand-alone company could be worth as much as $90 right now. as an aside, i also think nok/nvt falling apart would be a positive for grmn, as this would push the perceived threat from handset navigation out.

in regard to the antitrust concerns, the eu has problems with the tomtom/teleatlas deal, thus pressuring nvt shares. non-discriminatory access to nvt/teleatlas content for competing navigation device suppliers will be concessions that both acquiring parties will have to accept to close their respective deals. yes, of course, make the leaders in a business bleed for their success. patently ridiculous, but that's another argument entirely.

back to nvt: if the nvt/nok deal is denied, nvt will probably sell off initially, but then come back, as the company is performing well despite weakness surrounding the broader economy. the database developer and licensor is benefiting from wide penetration of global positioning satellite-enabled personal navigation devices (PNDs). the pnd industry sold approximately 30.2 million units in 2007. this number is likely to exceed 45 million in 2008. although car sales are likely to decline this year in the north american market, more auto manufacturers are producing models that offer in-dash navigation systems. good sales should enable the company to generate an 18% share-earnings advance in 2008, to $2.05.

what is so great about nvt's business is that the sale of each additional device contributes to expanding margins. the company digitally uploads location-based information to units. therefore, nvt doesn't incur higher costs from the sale of additional information. i think a wide operating margin expansion by 2011-2013 is not only possible, but likely.

additonally, the company is expanding both its product reach and offerings. most recently, nvt finalized an agreement with telefonica, one of the world's biggest diversified telecommunications companies. the accord calls for joint innovation of new mobile traffic products for the european market. the deal enables nvt, which has a presence in the us and canadian markets, to get a foothold on the continent. nvt has also invested in acuity mobile, a location-based advertising business. no details are available on that deal.

i'm buying longer-dated calls at 75 on nvt very soon. nvt should benefit from the growing demand for location-based devices at least out to 2011-2013.