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Archive for December 17th, 2008

MathStar Inc (OTC:MATH)

Posted in Activist Investors, MathStar Inc (OTC:MATH), Net Cash Stocks, S. Muoio & Co, Salvatore Muoio, Stocks, tagged , , , on December 17, 2008| 2 Comments »

MathStar Inc (OTC:MATH) is another tiny net cash stock with a substantial stockholder lobbying management to liquidate the company. The stock closed yesterday at $0.68, giving it a market capitalization of just $6.2M. We estimate the liquidating value to be more than 120% higher at $14.4M or $1.57 per share. The value in liquidation is predominantly cash and short term investments in the amount of $14.8M. MATH has twice rejected unsolicited merger proposals. The board has largely suspended the company’s operations and is in the process of evaluating its “strategic alternatives, which could include merger, acquisition, increasing operations in another structure or liquidation.” Salvatore Muoio of S. Muoio & Co. LLC filed a Schedule 13D on December 15, 2008 urging MATH’s board to consider liquidation rather than a merger.

About MATH

MATH is a fabless semiconductor company engaged in the development, marketing and selling of high-performance, programmable platform chips and design tools required to program chips. The company’s investor relations website can be found here.

The value proposition

MATH has rapidly burned cash throughout the year, mainly on research and development. The company has now put a stop to its R&D activities, which has reduced the cash burn significantly from $6.6M in the June quarter to $1.6M in the September quarter. From the Business Overview section of the September 10Q:

During 2008, sales of our field programmable object array, or FPOA, did not materialize as expected, and development of the next generation of FPOA fell even further behind schedule. As a result, on May 20, 2008, the Board of Directors voted to suspend research and development activities and ongoing operations while analyzing strategic alternatives to protect the remaining value and increase the liquidity to the stockholders. The Board of Directors continues to explore these strategic alternatives, which could include merger, acquisition, increasing operations in another structure or liquidation.

Set out below is our summary analysis of the company’s balance sheet (the “Carrying” column shows the assets as they are carried in the financial statements, and the “Liquidating” column shows our estimate of the value of the assets in a liquidation):

math-summary

The company has a net cash position (i.e. cash remaining after paying out all liabilities) of $13.9M or $1.52 per share, which is around 120% higher than MATH’s closing price yesterday of $0.68.

The catalyst

This is one of the rare instances where management seems to have taken proactive steps to protect the company’s remaining value. The board also appears to be seeking a way to unlock that value through a merger, acquisition, increasing operations in another structure or liquidation. Salvatore Muoio of S. Muoio & Co. LLC annexed to his 13D filing the following letter setting out his preference for a liquidation over a merger:

December 12, 2008

Mr. Douglas M. Pihl
Chairman of the Board
MathStar, Inc.
19075 NW Tanabourne, Suite 200
Hillsboro, OR 97124

Dear Mr. Pihl,

Thank you for taking time out to speak with me today about MathStar’s history and current status.

To reiterate, and for the record, given the current business environment and the company’s assets and prospects, we strongly urge the Board to pursue a path of liquidation.

We have been investors in the securities of companies in liquidation for over 25 years and believe the process to be relatively straight-forward, in particular for companies as clean and litigation-free as MathStar.

As I mentioned, we don’t believe the current environment represents an attractive opportunity to merge with a speculative business in need of the company’s cash. We also don’t believe the incremental but uncertain future value of the company’s NOL in a merged entity offsets the hard cash equivalent value shareholders would receive in a liquidation in the current environment.

In addition, we would be particularly concerned if a transaction were to be announced where any appearance of a conflict of interest were present.

Sincerely,

Salvatore Muoio, C.F.A.
Managing Member

Conclusion

MATH is one of the best prospects we’ve run across recently. It is undervalued at $0.68, trading at 45% of its net cash of $1.52 per share. Management has already taken proactive steps to reduce its formerly significant cash burn rate and seems to be actively seeking a way to unlock the company’s value. We feel more comfortable that Salvatore Muoio is keeping an eye on management’s exploration of strategic alternatives and has expressed his strong preference for a liquidation. As always, the risk is that MATH is unable to unlock its value before dissipating its remaining cash but in this instance we believe that risk is low.

MATH closed yesterday at $0.68.

The S&P 500 Index closed yesterday at 913.18.

[Disclosure: We do not presently have a holding in MATH. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only.]

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INFS conference call discusses auction progress

Posted in Activist Investors, InFocus Corporation (NASDAQ:INFS), Lloyd I. Miller III, Nery Capital Partners, Stocks, tagged , , , on December 17, 2008| 1 Comment »

InFocus Corporation (NASDAQ:INFS) held a conference call yesterday to discuss the progress of its auction. We’ve previously posted about INFS here, here and here, writing that it is a deeply undervalued asset situation with two activist investors, Nery Capital Partners and Lloyd I. Miller, III, pushing the company to “consider the views expressed by its shareholders and pursue new alternatives to increase shareholder value.”

