MathStar Inc’s (OTC:MATH) board has announced the results of the annual meeting and, disappointingly, MATH’s stockholders have rejected the proposal to liquidate MATH.
We’ve been following MATH since December last year (see our post archive here) when it was trading at $0.68. The stock is up 73.5% to close yesterday at $1.18, giving it a market capitalization of $10.8M. We estimate MATH’s net cash value to be around $11.7M or $1.27 per share. The board’s estimate of the company’s liquidation value is slightly higher than ours, at $1.40 per share. Both estimates exclude revenue from any sales of MATH’s existing inventory of field programmable object array chips or its FPOA technology, although we have ascribed negligible value to these assets. We initiated the position because MATH was trading below its net cash value and had two substantial stockholders lobbying management to liquidate. MATH’s board has suspended the company’s operations and has 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., have been urging MATH’s board to consider liquidation rather than a merger. Tiberius Capital has also launched a tender offer for MATH at $1.25 per share in cash. MATH’s board has recommended against acceptance.
The company’s press release announcing the results is set out below:
MathStar Announces Results of Annual Meeting;
CEO Doug Pihl Announces Strategic Plan
HILLSBORO, Ore., July 13, 2009 — MathStar, Inc. (MATH.PK) today announced the results of its annual meeting of stockholders, held Friday, July 10, 2009 in Minneapolis, Minnesota. Three proposals were voted on at the meeting: (i) stockholders voted to re-elect the four nominated Directors of MathStar’s Board of Directors; (ii) stockholders ratified the appointment of MathStar’s independent registered public accounting firm, PricewaterhouseCoopers LLP; and (iii) as had been recommended by the Board, stockholders rejected the stockholder proposal recommending liquidation of MathStar.
After the vote tallies were announced, Doug Pihl, the Chairman, President and CEO of MathStar made a presentation regarding the strategic alternatives currently being explored by the Board, which include the possibility of a merger with a private company or a restart of MathStar upon the acquisition of certain video encoding technology.
Mr. Pihl said, “After the meeting, I am confident that our stockholders continue to support the vision of the MathStar Board and we are working hard to identify a business opportunity that leverages MathStar’s assets with the goal of growing revenues and enhancing shareholder value.”
As such, MathStar’s Board of Directors continues to recommend that MathStar stockholders reject the cash tender offer from Tiberius Capital II, LLC (Tiberius).
The MathStar Board of Directors continues to recommend AGAINST stockholders tendering their MathStar shares to Tiberius for several reasons, some of which include:
· MathStar stockholders voted to reject liquidation, signaling a continued confidence in the Board’s strategic vision;
· the myriad changes to the tender offer highlight that it continues to be inadequate and that MathStar stockholders are generally rejecting it;
· Tiberius’ offer still would eliminate the use of MathStar’s $140 million net operating loss carryforwards, which could shield taxes on more than $10 in earnings per share, if MathStar attains sufficient profitable operations in the future; and
· Tiberius still has not set forth any specific plans for the Company were it to acquire a controlling interest.
The Board’s reasons for recommending that you reject the Tiberius tender offer are explained in more detail in MathStar’s Solicitation/Recommendation Statement on Schedule 14D-9, as amended (MathStar Statement) filed with the Securities and Exchange Commission (SEC). You may review and obtain copies of the MathStar Statement and all amendments thereto free of charge at the SEC’s website at http://www.sec.gov. You may also obtain copies of the MathStar Statement at http://www.mathstar.com or by contacting calling MathStar’s information agent, The Proxy Advisory Group, LLC, at (888) 337-7699 (888-33PROXY) and requesting a copy.
[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.]
Thus endeth the story for many. I don’t know the ins and outs of using NOLs; I read somewhere that the old Penn Central railroad is now owned by an insurance company solely for its NOLs.
I don’t know how the law’s been changed, but (if permitted now) the best outcome would be for MATH to be taken over and the NOLs put to work by the acquirer. Given the, er, seatedness of MATH’s management, I doubt that option would ever be exercised even if permitted by tax law.
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It seems this name has been played out. Mgmt should take the $1.25 or $1.27 and call it a day. :)
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We agree 100% and that’s why we’re out. See tonight’s post.
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Ah, the Siren song of the NOLs…
I’ll be frank. There is virtually no chance that MATH can acquire a viable, profitable business for its cash. If such a business were actually viable and profitable, that business could borrow the cash and keep their ownership.
Further, to use up the NOLs in any reasonable timeframe would require $140 million in earnings in the next decade, or $14 million per year. What would a business that earned that much trade for in the market–10 P/E, or $140 million? And would a $140 million profitable business need MATH’s $15 million in cash? Highly unlikely.
Most likely is that they will buy a marginal business, with lumpy profitability, currently going through hard times, with peak earnings of 4-5 million per year. In that scenario, they will likely never use all the NOLs.
But isn’t it such a sweet song?
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It’s the bluest of blue skies in a stock that has only seen hurricanes.
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