Archive for December, 2008

We’re unabashed fans of Carl Icahn, who’s reputation for pushing up the stock prices of the companies he invests in has led to a phrase that describes his Midas touch: the “Icahn lift.” We’ve previously covered the billionaire investor’s antics in YHOO here. Our gift to you is 60 Minutes’ August profile on Icahn:

It takes a certain breed of stock market investor, the kind with lots of money and lots of guts, to thrive in queasy times like these, when the market keeps losing altitude. Carl Icahn is one of that breed.

He has a knack for turning someone else’s loss into profit for himself. But he can also help others improve their bottom line through the so-called “Icahn Lift,” an upward bounce that often happens when he starts buying a beleaguered stock.

To see the video, click here: (60 Minutes’ “The Icahn Lift”). Enjoy!

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Avigen, Inc. (NASDAQ:AVGN) has received an offer from MediciNova, Inc. (NASDAQ:MNOV), a biopharmaceutical company that is publicly traded on both the Nasdaq Global Market and the Hercules Market of the Osaka Securities Exchange (Code Number: 4875).

We’ve been following AVGN (see earlier posts here, here, here and here) because it’s a net cash stock (i.e. it’s trading at less than the value of its cash after deducting all liabilities) and it has a specialist biotechnology activist fund Biotechnology Value Fund (BVF) pushing it to liquidate and return its cash to shareholders. We esimate AVGN’s net cash value at $43.5M or $1.46 per share.

According to this filing, MNOV proposes to offer AVGN stockholders a pro rata portion of 1.75M shares of MNOV and a convertible security representing AVGN’s Net Cash Assets,” which MNOV defines as AVGN’s cash remaining after it is wound up less $7M paid to be paid to MNOV. The convertible security issued by MNOV would allow each AVGN stockholder at their election to either (i) convert each share of the convertible security into MNOV at a conversion price of $4.00 per share or (ii) have the convertible security redeemed for cash in an amount per share that represents the Net Cash Assets per share of AVGN. The redemption would occur on the later of March 31, 2010 or 12 months from the closing of the merger transaction. The letter from MNOV to AVGN is reproduced below:

Zola Horovitz, Ph.D.

Chairman of the Board

Avigen, Inc.

Dear Dr. Horovitz:

The purpose of this letter is to provide you with more details concerning the recent expression of interest MediciNova, Inc. (“MediciNova”) made to Avigen, Inc. (“Avigen”) with respect to a potential merger of the two companies in the letter to you dated December 9, 2008.

Our present thinking, based upon the information in publicly available documents and preliminary due diligence, is that we would offer as consideration a combination of registered MediciNova common stock and shares of a MediciNova convertible security for each share of Avigen common stock outstanding. In connection with the merger, Avigen would wind up all of its business activities, including satisfying all of its obligations by way of indebtedness, severance and related liabilities, while retaining all intellectual property assets for the combined companies.

MediciNova proposes that at closing each Avigen shareholder will receive a pro rata portion of 1.75 million shares of MediciNova common stock. In consideration for this, MediciNova will receive $7 million of Avigen cash.

The remaining amount of Avigen cash after Avigen’s wind-up activities are completed and less the $7 million in cash received by MediciNova (the “Net Cash Assets”) will be sequestered and, unless converted earlier as described in the next sentence, not used until the later of March 31, 2010 or 12 months from the closing of the merger transaction (the “Final Conversion Date”). The Net Cash Assets of Avigen will be attested by an independent auditor. The convertible security issued by MediciNova as consideration would allow each Avigen stockholder at their election to either (i) convert each share of such convertible security into shares of MediciNova common stock at a conversion price of $4.00 per share at certain pre-specified accelerated conversion dates or the Final Conversion Date or (ii) have the convertible security redeemed by MediciNova on the Final Conversion Date for cash in an amount per share which represents the Net Cash Assets per share of Avigen.

Based on this proposal, we note that the proposed transaction values each Avigen share at a substantial premium to both your recent stock price and the closing average market price of Avigen’s common stock since your October 21, 2008 announcement. Additionally, the convertible security allows each Avigen stockholder the choice of receiving cash in an amount not presently available to them, other than in a liquidation scenario, or participating in what we believe will be growth in value of the combined entity.

We continue to believe that a merger between MediciNova and Avigen would be in the best interests of the stockholders of both companies for many reasons, including the likely incremental increase in value of the Companies’ combined product candidates. We note that it also addresses the recent pressures Avigen has faced from its stockholder base.

Our proposal remains subject to the completion of customary due diligence, as well as the negotiation of definitive transaction agreements and the satisfaction of necessary approvals and customary conditions to closing of a transaction to be set forth in such agreements. While this letter, and our prior letter to you dated December 9, 2008, are not intended as a binding offer, we continue to stand ready to meet with you and your advisors immediately to discuss this matter.

