ARC Wireless Solutions (NASDAQ:ARCW) is a net cash stock with an activist investor, Brean Murray Carret, disclosing a 13.9% position on November 3 last year. ARCW closed yesterday at $2.86, giving it a market capitalization of just $8.8M. We estimate its liquidation value to be 57% higher at $13.9M. Brean Murray Carret’s original 13D filing disclosed its intention to tip out ARCW’s board and “nominate an alternative slate of directors for election to [ARCW’s]’s Board of Directors at the earliest possible opportunity.” Its subsequent 13D filing indicated that this occurred quickly, and Brean Murray Carret’s nominees were elected by the board of ARCW on November 12, 2008. This bodes well for the company chances of taking a new, shareholder-friendly direction.
About ARCW
ARCW is a provider of wireless network components. The company designs and manufactures antennas and related wireless communication systems, including cellular base station, mobile, cellular, conformal and flat panel antennas. ARCW also designs and distributes cable in the United States through original equipment manufacturers, retailers and the Internet. The company’s investor relations website is here.
The value proposition
ARCW’s most recent 10Q shows a loss-making, generally cash-consuming company. The company’s balance sheet has, however, retained some value (the “Book Value” column shows the assets as they are carried in the financial statements, and the “Liquidating Value” column shows our estimate of the value of the assets in a liquidation):
The value on ARCW’s balance sheet is as a result of its sale in 2006 of its wholly owned subsidiary Winncom for $17M. The company has since burned through some of that cash, but it does still have a net cash value of $12.5M or $4.04 per share. We estimate its liquidation value to be slightly higher at $13.9M or $4.49 per share.
The catalyst
Brean Murray Carret filed its original 13D notice in November last year, disclosing a 13.9% position in ARCW and calling for the removal of the board:
[Brean Murray Carret] intend to nominate an alternative slate of directors for election to [ARCW]’s Board of Directors at the earliest possible opportunity.
Brean Murray Carret amended its 13D filing later in November, by which time it had secured the board:
The annual meeting of shareholders of [ARCW], which was scheduled to occur on November 5, 2008, was adjourned until November 19, 2008. On November 17, 2008, [ARCW] announced that on November 19, 2008, the annual meeting of shareholders will be adjourned until a later date for which [ARCW]’s shareholders will be sent a written notice along with updated proxy materials for the meeting.
Effective November 12, 2008, Sigmund A. Balaban, Donald A. Huebner, Randall P. Marx and Robert E. Wade have resigned as members of [ARCW]’s Board of Directors. Messrs. Balaban, Huebner and Wade also resigned as members of the Board’s Audit Committee and Compensation Committee and Mr. Marx resigned as Chairman of the Board. In connection with their previously disclosed intention, [Brean Murray Carret]’s proposed Viktor Nemeth and Marco Vega to fill the vacancies thereby created on [ARCW]’s Board of Directors. [Brean Murray Carret]’s nominees were elected by the Board of Directors on November 12, 2008. [Brean Murray Carret] expect that their nominees, and Jason Young, a current director, will be nominated for election to [ARCW]’s Board of Directors at the annual shareholders meeting as adjourned.
Effective November 12, 2008, Jason Young was appointed to serve as Chairman of the Board. Effective November 18, 2008, Randall P. Marx resigned as Chief Executive Officer and Secretary of [ARCW] and Jason Young was elected to serve as interim Chief Executive Officer.
Conclusion
ARCW is undervalued at $2.86 with a net cash value of $12.5M or $4.04 per share and a liquidation value of $13.9M or $4.49 per share. Whether it continues to be so will depend on the steps taken by the Brean Murray Carret. The value that remains on the balance sheet derives from the sale in 2006 of ARCW’s wholly owned subsidiary, Winncom, for $17M. Given ARCW’s marginal business prospects, with any luck Brean Murray Carret plans to pay out the cash received from the sale of Winncomm and then do what it can with the business.
ARCW closed yesterday at $2.86.
The S&P500 Index closed yesterday at 845.71.
[Full Disclosure: We do not have a holding in ARCW. 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.]
Greenbackd 
[…] missed this in our initial analysis, but fortunately commenter Chad was awake. One disappointing development in ARCW since Brean Murray Carret got control of the board has been […]
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Thanks for this.
I just noticed that ARCW filed a new 8-K yesterday that disclosed an agreement with Quadrant Management. The agreement is that “ARC will pay the following: 1) an initial cash fee of $250,000 upon signing the Agreement; 2) an annual fee of the greater of (i) $250,000, or (ii) 20% of any increase in reported earnings before interest, taxes, depreciation and amortization after adjusting for one-time and non-recurring items (“EBITDA”) for the current financial year over preceding year, or (iii) 20% of reported EBITDA for the current financial year, and; 3) all reasonable out-of-pocket expenses incurred by Advisor in performing services under the Agreement. The Agreement will expire on December 31, 2013.”
So, 1/4 million at signing, plus 1/4 million for 5 years = 1.5 million of the cash gone at minimum. The true total depends on the cost of “reasonable out-of-pocket expenses.”
This looks like a shady deal to me. Alan Quasha is both the President of Quadrant and the Chairman of Brean Murray, Carret & Co. Rather than Brean Murray being on equally footing with other shareholders, they stand to realize a much greater share of ARCW’s assets and potential upside than the rest. At least it appears that Mr. Quasha will.
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That’s frustrating. Seems to suggest they’ll be running this thing rather than winding it up.
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