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Archive for February, 2009

List of activist investments for January

Posted in Activist Investors, Avigen (NASDAQ:AVGN), Biotechnology Value Fund, CuraGen Corporation (NASDAQ:CRGN), DellaCamera Capital Management, Dolphin Limited Partnership, GAMCO, Icagen Inc (NASDAQ:ICGN), Mill Road Capital, Multimedia Games Inc (NASDAQ:MGAM), Nery Capital Partners, Stocks, tagged , , , , , , , , on February 10, 2009| Leave a Comment »

The Official Activist Investing Blog has published its list of activist investments for January (the investments with links are to our latest update at the time of this post):

Ticker Company Activist Investor
ABVA Alliance Bankshares Corp John Edgemond
AMLN Amylin Pharmaceuticals Carl Icahn; Eastbourne Capital
AVGN Avigen Inc. Biotechnology Value Fund
BIOD Biodel Inc Moab Partners
BKS Barnes & Noble, Inc Yucaipa Companies
CHUX O’Charley’s Inc Crescendo Partners
CITZ CFS Bancorp Financial Edge Fund
CLCT Collectors Universe Shamrock Activist Fund
CNBC Center Bancorp Lawrence Seidman
CPWM Cost Plus Inc Stephens Investment Holdings
CRGN CuraGen Corp DellaCamera Capital
CTO Consolidated Tomoka Land Co Wintergreen Advisers
CWLZ Cowlitz Bancorporation Crescent Capital
DFZ R.G. Barry Corporation Mill Road Capital
DITC Ditech Networks Lamassu Holdings
EDCI EDCI Holdings Chapman Capital
ENZN Enzon Pharmaceuticals DellaCamera Capital; Carl Icahn
EPL Energy Partners Wexford Capital
FNHM.OB FNBH Bancorp Andrew Parker
FSBI Fidelity Bancorp Finacial Edge Fund
FSCI Fisher Communications Gamco Investors
FSFG First Savings Financial Group Joseph Stilwell
GET Gaylord Entertainment TRT Holdings
ICGN ICAgen Inc Xmark Opportunity Partners
INFS InFocus Corp Nery Capital Partners
ISH International Shipholding Corporation Liberty Shipping Group
JTX Jackson Hewitt Tax Service Shamrock Activist Value Fund
KANA Kana Software Inc KVO Capital Management
KFS Kingsway Financial Sevices Joseph Stillwell
KONA Kona Grill Mill Road Capital
LAQ The Latin America Equity Fund City of London Investment Management
MGAM Multimedia Games Inc Dolphin Limited Partnership
MIPI Molecular Insight Pharmaceuticals David Barlow
NDD Neuberger Berman Dividend Advantage Western Investment
NTII Neurobiological Technologies Highland Capital Management
NTMD Nitromed Inc Deerfield Capital Management
OFIX Orthofix Ramius Capital
PIF Insured Municipal Income Fund Inc Bulldog Investors
PPCO PenWest Pharmaceuticals Perceptive Advisors;

Tang Capital Partner
PRSC Providence Service Corp 73114 Investments
PRXI Premier Exhibitions, Inc Sellers Capital
QDHC Quadramed Corp BlueLine Capital
RDC Rowan Companies Steel Partners
SLTC Selectica Inc Trilogy
SONS Sonus Networks Legatum Limited
SSE Southern Connecticut Bancorp Lawrence Seidman
SUAI Specialty Underwriters Alliance Hallmark Financial Services
SUG Southern Union Co Sandell Asset Management
SUMT SumTotal Systems Discovery Capital
SUTM.PK Sun Times Media Group Davidson Kempner Partners
TEC Teton Energy Corp First New York Securities
TESS Tessco Technologies Discovery Equity Partners
TIER Tier Technologies Inc Parthenon Capital
TMI TM Entertainment & Media Bulldog Investors
TRGL Toreador Resources Nanes Delorme Partners
TRMA Trico Marine Services Kistefos AS
TUTR Plato Learning Stephen Becker
TWMC TransWorld Entertainment Riley Investment Management
VLCY.PK Voyager Learning Company FoxHill Opportunity
WFMI Whole Foods Market Inc Yucaipa Companies
WMPN.OB William Penn Bancorp Joseph Stilwell
WOC Wilshire Enterprises Bulldog Investors
WRLS Telular Corp Simcoe Partners
YSI U-Store-It Trust Todd Amsdell
ZEP Zep Inc. Gamco