Please be advised that, because of the past relationships among various of our respective directors, MediciNova has constituted a Special Committee of Directors to represent MediciNova with respect to the proposed business combination. That Special Committee consists of myself as Chair, along with Alan Dunton, Arlene Morris and Hideki Nagao from the MediciNova Board. Our Committee continues to believe this proposal represents a unique opportunity for Avigen’s stockholders and we look forward to a prompt and favorable reply.

Very truly yours,

Jeff Himawan, Ph.D.

Chairman of the Board of Directors

MNOV’s offer represents a clever way for AVGN’s stockholders to receive cash in an amount almost equivalent to what they would receive in a liquidation scenario less $7M paid to MNOV. This equates to approximately $1.22 per share in cash. AVGN’s shareholders also have the option to receive MNOV shares valued at $4.00 (MNOV closed yesterday at $1.60) instead of the cash. AVGN shareholders would also receive 1.75M shares of MNOV divided between 30M AVGN shares on issue.

The offer seems broadly positive to us. Our few quibbles are as follows:

  1. the $7M payment to MNOV seems excessive
  2. the MNOV conversion price of $4.00 is too high
  3. the redemption date – on the later of March 31, 2010 or 12 months from the closing of the merger transaction – is too far away.

If these could be negotiated to a more favorable position for AVGN, the MNOV offer should be welcomed by AVGN’s stockholders.

Hat tip to commenter KC.

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We posted yesterday that Avigen, Inc. (NASDAQ:AVGN) had announced the sale of its rights to an early-stage blood coagulation compound for $7M. We weren’t sure that the sale was for cash. According to this filing, the sale was for cash:

On December 17, 2008, Avigen, Inc. entered into an Asset Purchase Agreement with Baxter Healthcare Corporation, Baxter International Inc., and Baxter Healthcare S.A. (collectively “Baxter”), providing for the sale of the rights to Avigen’s early stage blood coagulation compound, AV513, to Baxter.

Avigen received a cash payment of $7.0 million from Baxter as proceeds from the sale of AV513. At September 30, 2008, Avigen reported cash, cash-equivalents, and available for sale securities and restricted investments of $56.4 million and an accumulated deficit of $244.9 million. Avigen reported no revenue for the first nine-months of 2008 and a net loss of $24.2 million. The Company is in the process of evaluating the terms of the transaction, but believe that if the transaction had been completed at the beginning of the 2008 fiscal year, the cash received would have been recorded as revenue and would have increased the amount of financial assets and decreased each of the net loss and the accumulated deficit reported at September 30, 2008 by $7.0 million. Avigen is unable to estimate the amount of any expenses that would have been avoided, if any, if the sale of AV513 had been completed at the beginning of the 2008 fiscal year. Other than these items, the transaction would not have had any other impact on Avigen’s financial statements.

We’ve been following AVGN (see earlier posts here, here and here) because it’s a net cash stock (i.e. it’s trading at less than the value of its cash after deducting all liabilities) and it has a specialist biotechnology activist fund Biotechnology Value Fund (BVF) pushing it to liquidate and return its cash to shareholders. In our initial post,we noted that AVGN’s net cash position was $36.5M. Adding the $7M or $0.24 per share to AVGN’s cash position gives it a net cash value we estimate at $43.5M or $1.46 per share against a close yesterday of $0.73.

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Happy holidays

We would like to wish all our readers (both of them) the season’s greetings. We’ll be taking a break from regular posting until January 5, 2009. We will be keeping an eye on the market and we’ll update anything that might affect the positions we have open. Here’s hoping 2009 is a prosperous new year.

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A number of commenters have identified in the notes to ValueVision Media Inc. (NASDAQ:VVTV)‘s latest 10Q that VVTV has substantial cash obligations under the cable and satellite agreements and operating leases falling due over the five fiscal years from 2009 to 2012 and not reflect in VVTV’s balance sheet. The worst case scenario is that these obligations represent an additional $185M liability. If this is the case, then our previous estimate for VVTV’s $55.7M in liquidating value is obviously wrong and VVTV may have no value in liquidation.

The value proposition

We’ve previously posted about VVTV here and here, writing that it 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 apparently valuable assets and noted activist investor J. Carlo Cannell of Cannell Capital holding an activist position in it. The company also seemed to us to be taking steps to realize its value, publicly announcing that it had appointed a special committee of independent directors to conduct an auction to be completed by February 2, 2009. We estimated VVTV’s liquidating value at $55.7M or $1.66 per share. We may have to alter this estimate now to account for the “contractual cash obligations and commitments with respect to [VVTV]’s cable and satellite agreements and operating leases.”