The call is pretty tightly scripted and doesn’t shed much additional light on the auction progress (the archive of the earnings webcast is available here) (registration required). CEO Bob O’Malley, the speaker, says that INFS has retained Thomas Weisel Partners, an investment bank, to provide advisory services including advice concerning unsolicited offers from outside sources. O’Malley attributes the interest in purchasing the company to INFS’s “good brands, good projectors, market share, channels, strong and dedicated team etc.” He continued that the special committee will work with the investment bank to review the offers “so management can continue running the company.” The “structure and nature of the offers vary” so the review will take an “undeterminate” (sic) amount of time. INFS will provide updates when they reach “definitative offer” and “completed agreement” stages or “the board has terminated the process.” O’Malley reitereated that INFS has “put on hold” the buy back. Other than that, there was little else to report. O’Malley refused to take questions, so no commentary from Nery Capital Partners or Lloyd I. Miller, III, which was a little disappointing.

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ValueVision Media Inc (NASDAQ:VVTV) Q3 Update

Posted in Activist Investors, Cannell Capital, J. Carlo Cannell, Net Net Stocks, Stocks, ValueVision Media (NASDAQ:VVTV), tagged , , , , , , on December 17, 2008| 3 Comments »

ValueVision Media Inc. (NASDAQ:VVTV), which we posted about on Wednesday last week, has filed its November 10Q. In our earlier post, we wrote that VVTV seemed to us to be one of the better opportunities available because it’s a net net stock (i.e. a stock trading for less than its net current assets) with other valuable assets and noted activist investor Carlo Cannell of Cannell Capital has an activist position in it. The company also seemed to us to be taking steps to realise that value, publicly announcing that it has appointed a special committee of independent directors to “review strategic alternatives to maximize stockholder value.” The strategic alternative the company was pursuing was an auction that the company expected to complete by February 2, 2009. At $1.66 per share, VVTV’s liquidating value is still some 300% higher than its close yesterday of $0.41, which should provide a good margin of safety until the auction can be completed.

Updated value proposition

When we first looked at the company we wrote that we estimated its liquidating value, which included its property, FCC broadcasting licence, NBC trademark licence agreement and the Cable distribution and marketing agreement, at around $2.23 per share. We now see that value lower at $1.66 per share due to the increase in liabilities from $74M to $94M, which equates to an increase of $0.57 per share. Set out below is our updated summary analysis (the “Carrying” column shows the assets as they are carried in the financial statements, and the “Liquidating” column shows our estimate of the value of the assets in a liquidation):

vvtv-summary-q3-update

At its close of $0.41, VVTV is trading at 25% of its liquidating value.

The Catalyst

Given the substantial deterioration in the company’s liquidating value in the last quarter (and in the last few years), we were expecting an update on the auction, which the company has not provided in this 10Q. The company has simply restated its earlier disclosure almost verbatim:

On September 11, 2008, our board of directors announced that it had appointed a special committee of independent directors to review strategic alternatives to maximize shareholder value. The committee currently consists of three directors: George Vandeman, who serves as the committee’s chairman, Joseph Berardino and Robert Korkowski. The special committee retained Piper Jaffray & Co., a nationally-recognized investment banking firm, as its financial advisor. There can be no assurance that the review process will result in the announcement or consummation of a sale of our company or any other strategic alternative.

The company removed the final sentence from the last disclosure:

We do not intend to comment publicly with respect to any potential strategic alternatives we may consider pursuing unless or until a specific alternative is approved by our board of directors.

This may have been removed because Mr. George Vandeman, chairman of VVTV’s special committee of independent directors charged with administering the stategic review, made public statements that VVTV has received bids from a number of companies and instructed its advisers to invite several of the proposed buyers to take part in the next phase of the process.

There have been no further public statements from Cannell Capital. We will provide an update if one is made.

Conclusion

Provided that management will sell the company in the auction process if it receives a sensible bid, this still seems to us to be one of the better opportunities available in the market. Although it has deteriorated since the last 10Q, at $1.66 per share, VVTV’s liquidating value is still some 300% higher than its close yesterday of $0.41. Cannell Capital has previously publicly stated that he sees the value as high as $5.98 per share. The company seems to be taking steps to realise that value through an auction that it expects to complete by February 2, 2009. Any investor intending to take a position should bear in mind the company’s disclosure that “there can be no assurance that the review process will result in the announcement or consummation of a sale of our company or any other strategic alternative.”

VVTV closed yesterday at $0.41.

The S&P 500 Index closed yesterday at 913.18.

[Disclosure: We have a holding in VVTV. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only.]

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