Soapstone Networks Inc (NASDAQ:SOAP) has announced that the stockholders have approved the liquidation and dissolution of the company.
We started following SOAP (see our post archive here) because it was trading well below its net cash value with an activist investor, Mithras Capital, disclosing an 8.7% holding in October last year. The stock is up 68.4% from $2.50 when we initiated our position to close today at $4.13, giving SOAP a market capitalization of $61.0M. We last estimated the company’s net cash value to be $80.3M or $5.21 per share. The company has now announced that it proposes to liquidate. It estimates that the total distribution, including an extraordinary cash dividend of $3.75 per share, will be between $4.00 and $4.50 per share. The initial dividend was paid yesterday and the stock trade’s ex-dividend today.
The press release from the company is set out below:
BILLERICA, MA–(Marketwire – July 28, 2009) – Soapstone Networks Inc. (NASDAQ: SOAP), today announced that, at the Company’s annual meeting of stockholders held on July 28, 2009, the stockholders of Soapstone Networks voted to approve the liquidation and dissolution of the Company pursuant to a Plan of Liquidation and Dissolution (the “Plan of Liquidation”).
As previously announced by the Company, in connection with the approval of the Plan of Liquidation, the Company’s Board of Directors has approved an extraordinary cash dividend of $3.75 per share of the Company’s common stock. The dividend will be paid on July 29, 2009 and the Company’s stock will trade ex-dividend commencing July 30, 2009.
The Company intends to file a certificate of dissolution on July 31, 2009 with the Delaware Secretary of State in accordance with the Plan of Liquidation. At the close of business on July 31, 2009, the Company expects to close its stock transfer books and cease recording transfers of shares of its common stock. At that time, the Company’s common stock, and stock certificates evidencing the shares of common stock, will no longer be assignable or transferable on the Company’s books. We have notified Nasdaq OMX of the date we intend to file our certificate of dissolution, and we will seek to delist our shares of common stock as soon as practicable thereafter. In addition, we requested that the Nasdaq Global Market suspend the trading of our common stock effective at the close of business on July 31, 2009. After the Company ceases trading on the Nasdaq Global Market as a result of such suspension, shares of the Company’s common stock held in street name with brokers may be traded in the over-the-counter market on an electronic bulletin board established for unlisted securities such as the OTC Bulletin Board or the Pink Sheets. Such trading will reduce the market liquidity of the Company’s common stock. As a result, an investor would find it more difficult to dispose of, or obtain accurate quotations for the price of the Company’s common stock, if they are able to trade the Common Stock at all.
The Board of Directors has fixed July 31, 2009 as the record date for determining stockholders entitled to receive any future distributions of available assets and as the final date for the recording of stock transfers. Only those stockholders of record as of the close of business on July 31, 2009 (the “Record Stockholders”), will be entitled to such future distributions. The Company anticipates that its first distribution after the July 31, 2009 record date is not likely to occur prior to the first quarter of 2010. Prior to winding up its affairs under Delaware law, the Company intends to make at least one additional liquidating distribution to the Record Stockholders. The Company has not yet established the timing or per share amount of any such distributions.
[Full Disclosure: We 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.]
[…] SOAP (added February 2, 2009 @ $2.50. Initial $3.75 dividend paid July 30) […]
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Travis are you smoking reefer?
Greenback’d is doing a great job. Why don’t you stop be so lazy and do your own valuation.
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I don’t think Travis is dissing the work of Greenbackd. Instead, I think he is offering constructive criticism.
Travis’ suggestion, if true, is worth thinking about. I only followed a few cases really closely and I didn’t think the estimates were off that much, but if the numbers are too high on a consistent basis, then it is worth re-thinking the discounts that Greenbackd is using.
For newbies like me, the process is just as important as results. As John Maynard Keynes suggested, it’s better to be approximately right than precisely wrong. So I don’t think Travis or I are looking for precise numers. However, if someone is consistently over-estimating the liquidation value then it is an additional risk.
Greenbackd has traditionally acquired shares at a huge discount so the over-estimation of the liquidation value may not seem that important. But over-stating the numbers is very risky for those buying shares later, at higher prices, or those unable to acquire enough shares with a big margin, hence buying their at higher and higher prices. (Small investors, like me, also need to be confident with the number because commission alone can shave quite a bit of the return.)
Having said all that, it depends on the required effort. If it takes a lot of effort to price things more accurately, it may not be worth it for Greenbackd. Greenbackd is using a widely diversified portfolio containing many securities so it may not be worth spending too much time fleshing out the numbers further. But if one was a concentrated investor only taking a few positions, like me, I think we have more time to arrive at better estimates.
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Respectfully, Greenbackd is being unusually generous as is.
To complain that he’s not doing enough, by merely “Leading to horse to water” — perhaps this is the best answer:
http://www.answers.com/topic/chutzpah
(Above is not intended personally; simply a general comment about the overall situation)
Cheers!
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Travis,
Are you serious?
Greenbackd is quite generous as is… to complain that he’s not doing enough, by merely “Leading to horse to water” — respectfully, come on…
http://www.answers.com/topic/chutzpah
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the stub is trading roughly at the same value it was at before the 3.75 distribution. what are your thoughts on whether to hold on to it or not?
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See tomorrow’s post.
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Thanks for your valuable research; however, I have noticed that in almost all cases where the company announces liquidation, your estimated liquidation value exceeds mgmt’s projection of liquidation proceeds, sometimes substantially. Will you do some post-mortems to determine the discrepancies and increase the accuracy of your future liquidation value analyses? Thanks.
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Updated:
Travis,
We agree that our estimate for SOAP was too high, and that is disappointing. The company’s estimate of the final pay out figure (including the $3.75 dividend) is between $4.00 and $4.50. We estimated the company’s liquidation value at around $5.21 per share at March 31. In that post, we assumed between $6M and $6.5M in cash burn for the quarter and $3.9M in contractual obligations, which would have reduced the per share liquidation value by between $0.64 and $0.67 per share at June 30 and equated to a per share liquidation value of between $4.57 and $4.54 at June 30. Given the company’s estimate is $4.00 to $4.50, we’re above the top end of the value range, but not so far that we’re going to change our valuation methodology. Your comment does, however, raise an important issue.
We continued to quote the $5.21 per share figure in later posts without explaining that it was as at March 31 and didn’t account for the contractual obligations and quarterly cash burn, and it may not have been clear from the 10Q update post that those two adjustments should have been backed out of the $5.21 figure. To compound the error, in our more recent posts, we have been backing out of our estimate the off-balance sheet liabilities, contractual obligations and cash burn. We’ll now make sure that we continue to quote the figure net of off-balance sheet liabilities, contractual obligations and cash burn and explain that the figure we quote is as at a balance sheet date. Hope that helps.
Greenbackd.
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