The offending statement is to be found under the Financial Condition, Liquidity and Capital Resources – Cash Requirements section and reads as follows:

In addition to the potential preferred stock redemption cash commitment mentioned above, we have additional long-term contractual cash obligations and commitments with respect to its cable and satellite agreements and operating leases totaling approximately $185 million over the next five fiscal years with average annual cash commitments of approximately $44 million from fiscal 2009 through fiscal 2012.

We don’t know the terms of the cable and satellite agreements and operating leases and so it is impossible to determine whether the “contractual cash obligations” are absolute or contingent on VVTV continuing to use the services contracted. The worst case scenario is that the obligations are absolute, and therefore represent an additional $185M liability not carried in VVTV’s financial statements. If this is the case, then VVTV may have no value in liquidation.


This is a particularly unfortunate situation because we don’t know how to deal with the “contractual cash obligations.”  If any commenters have a suggestion, we’d be keen to hear it. We note that Williamss commented as follows:

Operating leases are notorious for making the balance sheet appear much better than it actually is. If you add these back to the balance sheet, and combine it with the 44.6 million coming due as part of the GE capital redemption for the preferred shares, then I worry that this company seems to be rapidly headed towards illiquidity, if not insolvency.

When we run into an issue with a financial statement, we generally return to first principles. Graham writes in Security Analysis

A company’s balance sheet does not convey exact information as to its value in liquidation, but it does supply clues or hints which may prove useful.  The first rule in calculating liquidating value is that the liabilities are real but the assets are of questionable value.  This means that all true liabilities shown on the books must be deducted at their face amount.

We have to take the most conservative position, which is that the liability is real and a “true liability” and must therefore be deducted at its face amount. On that basis, VVTV has no value in liquidation and we’re out.

As we’ve discussed in our About Greenbackd and About liquidation value investing pages, we apply Graham’s liquidating value methodology because it’s conservative, it doesn’t require a great deal of sophistication – it’s a simple formula – and it doesn’t require the heroic leaps in reasoning required to forecast future earnings. We believe that this type of analysis will yield reasonable results given a sufficiently large sample size and sufficiently long period of time, even allowing for our mistakes. We’ve committed a real howler with VVTV.

VVTV closed yesterday at $0.33. We liked it at $0.44, so we’re down 25% on an absolute basis.

The S&P 500 closed yesterday at 871.63 and closed at 888.67 (-1.92%) when we liked VVTV first, so we’re down 23.08% on a relative basis.

Hat tips to commenters Williamss and Jim.

[Disclosure: We do 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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Avigen, Inc. (NASDAQ:AVGN) announced on Thursday that it had sold its rights to an early-stage blood coagulation compound for $7M. We have not been able to confirm that the sale was for cash. Assuming that it was, we estimate that it adds $0.24 per share to AVGN’s cash position and takes its net cash value to $1.46 per share, some 122% higher than its close Friday at $0.658.

We’ve been following AVGN (see earlier posts here and here) because it’s a net cash stock (i.e. it’s trading at less than the value of its cash after deducting all liabilities) and it has a specialist biotechnology activist fund Biotechnology Value Fund (BVF) pushing it to liquidate and return its cash to shareholders. In our initial post,we noted that AVGN’s net cash position was $36.5M. Assuming that the $7M sale was for cash, adding it to AVGN’s cash position gives it a net cash value we estimate at $43.5M or $1.46 per share, 122% higher than its Friday close.

If BVF is able to cause the company to quickly distribute its remaining cash to stockholders, AVGN is an attractive investment opportunity. The risk is that BVF is unable to persuade the company to do so before AVGN dissipates its remaining cash.

AVGN closed Friday at $0.658.

The S&P 500 Index closed Friday at 887.88.

[Disclosure: We do not presently have a holding in AVGN. 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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According to the Portland Business Journal, a group of “high-powered executives” plan to save InFocus Corporation (NASDAQ:INFS) from “New York sharks” who want to liquidate the company for a quick profit. The group, which includes Steve Hix, INFS’s co-founder, wants to buy the company if they can get financing. The group says its strategy, which entails expanding beyond projectors, could save the company. Said one of the group:

We’ve got some whispers that there’s a guy in New York looking at buying 50 percent of this company, and he’ll liquidate it. We are scared. We don’t want that to happen to this company. We’ve been working for nine months on a way to save it.

We’ve been following INFS recently (see earlier posts here, 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.” We see a second bidding group as a positive catalyst.

Hat tip to commenter Steven.