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Icahns says capitalism should return to its roots

Posted in About, Activist Investors, Carl Icahn, Stocks, tagged , on February 9, 2009| 5 Comments »

Carl Icahn contributed an article to the Wall Street Journal on President Obama’s plan to limit executive pay to $500,000 a year plus restricted stock for institutions that receive government funding. Icahn argues that while the response is “understandable,” the salary cap fails to address the root cause of the problem:

The real problem is that many corporate managements operate with impunity — with little oversight by, or accountability to, shareholders. Instead of operating as aggressive watchdogs over management and corporate assets, many boards act more like lapdogs.

Despite the fact that managements, albeit with some exceptions, have done an extremely poor job, they are often lavishly rewarded regardless of their performance.

Icahn goes on to explain that the problem is that boards and managements are entrenched by state laws and court decisions that “insulate them from shareholder accountability and allow them to maintain their salary-and-perk-laden sinecures.” He proposes a federal law that allows shareholders to vote by simple majority to migrate the company from its state of incorporation to more shareholder-friendly states. This power is currently vested in boards and management:

This move would not be a panacea for all our economic problems. But it would be a step forward, eliminating the stranglehold managements have on shareholder assets. Shouldn’t the owners of companies have these rights?

Now some might ask: If this policy proposal is right, why haven’t the big institutional shareholders that control the bulk of corporate stock and voting rights in this country risen up and demanded the changes already?

This is because many institutions have a vested interest in supporting their managements. It is the management that decides where to allocate their company’s pension plans and 401(k) funds. And while there are institutions that do care about shareholder rights, unfortunately there are others that are loath to vote against the very managements that give them valuable mandates to manage billions of dollars.

This is an obvious and insidious conflict of interest that skews voting towards management. It is a problem that has existed for years and should be addressed with new legislation that benefits both stockholders and employees, the beneficiaries of retirement plans.

I am not arguing for a wholesale repudiation of corporate law in this country. But it is in our national interest to restore rights to equity holders who have seen their portfolios crushed at the hands of managements run amok.

It’s vintage Icahn to suggest such a simple yet effective, market-based solution.

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And never breath a word about your loss

Posted in About, Liquidation, Liquidation Value, Net Current Asset Value, Net Quick Stocks, Net Quick Value, Stocks, tagged , on February 6, 2009| 4 Comments »

CNBC has an interview with Ricardo Salinas, the Mexican billionaire who took a position in Circuit City Stores Inc (OTC:CCTYQ) after it fell into bankruptcy and lost $41 million. In the interview with Michelle Caruso-Cabrera, Salinas explains why he made his bet on CCTYQ and how it went wrong. Although Salinas’ CCTYQ investment wasn’t a Grahamian net net, his explanation does capture some of the pitfalls of investing based on asset values:

Mr. Salinas made the majority of his $41 million investment in Circuit City after the troubled chain filed for bankruptcy protection in November. He amassed a 28 percent stake in the company and then began trying to work out a deal with Circuit City’s suppliers in an effort to take the chain private.

But Mr. Salinas backed out of the deal just before the company decided to liquidate, according to a recent account in The Richmond Times-Dispatch.

“It was much more complicated than he expected it to be,” an unidentified source told the newspaper. Pricing on some inventory “was just too high” and the support from banks and vendors “just wasn’t there,” the Times-Dispatch quoted the source as saying.

In his CNBC interview, Mr. Salinas expressed regret about not capturing Circuit City at a bargain-basement price and losing his investment, but acknowledged that it was for the best.

“I don’t care how rich you are, it must hurt to lose $41 million,” Ms. Caruso-Cabrera said to Mr. Salinas on location in Mexico.

