MathStar Inc’s (OTC:MATH) board has announced a “possible merger” with a company called Sajan, Inc, presumably the private company discussed in the presentation at the annual meeting. Douglas M. Pihl, MATH’s CEO, has resigned in protest, saying in his resignation letter that he was resigning because of the board’s “rejection of the plan I have presented to restart MathStar based on Video Encoding technology.” Pihl goes on to say:
I do not believe the proposed Sajan acquisition is in the best interest of MathStar shareholders. I do not believe that Sajan, or the advisors hired to do the due diligence, have presented a business plan that warrants committing over $13 million of cash, nearly half of which will not remain in the combined company but will be distributed to the current Sajan shareholders. In addition the newly issued shares will result in nearly a 50% dilution of the equity currently held by MathStar shareholders.
The full text of Pihl’s letter is set out below. We tend to agree with Pihl’s assessment that the Sajan acquisition is a loser for MATH shareholders. On that basis, we’re out at yesterday’s close of $1.20. We initiated the position on December 17 last year at $0.68, which means we’re up 76.5% on an absolute basis. The S&P500 closed at 913.18 when we intiated the position, and closed yesterday at to close yesterday at 932.68, which means we’re up 74.3% on a relative basis.
We started following MATH in December last year (see our post archive here) because it was trading below its net cash value and had two substantial stockholders lobbying management to liquidate. MATH’s board had suspended the company’s operations and had been exploring “strategic alternatives, which could include merger, acquisition, increasing operations in another structure or liquidation.” Two activist investors, Mr. Zachary McAdoo of The Zanett Group and Mr. Salvatore Muoio of S. Muoio & Co., urged MATH’s board to consider liquidation rather than merger, but MATH’s management seem intent on a merger. The liquidation was presented to stockholders on Friday last week, and rejected. Tiberius Capital has a tender offer for MATH at $1.25 per share in cash expiring on July 20. We’ve elected to sell our stock on market rather than tender to Tiberius Capital because there’s no certainty that Tiberius Capital will be successful, and it’s time to get as far away from MATH’s management as humanly possible. While the position didn’t play out as we had hoped, we’re still satisfied with the result.
The company’s press release announcing the merger is set out below:
MathStar Announces Letter of Intent for Possible Merger;
Board Announces Special Committee
HILLSBORO, Ore., July 15, 2009 — MathStar, Inc. (MATH.PK) today announced that it has entered into a non-binding Letter of Intent with Sajan, Inc. regarding a potential merger. Sajan is a leading provider of language translation management solutions. Sajan’s language translation services use advanced process and quality management through their next generation SaaS technology. Sajan’s patent-pending data management and on-demand collaboration and workflow platform create a unique blend of technology and service, resulting in the most advanced and measurable solution available today. Among their clients are several Fortune 500 companies.
MathStar also announced that on July 14, 2009, the Board of Directors appointed a special committee consisting of MathStar’s independent directors, Richard C. Perkins and Benno G. Sand, to negotiate the completion of a definitive merger and ancillary agreements with Sajan. Craig-Hallum Capital Group, LLC is representing MathStar as its investment banker in connection with the proposed transaction.
The Mathstar Board, in conjunction with Craig-Hallum and several independent technology and financial consultants, has conducted extensive due diligence of Sajan; however, entry into definitive merger and ancillary agreements with Sajan is subject to the completion of due diligence, among other customary conditions. Final terms and conditions of the proposed transaction will be disclosed upon any signing of the definitive merger agreement.
Statements in this press release, other than historical information, may be “forward-looking” in nature within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to various risks, uncertainties and assumptions. These statements are based on management’s current expectations, estimates and projections about MathStar and include, but are not limited to, those set forth in the section of MathStar’s Annual Report on Form 10-K for the year ended December 31, 2008 filed with the Securities and Exchange Commission on March 31, 2009 under the heading “Item 1A. Risk Factors” and in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2009. Except as may be required by law, MathStar undertakes no obligation to update any forward-looking statements in order to reflect events or circumstances that may arise after the date of this release.
The CEO’s resignation letter is set out below:
July 14, 2009
In response to your decision today to pursue the Sajan acquisition I hereby tender my resignation as President, CEO and CFO of MathStar and also my position on the Board of Directors, effective immediately. I am disappointed by the actions you took regarding Sajan and by your rejection of the plan I have presented to restart MathStar based on Video Encoding technology.
Further, I do not believe the proposed Sajan acquisition is in the best interest of MathStar shareholders. I do not believe that Sajan, or the advisors hired to do the due diligence, have presented a business plan that warrants committing over $13 million of cash, nearly half of which will not remain in the combined company but will be distributed to the current Sajan shareholders. In addition the newly issued shares will result in nearly a 50% dilution of the equity currently held by MathStar shareholders.
Douglas M. Pihl
[Full Disclosure: We do not 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. Do your own research before investing in any security.]