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Tandy Brands Accessories Inc (NASDAQ:TBAC) presents an interesting conundrum: an undervalued asset situation with a current asset value that has deteriorated significantly over the last year and an activist investor with little track record pushing for change. TBAC last traded at $1.88, giving it a market capitalization of just $13.3M. Our estimate for its liquidating value is some two-thirds higher at $3.16 per share or $22.3M in toto. We note that its liquidating value has deteriorated by more than half over the course of the year from a high of $8.38 per share in the same quarter last year to its present $3.16 per share value. TBAC needs urgent, heroic, life-saving surgery, but we don’t think the current board are the ones to crack open TBAC’s chest and massage its heart. Seeking to fill the role of ER doctor is neophyte activist shop NSL Capital Management, which its website says is run by “N. Southwick Levis, Chief Equity Strategist,” who has “well over 7 years of professional investment, transactional M&A, and finance experience.” We don’t want to damn Nick Levis as TBAC’s undertaker, but we don’t see him in the role of its dashing young doctor either.

About TBAC

TBAC is a designer and marketer of branded men’s, women’s and children’s accessories, including belts, small leather goods, and gift accessories. Its product line includes handbags and sporting goods. Its merchandise is marketed under a portfolio of brand names, including Dockers, Levi’s, Levi Strauss Signature, Totes, Rolfs, Woolrich, Canterbury, Prince Gardner, Princess Gardner, Amity, Coletta, Stagg, Accessory Design Group, Tiger, Eton, Surplus, Eileen West, Goodyear, Geno D’lucca, Dr. Martens, and Dr. Martens Airwair, as well as private brands for major retail customers. Its investor relations website is available here.

The value proposition

According to its most recent 10Q, TBAC’s earnings and operating cash flow performance has been chequered, but mostly negative. In the last quarter the company made a loss of only $1.3M but managed to burn through $14.3M in cash as working capital blew out. The working capital hole was filled by $15M in new debt. At present, there is some vestige of value on the 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):


TBAC’s value is carried in its inventory, to the tune of $48.5M or $6.88 per share. We value that inventory on a liquidating basis at two-thirds of its carrying value, which is $32.5M or $4.61 per share. The other source of value on TBAC’s balance sheet is its receivables, carried at $26.4M or $3.75 per share and written down by a fifth to $21.1M or $3.00 per share. Our concerns with TBAC are its $15.4M in debt, which appears due this year and which we cannot see being met by cash flow. TBAC has other substantial liabilities, which, including the debt, come to $38.7M or $5.49 per share. Subtracting TBAC’s liabilities from its written down assets, we estimate TBAC’s liquidating value at around $22.3M or $3.16 per share. We note that the same valuation undertaken in the same quarter 12 months ago would have yielded a liquidating value of around $8.38 per share, which means that TBAC has managed to tear up more than half its value in a year.

The Catalyst

NSL Capital Management and the Quark Fund filed an initial 13D on February 1, 2007 disclosing a 5.76% holding in TBAC. The latest 13D filing dated December 2, 2008 disclosed a “<5%” holding for the purpose of “nominating Nick Levis and Evan Kagan to the board of directors of Tandy Brands Accessories.” Mr. Levis took a run at TBAC’s board in October this year but was unsuccessful in his bid to unseat two directors. Mr. Levis’ letters to TBAC’s stockholders in the proxy fight are reproduced below. His first letter to TBAC filed October 14, 2008 is a classic (it’s not often you see the advantages of the unlicensed-firearm-DUI slate over the shareholder-value-destruction slate) and is reproduced below:

Dear Tandy Brands Shareholder;

Tandy Brands Management recently brought up the matter of a big mistake I made in 2004, for which I have paid the price. Although I regret not licensing my firearm, I am not embarrassed by my firm belief in the Second Amendment to the U.S. Constitution or in the Due Process of Law provided all American citizens.

I received a misdemeanor involving my firearm in the case the company has mentioned. It is my assertion that Tandy is guilty of sins far worse than DUI or similar misdemeanors. When a case is set aside in Arizona, it means that the judgment of guilt is dismissed – I am therefore not guilty of the charges the company has mentioned.

Can the company say the same thing about the charge of DESTROYING TBAC’S SHAREHOLDER VALUE – in my opinion the WORST SIN our trusted management team and board of directors at Tandy Brands could commit? The company argues that given this “recent” indiscretion in my personal life, I am unqualified to represent the beleaguered shareholders of Tandy Brands Accessories.

I have never been accused of mismanaging a public company and would never receive a large pay-out for poor performance. Management has also pointed to my experience… I can tell you this; my experience does not include rapidly destroying the value of a publicly traded corporation while receiving a large salary.

It is my argument that a CEO who loses fifty percent of a company’s market value in three quarters and a board of directors who fail to control the risks involved with running a public company should not be rewarded with excessive (or any) compensation – I think their errors in judgment are very relevant to this proxy contest. Tandy Brands Accessories shareholders have lost almost everything with Britt Jenkins in my opinion. Why should we continue to suffer so that insiders enjoy the trappings of high society life on our dime?