“You know – when you’re talking about investments and businesses- it doesn’t pay to be afraid,” Mr. Salinas said, according to a transcript of the interview, which will be broadcast Wednesday night on CNBC. “It doesn’t pay, because fear is not a good counselor. Fear makes you do stupid things. So, of course it hurts.”

Mr. Salinas said he is moving on from his experience but is still looking at buying American assets.

“Well, we’re looking at a couple of mining companies that have been really pounded by the declining commodities,” he said in the interview. “And we think that, you know, mining is a great business. So we might go into a new tack there.”

(Via The New York Times Dealbook)

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MathStar Inc (OTC:MATH) prepares technology for sale

Posted in MathStar Inc (OTC:MATH), Net Cash Stocks, Stocks, Zachary McAdoo, tagged , , , , , , on February 5, 2009| 11 Comments »

MathStar Inc (OTC:MATH) has taken the first steps to liquidation, announcing that it is preparing to sell its Field Programmable Object Array (FPOA) technology and intellectual property.

We started following MATH in December last year when it was trading at $0.68 because it was a net cash stock with a substantial stockholder lobbying management to liquidate. The stock is up 29.4% to $0.88 yesterday, giving it a market capitalization of $8.1M. We estimate MATH’s liquidation value still to be around 80% higher at $14.8M or $1.57 per share. That value is predominantly cash and short term investments and doesn’t take into account any further value that the sale of the FPOA technology and intellectual property may yield. Two activist investors, Mr. Salvatore Muoio of S. Muoio & Co. and Mr. Zachary McAdoo of The Zanett Group, have been urging MATH’s board to consider liquidation rather than a merger. MATH’s board seems to agree, twice rejecting unsolicited merger proposals, suspending the company’s operations and exploring “strategic alternatives, which could include merger, acquisition, increasing operations in another structure or liquidation.”

The company’s announcement of the sale of the technology and intellectual property is as follows:

COLORADO SPRINGS, Colorado – January 26, 2009 – Core Capital’s Electronics and Semiconductor Group (ESG), an investment banking firm with an electronics and semiconductor focus, announces that its client, MathStar, Inc. (OTC: MATH), has prepared its technology for purchase. MathStar, a fabless semiconductor company specializing in high-performance programmable logic, is finalizing its Field Programmable Object Array (FPOA) technology and intellectual property package for sale. Arrangements have been prepared to assist prospective buyers to evaluate the opportunity, including a webinar, a private “data room” web portal, and access to key creators of the technology.

MathStar began its sales efforts in early October 2008, when it signed with the Core Capital Electronics and Semiconductor Group to complete a strategic sale of MathStar’s technology and intellectual property.

[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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ValueVision Media Inc (NASDAQ:VVTV) auction fails

Posted in Activist Investors, Cannell Capital, Net Net Stocks, Stocks, ValueVision Media (NASDAQ:VVTV), tagged , , , on February 4, 2009| Leave a Comment »

Our posts on ValueVision Media Inc. (NASDAQ:VVTV) attract more attention than any other posts on this site, though we exited the position last year. We initially liked VVTV because it looked like a cheap net net with other potentially valuable assets. That was a mistake. VVTV has huge contractual obligations relative to its current assets.* Those contractual obligations are the difference between VVTV being a cheap net net and having no value in liquidation. Let us repeat that: VVTV has no value in liquidation. VVTV’s stockholders face an absolute loss of capital if VVTV fails. In other words, VVTV’s downside is 100%. We exited on that basis. Really, we should never have opened the position.

VVTV’s best chance to salvage some value for its stockholders lay in the auction process it was conducting. The auction process seems to have been reasonably extensive (the financial advisor contacted 137 parties and executed confidentiality agreements with 39 of them). It was also unsuccessful:

ShopNBC (Nasdaq: VVTV), the premium lifestyle brand in electronic retailing, today announced that the Special Committee of independent members of its Board of Directors has concluded its comprehensive review of strategic alternatives commenced on September 10, 2008, with the assistance of its independent financial advisor, Piper Jaffray & Co.

