Lexar Deal Gets Its Due

Since the announcement of the deal, a consortium of hedge funds, including Carl Icahn's Icahn Partners, have amassed large stakes in Lexar in hopes of pressuring the company to find another buyer who will pony up more cash. Lexar also has been hit with several class-action lawsuits in California state court, alleging that Lexar's board engaged in self-dealing and failed to obtain the highest possible price for the company.

In an SEC filing earlier this month, Elliott Associates, which owns 6.5% percent of Lexar, stated its extreme displeasure with the Micron deal, which it claimed "falls meaningfully short of Lexar's standalone value."

"We believe this outcome was the result of the Company's failure to conduct a robust and thorough sale process, and we fully support and encourage interest from other parties at levels more closely reflecting Lexar's true value," said the filing.

Calls to Elliott Associates, as well as Icahn Partners, were not returned.

In making its case for a richer Lexar valuation, Elliot Associates laid out scenarios in which Lexar operates with gross margins between 18% and 23%.

That scenario seemed less likely Tuesday, when Lexar delivered guidance for the current quarter in which it warned that revenue would be between $100 million and $130 million, with a loss in the range of $22 million to $30 million. Analysts polled by Thomson First Call were expecting sales of $200 million for the quarter, with a loss of 19 cents a share.

While the warning didn't provide specific information on margins, Cowen & Co. analyst Rob Stone estimated that the guidance suggested product margins between 3% and 4%.

"Under current market conditions on a standalone basis, Lexar would be doing extremely well to get back to the low-teens on product margins. And high-teens would be unlikely," said Stone, who does not have any position in Lexar and whose firm has not had a client relationship with Lexar.