Could it be that the directors and the ex-CEO do not want you, the shareholders, to focus on their own recent indiscretions? What about the millions of dollars they collectively receive from shareholders yearly as the company’s value decreases? The data is in plain view for all to see in the company’s sec filings. The CEO alone has received around $1 million on average for the past ten or more years as we shareholders have lost almost everything (the stock has dropped from $13 per share to under $4 per share in the last year and a half). Britt’s son, Clay Jenkins, receives $150,000 yearly. Jane Batts received $250,000 this year but where is the justification for this hefty pay in the financial statements? Where is the return on investment for the TBAC shareholders? Where is the accountability that most major corporations have to their shareholders?

David Lawhon and his son collectively receive around $300,000 yearly. Craig Mackey, the only person in upper management receiving a fair paycheck in my opinion, makes $250,000. The Board of Directors is costing around $800,000 plus in fees and expenses yearly. If we add my estimate of the company’s convention and travel budget of $2 million plus, and the $500,000 spent yearly to rent a show room in the Empire State Building (I have heard that only 3-5 people work in the NY showroom), and the $500,000 in rent expense for offices in Dallas, we are at $6,000,000 in yearly overhead that needs to be reduced to $1,000,000 or less immediately in my opinion. I’d say that The CEO and the Board of Directors are desperate to distract your attention from the fact that they have lost $50MM in the last 3 quarters while raking in millions for themselves.

More performance accountability to shareholders is needed. My figures might be approximate, but as I see it, shareholders are paying nearly $6-8 million dollars yearly in overhead to an exclusive small group of people who want to keep it that way. Hiring a new CEO has allowed the gravy train to continue in my opinion. Although highly qualified, we feel the new CEO is not going to have the power to cut SG&A enough to make Tandy as profitable as it could be without changes to the board. Tandy leadership in my opinion wants you, the shareholder, kept in the dark while this small cadre receives 20% of the value of the company EACH YEAR as we the shareholders receive negative ROI on our investments.

NSL Capital owns 5.29% of Tandy Brands Accessories. Mr. Jenkins owns 5% but gets paid $1,000,000 yearly. Let us all keep in mind, that much of his stock was handed to him in the form of grants and awards, and not by way of making purchases with cold hard cash as we, the shareholders of Tandy Brands Accessories, have done. It’s time for shareholders to do a better job of minding the store in our opinion.

If elected to the Board I will:

1. Not accept any form of compensation from the Company other than the appreciation of my 5% ownership interest in the TBAC common stock and a 25,000 fee for expenses related to meetings.

2. Align the interests of all Company insiders with those of the outside shareholders.

3. Drastically reduce SG&A expenses including the 6-8 million provided to a select few who own little stock.

4. Set up a system of awards that focus on the creation of tangible shareholder equity per share.

5. Use a metric pay scale based for all company executives based on the percentage gain or loss in tangible equity per share per year.

6. Reward top performers and regain the trust of the Company’s best employees.

7. Focus on the bottom line, growing liquidation value (not shrinking it as Britt Jenkins has done.) by focusing on the company’s profitable niche businesses and private label markets while bringing costs in line to sales volumes and gross margins.

8. We believe that their attempt to find a new CEO will not lower the $6,000,000 yearly discussed earlier and is likely not going to change the present control structure of the company. We cannot place the same people responsible for the overnight disintegration of the company in charge of the cleanup.

9. Act at all times in the best interest of all stockholders – End the Agency Conflict at Tandy Brands.

10. Allocate Capital with conservative return expectations and lower the company’s risk of loss.

11. Maintain and grow the balance sheet by making wise long term investments.

12. Focus on the bottom line, putting TBAC shareholders first.

I have a solid long-term plan for this company which involves allocating capital in a more conservative, shareholder friendly manner and monitoring costs like a hawk. It is my belief that the company plans on spending more of your hard earned money on themselves, regardless of your performance as a stockholder.

They say:

“Don’t let Nick Levis derail the company’s plan”

My response is that:

“It is NSL Capital’s belief that the company’s plan is to continue to enrich entrenched management and the well paid board of directors at the expense of the shareholder – the time for change is now!”

Please vote and return the Gold Proxy Card sent to you by NSL Capital Management, LLC and throw away the white card sent to you by management. Let’s save what we have left of our investments in TBAC and grow it into the future by voting for thriftiness and shareholder value. NSL Capital and Quark Fund own 370,610 shares of TBAC common stock representing approximately 5% of the company’s outstanding shares.


Nicholas Southwick Levis
NSL Capital Management, LLC

Mr. Levis followed that October 14 letter with another on October 17, reproduced below:

We believe that Britt Jenkins has Earned Millions from Shareholders While Running Tandy Brands Into the Ground: We feel the Board of Directors at Tandy Brands are receiving excessive fees each year (around $100,000 per board member) and are not independent. Furthermore, we believe that TBAC Management and the Board of Directors desperately want to continue enriching themselves at your, the shareholders and true owners of Tandy Brands Accessories, expense.