The Special Committee and Piper Jaffray broadly solicited expressions of interest in a purchase of or strategic relationship with the company and also evaluated several other strategic alternatives, including a distribution to shareholders through a sale of assets and liquidation of the company. While a number of parties engaged in the process and conducted due diligence, the Special Committee did not receive any final bids from any of the parties involved. In addition, the Special Committee concluded that a liquidation of the company would not likely result in any distribution to the company’s shareholders. Therefore, at the recommendation of the Special Committee, the full Board of Directors determined to continue and subsequently to conclude the strategic alternatives review process. As outlined in the accompanying press release, the company plans to continue its implementation of new corporate strategies designed to grow its EBITDA levels, increase revenues and decrease expenses.

Since September 10, 2008, Piper Jaffray contacted a total of 137 parties and executed confidentiality agreements with 39 of them. Initial indications of interest were received from 13 parties and, based on the credibility of their financing plans, four parties were invited to the second round of the sale process, which included in-depth discussions and meetings with management. Of the four, two were strategic parties and two were financial sponsors. Additionally, each of the four parties had access to an extensive electronic data room and the opportunity to conduct a thorough due diligence process.
The company encountered a number of external and internal issues that adversely affected the process, including current market conditions and economic circumstances, difficult retail and credit environments, the company’s recent operating performance and cost structure, uncertainty surrounding the status of the possible redemption of the Series A Redeemable Convertible Preferred Stock held by GE, and the early stage of the company’s cable and satellite distribution negotiations.
The Special Committee stated that after the conclusion of this extensive process, no final bids were received. “Over the last few months, we thoroughly explored a wide range of strategic alternatives and held extensive discussions with a number of interested parties,” commented George Vandeman, Chairman of the Special Committee and member of ShopNBC’s Board of Directors. “While we hoped to find a viable transaction through these discussions, no final bids were received. As a result, the Special Committee concluded and recommended to the Board that the best option at this time is to continue to operate the company as an independent entity.”

Notwithstanding the formal termination of the strategic alternatives process, the Special Committee and Board remain committed to maximizing shareholder value and will pursue any reasonable alternatives that present themselves.

The failure of the company to sell was obviously disappointing for those holding on for the conclusion of the auction process: the stock crashed from $0.52 to $0.28 on the day of the announcement and now trades at $0.26. There are now no other positive catalysts for the company in the near term. Those holding on for a turnaround in this particular situation might wish to consider two points:

  1. A position in VVTV carries the risk of a 100% loss of capital. From the press release: “The Special Committee concluded that a liquidation of the company would not likely result in any distribution to the company’s shareholders.”
  2. Of the four parties invited to the second round of the sale process, which included in-depth discussions and meetings with management, access to an extensive electronic data room and the opportunity to conduct a thorough due diligence process, none submitted a final bid.

*The obvious question is how we missed the contractual obligations. The answer’s not a particularly good one, but here it is: It was a rookie blunder. When we started applying Graham’s formula, we were applying it too narrowly and we missed anything that wasn’t carried in the financial statements, including VVTV’s huge contractual obligations. We figured it out after several commenters pointed it out first. We now make sure to at least consider whether a prospect’s contractual obligations, off-balance sheet arrangements or litigation could have a material effect on the asset value.

[Full Disclosure:  We do not 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. Do your own research before investing in any security.]

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Pershing Square’s Investment Strategy

Posted in About, Activist Investors, Borders Group (NYSE:BGP), Pershing Square Capital Management, Stocks, William A. Ackman, tagged , , on February 3, 2009| Leave a Comment »

Pershing Square Capital Management hosted its Annual Investor Dinner in late January (Dealbreaker has a copy of the presentation (.pdf).) We’ve previously written about Pershing Square in relation to its position in Borders Group Inc (NYSE:BGP). It was not one of our better calls.

