Shares of Skullcandy (NASDAQ: SKUL) rallied on Wednesday after Bloomberg suggested that the company could be a takeover target.
Like other recent IPOs, Skullcandy’s shares have slid since the company went public. In mid-2011 SKUL was trading around $20. With its recent tumble, SKUL has fallen into the single digits.
Yet, the company produces cash. And, perhaps most impressive, it has brand recognition in an industry — earbuds — that is largely a commodity business. What’s more, the growth of mobile devices like smartphones and tablets ensures that earbuds will see consistent demand for years to come.
But who would want to purchase the headphone maker? And why?
Sony (NYSE: SNE):
With the company looking to become a premium player in the smartphone market, pairing Skullcandy with its phones could create a potent combination.
Microsoft (NASDAQ: MSFT):
Through its partnership with Nokia (NYSE: NOK), Microsoft has pushed Windows Phone 8 as its alternative to Google’s (NASDAQ: GOOG) Android and Apple’s (NASDAQ: AAPL) iOS. Meanwhile, the company has also begun to set up retail stores around the U.S. to sell its new hardware.
Further, Microsoft has been no stranger to acquisitions, making many in recent years, most recently the $8.5 billion purchase of Skype.
It might be a stretch, but Skullcandy would give Microsoft a well-known brand for its mobile push, while adding a hot item to stock on the shelves of Microsoft’s new retail stores.
Samsung (OTC: SSNLF):
Adding Skullcandy to its portfolio would allow Samsung to ship its Galaxy handsets with a pair of Skullcandy earbuds, putting more pressure on the iPhone.
Bose: The other possible acquirer mentioned by Bloomberg, Bose has long been known for its high-end audio equipment. Skullcandy’s offerings are near the lower-end of the spectrum, particularly compared to Bose, but adding a cheaper lineup could present synergies to Bose’s broader business.
Nike (NYSE: NKE):
The FuelBand is a smart pedometer that tracks a user’s movement and communicates with a smartphone. Since hitting the shelves, the device has been a solid seller despite mixed reviews.
Regardless, the exercise electronic space appears to be a growing one, with Motorola entering the market with its Android-based MOTOACTV smart mp3 player/heart rate monitor.
If Nike wants to continue to be a player in the space, acquiring Skullcandy might make sense from a strategic electronic standpoint. Skullcandy is already a popular brand in the extreme sports space.
Bottom Line
To be fair, Skullcandy as an acquisition might be a stretch. The company operates in a space that has extremely low barriers to entry. The biggest value it offers is brand recognition, but the relatively rapid growth of both itself and its competitor Beats might suggest that building brand recognition in the space isn’t as difficult as many might think.
Investors appear to discount the possibility of a takeover, as Skullcandy is heavily shorted, with a short float near 50 percent.
Shares of Skullcandy closed at $7.10 on Thursday.
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