TBAC: Turnaround Story… or 25% Yearly Front Loaded Closed End Mutual Fund?: It is my opinion that Britt Jenkins and the top brass of Tandy do not want you to know that $6,000,000 of your money is spent EACH YEAR on salaries to the board and Mr. Jenkins ($2,000,000), for expenses related to the fancy Empire State Building showroom in NYC and the plush Dallas offices ($1,000,000), for travel and conventions ($2,000,000), and for upper management pay or perks ($1,000,000). To me, and to other concerned shareholders, $6MM in executive expenses each year on a stock valued at $24MM is like paying a 25% sales charge or “Load” to a money manager each year. In the mutual fund or hedge fund industry, this type of pay for underperformance (or abhorrent performance) fee structure would truly never stand…. At Tandy Brands, this pay scheme is “good governance.” Please Vote the Gold Proxy Card.

NSL Capital’s slate offers hope for the company that what we see as corporate waste, greed, and inflated pay packages will no longer rule the boardroom at Tandy Brands Accessories and no one will ever charge this 25% yearly “load” from the shareholder ever again. I do not hold fault to CEO’s of companies that perform. Good CEO’s are the backbone of American Business. The fact that Britt Jenkins destroyed $49MM in shareholder value last year while charging shareholders over $1,000,000 in compensation, however, is not acceptable to me. Making matters worse for us shareholders, Mr. Jenkins and the Board continue to rent an entire floor in the Empire State Building and lease lavish offices in Dallas that have almost no use whatsoever in my opinion to the operations of Tandy Brands other than its service as what we view as a management perk – why can’t we office out of a small rental space like most $24MM companies? Berkshire Hathaway has less lavish offices that Tandy in my opinion.

Let’s talk about those director fees… Can someone please explain to me why we should pay $800,000 a year to a Board of Directors who we feel just lost nearly half the value of this company and who own almost no stock? We feel this company is run for the enrichment of stakeholders alone with no regard at all to stockholder value. We have asked the board of directors to drop their yearly fees to $25,000 each which is all we will accept from the company if you vote the Gold Proxy Card. We feel the company over the years has performed just well enough to stay below the radar – management remains unaccountable for their actions and mistakes that cost us shareholders real money.

Please vote the Gold Proxy Card for the NSL nominees and vote for paying TBAC executives for performance. Vote for accountability. While the opposition complains about the “distraction” of this proxy fight and my lack experience, they are making thousands of dollars each day as we lose more and more money on our investment in the company. I can get the job done. Let’s stop the spending spiral right now.

With Warm Regards,

Nick Levis

His final letter to stockholders was filed October 21 and is reproduced below:

Dear Fellow Shareholders,

We feel that Tandy Brands needs to take action to turn around the business to save employee jobs, eliminate wasteful spending, and create lasting value for shareholders. We are very happy with Rod Mcgeachy’s qualifications and background, however, we feel he would have a better chance to save the company if Tandy lowered board fees and rental expense as well as other overhead that is unrelated to headcount. Frugality is the cornerstone to any turnaround story.

In my last two letters to shareholders focusing on my plan to implement needed cost cuts the first step is lowered board pay and lowered lease expenses. I am sure these suggestions have made me unpopular in the short run at the company, but given the present perilous times we face, drastic action is necessary for survival.

I believe I have the experience to aid in this turnaround having sold several companies as a merger advisor, having placed needed capital with cash starved companies, and having years of experience investing and in financial markets.

Survival depends upon a program of forceful expense reductions. I believe it is time for a turnaround. Who is going to save this company — the same board of director members who are hunkered down and who have lost significant shareholder capital? I believe we need a fresh start and an immediate turnaround and restructuring of the company. I have spent around $25,000 and will ask only for this amount as reimbursement for out of my pocket expenses related to this proxy contest. Compare that with the $175,000 Bill Summitt received after settling with the board last year or the $100,000 each board member receives every year and you will realize what a bargain my slate truly is. I am not saying the board is filled with bad people, just that the business is in a turnaround and we need leadership who recognizes that these are the most difficult times the company has faced and everyone must make sacrifices. We feel the new CEO will not have the power to lower expenses enough to make the company profitable, because the Board of Directors is comprised of the same individuals who failed to prevent the problems that began in 2005. I would argue that the Board has failed to provide the guidance that we, the shareholders and true owners of the company, expect from an independent Board. If I am elected I will work to reduce overhead by urging the new CEO and Board to reduce overhead by at least five million dollars per year by working to implement lower convention, travel, lease, legal, and compensation expenses. This step will provide immediate aid to the company’s turn around.

