Wednesday, June 22, 2011

Zagg ( Nasdaq - ZAGG ) -- Completes Major Acquisition

Zagg (ZAGG $12.50) acquired privately held iFrogz for 4 million common shares and $50 million in cash.  iFrogz is a leading producer of mobile phone cases and headphones, with sales of $40.9 million last year.  Zagg estimates the acquired operation will grow 50% in 2011 and provide operating profit margins in the 20% vicinity.  Results will be consolidated for seven months.  Like Zagg's existing business, iFrogz generates a disproportionate amount of sales in the fourth quarter.  That should benefit the impact on reported results.  Wal*Mart is iFrogz's largest customer.  Over time that relationship might help Zagg with its Invisible Shield line and other products.  The cash portion of acquisition price will be financed with floating rate debt, beginning at a 6.75% rate.  Earnings could be enhanced by the transaction, perhaps by $.05-$.10 a share this year.  The financial risk created by the borrowing could limit the stock's P/E expansion, though.  The deal does provide a certain amount of diversification which will reduce Zagg's dependence on the Invisible Shield.  On balance the transaction looks like a good move. 

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