FireEye Rejecting Takeover Bids Was a Huge MistakeFEYE) has been a potential acquisition target for quite some time and it was recently reported that the company rejected several takeover offers. According to reports, FireEye was seeking an offer of $30 per share, which would have valued the company at about $5 billion.
FireEye’s chances of getting acquired were hammered when the company announced the departure of ex-CEO Dave DeWalt. DeWalt had a track record of selling many growing companies and his departure greatly hurt the acquisition prospects of the company.
In my opinion, FireEye made a mistake by rejecting the acquisition offers as the company’s financials paint a bad picture of its future.
In fact, FireEye is at least two years away from being profitable and a lot could change by then. Growing expenses and slowing sales are another negative for FireEye. The company’s recent earnings report was weak and there were signs of slowing growth as the company shared bleak revenue guidance.
FireEye is in a growing segment and the fact that it is already losing steam is bad news for long-term investors. An acquisition would have been the best thing for FireEye longs, however seeing that the company is demanding $30 per share, investors should rule out any bids at least for the short term.
With the company still losing money and growth gradually slowing down, I don’t see any company bidding $30 per share for FireEye. There is no way FireEye is worth $5 billion right now and it will be very difficult for the company to attain that valuation in the future as well. Hence, FireEye longs should be cautious about the stock going forward.
An acquisition was the best-case scenario for FireEye investors. However, as mentioned above, the recent rejection points to the fact that FireEye may not get acquired any time soon. The company is valuing itself unrealistically and I would suggest investors to use the recent rally to exit the stock.
With FireEye still bleeding money and its expenses growing at a faster pace than its revenue, the stock will probably head lower in the near term. After the recent rally, the upside is pretty limited and the risk-reward ratio is unfavorable. As a result, I think FireEye longs should consider selling the stock at current levels.
Published on Jun 23, 2016By Ayush Singh