I am not in this for personal gain from fees or from “gaining control” of the company. My slate will represent a minority on the Board and I will not be able to make decisions without majority vote. Furthermore, I feel my 5% ownership in the company’s common stock uniquely positions me to represent the interests of outside shareholders. I am not a corporate raider and do not intend to sell or liquidate the business. If you elect me to your Board of Directors, I want to retain and grow jobs at the company, but turnarounds start by recognizing that there is a problem first. We should consider retaining a turnaround firm to immediately work on taking Tandy off the fast track to bankruptcy and onto the long road to recovery. Surely, reigning in spending will be my top priority along with regrouping and rebuilding the business. I think in this environment it will take hard work from every single member of the business to make a full and complete turnaround a viable possibility. Please Vote the GOLD PROXY CARD.

With Warm Regards,

Nick Levis

TBAC’s management, in its proxy materials, attacked Mr. Levis on the basis of his inexperience. The relevant slide from the presentation is produced below:

tbac-proxy-materialWe don’t know a great deal about Mr. Levis, NSL Capital Management or the Quark Fund. The earliest filing we can find for them is February 11, 2008, which is, coincidentally, the initial 13D for TBAC. His TBAC proxy material described him as follows:

Nicholas Levis , 29, is a C.E.O. of NSL Capital, a deep value hedge fund. Mr. Levis served as Acquisition Director for Journey International, a middle market M&A advisory firm headquartered in Scottsdale, Arizona prior to founding NSL Capital. Journey was run by Steve Gootter (www.Stevenmgootterfoundation.org ). At Journey, Mr. Levis worked on a three person team that secured merger advisory engagements totaling over $250MM in revenues. Mr. Levis served as Account Executive Assistant with Inc. 500’s Alliance Capital Corporation, prior to working with Journey securing financing for the purchases of industrial machinery and equipment. Mr. Levis has held positions with Merrill Lynch’s Institutional Advisory Division and with Merrill’s Private Client Group. In the summer of 2000, Mr. Levis worked under a top investment manager with Solomon Smith Barney. Mr. Levis holds a Bachelor of Science degree in Finance from the W.P. Carey School of Business.

NSL Capital Management’s website sports in Mr. Levis’ biography his “summer analyst positions with Merrill Lynch’s Institutional Advisory Division in Dallas Texas and with Merrill’s Private Client Group in Santa Barbara, CA.” It describes Mr. Levis’ “probalistic” (sic) approach to the markets” in this way:

NSL Capital Management, LLC is run by value investor Nicholas Southwick Levis and takes a probalistic approach to the markets, which we believe are Complex Adaptive Systems. There is no certainty in life or in the markets, just chance events and random probabilities. These probabilities are what we at NSL Capital Management, LLC constantly study and apply to the financial markets.

The website invites those seeking more information to contact Mr. Levis at a hotmail account (you can find us throwing stones from a glass house at greenbackd@gmail.com). On the positive side, the NSL Capital Management website says that “Nobel Laureate Physicist Dr. Murray Gell-Mann serves as Senior Advisor to the hedge fund.” A “Nobel Laureate Physicist” is a credit to NSL Capital Management. We’ve only got a few Fields Medalists and Nobel Prizes in Literature toiling away in the Greenbackd sulphur mines. (We’re kidding about those awards. We did get a gold star from Ms. Thomas in 3rd grade for a pretty amazing crayon drawing of what we’d be doing when we grew up – it wasn’t writing a blog.) To be fair to Mr. Levis, none of the foregoing necessarily prevents him from shaking up TBAC and wresting what value there is to be had from the company for the stockholders. While he has no track record as NSL Capital Management, he makes some excellent points in his letters to shareholders. In our opinion, he’s clearly identified in the letters why TBAC’s value is deteriorating and why it’s so deeply undervalued. Unfortunately, we think he’s also identified why it’s destined to remain that way.


The stars are not aligned in this situation. TBAC is undervalued at present, but it has a deteriorating value. Normally we would ignore any apparent “trend” in the liquidation value on the basis that it would regress to its long-term mean, or stabilize. In this case we have to consider the real possibility that TBAC will have no value in liquidation in short order if it continues on its current path. TBAC needs urgent, heroic, life-saving surgery, and we don’t think the current board are the ones to crack open TBAC’s chest and massage its heart. We don’t want to damn Nick Levis as TBAC’s undertaker, but we don’t see him in the role of its dashing young doctor either. Given his penchant for guns, the whole situation is beginning to feel a little “vaudeville” for our tastes. It’s as if we sat down to watch some MSNBC and found a Three Stooges film playing instead. Only the diehard fans will be laughing if Mr. Levis gets on the board but we can still admire his ability to inflict pain, if only to himself. As much as we’d like to see Mr. Levis hold TBAC’s nose between his knuckles and belt it, we think this one is better seen from the comfort of the couch. We’re not buying, but if you don’t mind a poke in the eye, go right ahead.

