Greenbackd

Soapstone Networks Inc (NASDAQ:SOAP) has announced the sale of its software assets to Extreme Networks, Inc. (NASDAQ: EXTR). The sale price was not disclosed in the announcement, but may have been less than $5M.

We opened the position in SOAP on February 2nd (see our post archive here) because it was trading well below our estimate of its net cash value. An activist investor, Mithras Capital, had disclosed an 8.7% holding and called on the company to liquidate. After some urging on Mithras Capital’s part, management acceded to the request and announced a liquidation. SOAP stockholders approved the liquidation of the company on July 28 and received a special dividend of $3.75 per share the next day. Based on our $2.50 purchase price, the $3.75 per share special dividend returned our initial capital plus 50%. At yesterday’s close, the $0.46 stub represents an additional 18% on our initial purchase price for a total return to date of 68%. Management estimates the final distribution will be between $0.25 and $0.75 per share, which means the stub is trading under the $0.50 midpoint of the distribution range.

As we demonstrated in an earlier post, Valuing the SOAP stub, determining the proceeds from the asset sale is key in estimating the final pay out figure. Two categories account for the majority (80%) of the difference between the upper and lower estimates of the final distribution:

1. Real Estate and Equipment Lease termination costs: The lower bound of the range is -$5.4M and the upper bound is -$1.6M, which is a difference of around $3.8M or $0.25 per share.
2. Proceeds from the sale of Assets: The lower bound of the range is $0.1M and the upper bound is $2.3M, which is a difference of around $2.2M or $0.14 per share.

If the sale price is in fact closer to $5m, SOAP management seems to have significantly underestimated the range for Proceeds from the sale of Assets. At its close yesterday of $0.46, the SOAP stub might become an attractive investment opportunity if we can get some certainty around the actual figure for the proceeds from the sale of the software assets.

The press release is set out below (via CNNMoney):

Extreme Networks Acquires Soapstone Networks Provisioning and Service Assurance Software

Purchase of Ethernet Service Aware Software and Control Plane Underscores Focus on Simplification of Carrier Ethernet Deployments

August 10, 2009: 08:00 AM ET

Extreme Networks, Inc. (NASDAQ: EXTR) today announced the purchase of the software assets of Soapstone Networks, Inc (PINKSHEETS: SOAP). The Soapstone Networks software serves as a foundation for provisioning and service assurance for carrier Ethernet networks.

The transaction transfers ownership of the Soapstone Networks software control plane and service aware provisioning system to Extreme Networks®, enabling Extreme Networks to simplify the service provider’s job of provisioning and maintaining Ethernet services for their subscribers.

“The addition of the software assets from Soapstone Networks into the Extreme Networks intellectual property portfolio continues our commitment to carrier Ethernet,” said Glenn Weinberg, Vice President and General Manager, Extreme Networks Software Business Unit. “The unique provisioning and service aware capabilities of the Soapstone Networks software will enable Extreme Networks to deliver a more complete, extensible solution to carrier Ethernet service providers.”

The Soapstone Networks software will be integrated into the Extreme Networks EPICenter® Network Management System, providing a service level view, provisioning and management of carrier Ethernet networks and protocols including Provider Bridging (PB), Provider Backbone Bridging (PBB), Provider Backbone Bridging with Traffic Engineering (PBB-TE), Ethernet Access Protection Switching (EAPS) and Virtual Private Line (VPLS).

Hat tip JM.

[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.]