Pershing Square’s investment strategy makes for interesting reading:

We seek simple, predictable, free-cash-flow-generative businesses that trade at a large discount to intrinsic value

  • Mid-and large-cap companies
  • Typically not controlled
  • Minimal capital markets dependency
  • Typically low financial leverage and modest economic sensitivity
  • Often hidden value in asset base
  • Catalyst for value creation which we can often effectuate

At the right price, we may waive one or more of the above criteria
Our selection process is designed to help avoid permanent loss of capital while generating attractive long-term returns.

Pershing Square’s investment strategy is more Buffett than Graham (or more Fisher than Graham), but note that they do seek value that may be hidden in assets. Pershing Square’s returns have been extraordinary, as this slide attests:

pershing-square-cumulative-net-returns1

Although not all Pershing Square’s positions were winners:

pershing-square-2008-winners-and-losers

(via Dealbreaker)

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Soapstone Networks Inc (NASDAQ:SOAP)

Posted in Activist Investors, Mithras Capital, Soapstone Networks Inc (NASDAQ:SOAP), Stocks, tagged , , on February 2, 2009| 3 Comments »

Soapstone Networks Inc (NASDAQ:SOAP) is a net cash stock with an activist investor, Mithras Capital, disclosing an 8.7% holding in October last year. At its $2.50 close Friday, SOAP has a market capitalization of $37.1M. We estimate the company’s net cash value to be almost 150% higher at $91.2M or $6.15 per share. We’re adding it to the Greenbackd Portfolio.

About SOAP

According to the company’s investor relations website, SOAP “helps service providers and enterprises connect their physical transport infrastructure to Next-Generation Network (NGN) software frameworks.”

The value proposition

SOAP’s cash flow from operating activities has decreased over the last four quarters from $28.9M in the December 2007 quarter to -$5.96M in the most recent quarter as it has exited its router business (described in the company’s most recent 10Q). Over the same period, revenue decreased from $44.9M to $2.3M, and operating expense dropped from $14.9M to $8.9M. The company’s balance sheet value is now almost wholly cash (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):

soap-summaryIn the second quarter of 2007, SOAP paid a special cash dividend of $28.3 million or $2.00 per share. Even after paying the dividend SOAP’s balance sheet value is still predominantly cash in the amount of $98.1M. Deducting its total liabilities of $6.9M, we estimate SOAP’s net cash value to be $91.2M or $6.15 per share. The company is now largely a cash box with little ongoing business.

Off-balance sheet arrangements and Contractual obligations

At September 30, 2008, SOAP did not have any off-balance-sheet arrangements and its contractual obligations, which consist entirely of operating leases, were $4.3M. These operating lease payments are the minimum lease payments under SOAP’s non-cancellable operating leases. SOAP treats payments made under its operating leases as rent expense for the facilities, including its head office.

The catalyst

Mark Nelson filed a 13D notice on behalf of Mithras Capital on October 1 last year. You might recognise Nelson from his vocal support of Microsoft’s bid to acquire Yahoo Inc (NASDAQ:YHOO) last year (you can see his Seeking Alpha articles on the subject here and here). While Nelson has not disclosed his intentions for SOAP, his YHOO campaign demonstrates that he is a strong advocate for boards properly exercising their fiduciary duty to stockholders. We think he should be a good bet to wring some value from SOAP.

Conclusion

SOAP is one of the most deeply discounted net cash stocks we’ve come across. The company has a market capitalization of just $37M based on its Friday close of $2.50 against a net cash value some 146% higher at $91.2M or $6.15 per share. Its ongoing business is small in comparison to its net cash position, so it shouldn’t dissipate its cash any time soon. It has no off-balance sheet arrangements, little in the way of ongoing contractual obligations and no material litigation, so the cash position seems reasonably certain. We think Nelson should be able to unlock that cash value. One simple way to do so: SOAP should pay another special dividend. We’re adding it to the Greenbackd Portfolio.

SOAP closed Friday at $2.50.

The S&P500 Index closed Friday at 825.88.

[Full Disclosure:  We do not have a holding in SOAP. We now have a holding in SOAP. 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.]

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