TBAC closed yesterday at $1.88.

The S&P500 Index closed yesterday at 885.28.

[Disclosure:  We don’t have a holding in TBAC. 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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Borders Group, Inc. (NYSE:BGP) has released its 10Q for the third quarter. We’ve previously posted about BGP here. When we first looked at it, we said that it presented a rare opportunity to invest in a stock with a well-known brand alongside one of the best activist investors in the US, William A. Ackman of Pershing Square Capital Management, L.P. At that time, BGP’s market capitalization was $39.4M (at the previous day’s close of $0.65) and we estimated that its liquidation value was some 250% higher at $135M or $2.23 per share. Well, we’ve now had an opportunity to review the 10Q for the third quarter and the results aren’t pretty. In fact, we now believe that there is a risk that the assets may have no value in a liquidation and we’re out.

The updated value proposition

BGP has made a $175M loss for the quarter, operating cash flow was negative in the amount of $51M and the company has taken on $55M in new debt. By way of contrast, in the last quarter to August, while the company made a loss of $9M, operating cash flow was positive in the amount of $77M and the company retired $129M in debt. Our summary analysis of the balance she

et is set out below (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):

bgp-q3-summaryBGP’s value remains concentrated in its inventory and property, plant and equipment, both of which are up slightly on the last quarter. Compared to $18.01 per share in Q2, inventory is now $20.75 per share, which we’ve written down by two-thirds to $13.91 per share (written down value of $12.07 in Q2). Property, plant and equipment is now carried at $27.18 per share compared to $27.04 per share in Q2. We have written it down the by half to $13.59 per share (slightly higher than the written down value of $13.52 per share in Q2). While its assets have increased slightly, the real problem for BGP is the growth in its substantial liabilities. Total liabilities now stand at $29.83 per share, up from $25.92 per share, the debt portion of which is up from $7.69 per share to $8.68 per share.

Our previous estimate for the liquidating value of BGP was around $2.23 per share. We now estimate that its liquidating value is -$9.6M or $-0.16 per share. This is on the basis of a very conservative treatment of its tangible assets and does not take into account BGP’s intangibles, like consumer brand recognition, which must have some residual value. We also note that BGP has a seasonal business, and this most recent quarter sees BGP in a much better position than the same quarter last year, at which time we estimate that its liquidating value was closer to -$4.87 per share. We think there’s a good chance that BGP will have some substantial asset value next year, and that it’s worth more than its liquidation value, but on our very conservative treatment of its assets, it has a negative liquidating value at this point in time.

As a brief diversion, set out below is a summary financial analysis of BGP without any discount applied to the assets (both the “Carrying” and “Liquidating” columns shows the assets as they are carried in the financial statements):

bgp-q3-summary-carrying-valueIn this analysis, with no discount applied to the carrying value of the assets, BGP appears wildly undervalued. We prefer our much more conservative estimate of liquidating value for two reasons:

  1. We think the discounted values are more likely to be right; and
  2. If we’re wrong in our estimate, we hope that we’ve applied a sufficient discount that we’re wrong on the upside, and not the down side. Valuing assets in liquidation is not an exact science. Prior to the actual sale, we don’t know with any certainty how much any given asset might yield. If we were to value assets at close to their carrying values, we think that more often than not we’d be disappointed.

You can read more about our undervalued asset situations philosophy on our About Greenbackd page and our rationale and method for calculating values on our About liquidation value investing page.


Our overly optimistic conclusion when we first wrote about BGP deserves repeating here (if only to stop us doing it again). We said, “It’s not often that the stars align like this: a stock with a well-known brand selling at less than a third of its value in a liquidation with one of the best activist investors in the US controlling almost a third of its outstanding stock. BGP has already embarked on its value enhancing transformation. We believe that, given time, BGP will be worth more than its liquidation value, but, if we’re wrong, it’s still trading at a third of that value, which is a bargain.” We even bolded that last part, which, in retrospect, we regret. While we still agree that BGP has a well-known brand, Will Ackman is one of the best activist investors in the US, and BGP will be worth much more than its liquidation value, it’s no longer trading at a third of its liquidation value, so the downside protection is gone. Our focus here is undervalued asset situations, and BGP is not an undervalued asset situation at this time. So that mean we’re out for now. We are, however, going to keep an eye on it for its next few quarters to see if the value returns.

BGP closed yesterday at $0.58. We liked it at $0.65, so we’re down 9.83% on an absolute basis.

The S&P 500 closed yesterday at 904.42 and closed at 816.21 (+10.81%) when we liked BGP, so we’re down 20.64% on a relative basis.

[Disclosure: We have a holding in BGP but we plan to exit it soon. We may acquire it again in the future. 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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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):


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.


Salvatore Muoio, C.F.A.
Managing Member


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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