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Soapstone Networks Inc (NASDAQ:SOAP) has released its 10Q for the period ended September 30, 2009.

We first looked at SOAP on February 2nd (see Greenbackd’s post archive here) because it was trading well below 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 $0.65 stub represents a total return to date of 76%. Management originally estimated the final distribution to be between $0.25 and $0.75 per share, which means the stub is presently trading at a 30% premium to the $0.50 midpoint of the distribution range.

On September 9, in our guest blogger series, Wes Gray and Andy Kern took a look at the SOAP stub as a stand alone investment. Gray and Kern argued that there was plenty of value left in the stub:

e. Total Return Possible

Low Estimate: .39 first distribution (Q2 2010), .06 second distribution (Q4 2010)

=>-4.57%

Expectation: .70 first distribution (Q1 2010), .06 second distribution (Q4 2010)

=>59.01%

High Estimate: .82 first distribution (Q4 2009), .15 second distribution (Q4 2010)

=>102.98%

Expected Return:

P(Low)=.25

P(Estimate)=.50

P(High)=.25

ð .25*-.0457+.50*.5901+.25*1.0298=54.11% expected return by Q4 2010.

At its $0.65 close yesterday, the stub is up 20.4% since that post.

The sale of the company’s non-cash assets including its “principal intellectual property assets,” the value of which we were speculating about on August 11, yielded cash consideration of approximately $2.2M. SOAP does not expect to receive any additional material consideration for the few remaining non-cash assets left in its possession.

The value proposition updated

According to the most recent 10Q, which was prepared on a liquidation basis, SOAP has around $11.4M in net assets. This includes total liabilities of around $5.6, of which $5.5M is a reserve for liquidation costs. Here is an extract from the 10Q:

With 15.2M shares on issue, and assuming SOAP spends the full $5.5M reserve for liquidation costs, SOAP looks likely to yield $0.75 per share, the upper end of management’s estimated range and a 15% return from here. If there are any savings in the $5.5M reserve, SOAP could pay out substantially more.

Conclusion

Given that the stock is trading at a 15% discount to what now appears to be the low end of the likely final distribution, I’m going to maintain Greenbackd’s position in SOAP.

[Full Disclosure: I do not have 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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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.]

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Soapstone Networks Inc (NASDAQ:SOAP) closed Friday at $0.495 following the payment last week of a $57.5M or $3.75 per share special dividend. The company estimates the final distribution at between $0.25 and $0.75 per share. The higher end of the distribution range represents a ~50% upside from Friday’s close, so we’re going to do some work now to determine whether we hold on to the stub, buy some more or close out the position.

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 last week and were paid a special dividend of $3.75 per share. Based on our $2.50 purchase price, the $3.75 per share special dividend returns our initial capital plus 50%. At the Friday close, the $0.495 stub represents an additional 20% on our initial purchase price for a total return to date of 70%. Management estimates the final distribution will be between $0.25 and $0.75 per share, which means the stub is trading at a fraction under the midpoint of the distribution range.

The value proposition for the SOAP stub

Following the payment of the special dividend, SOAP has cash of around $17.5M or a little over $1.00 per share. The basis for SOAP management’s calculation of the $0.25 and $0.75 per share distribution is set out below (extracted from the Preliminary Proxy Statement):

SOAP Estimated Liquidating Distributions

(The table above has been modified from the original to fit this space)

(1) Estimated balance is net of cash used for the period April 1, 2009 through June 30, 2009 for estimated operating expenses ($4.2 million), severance costs ($1.7 million) and accounts payable and accrued liabilities ($1.5 million), partially offset by interest income ($0.1 million).

(2) Estimated Extraordinary Dividend payments of $55.8 million are associated with 14,886,107 shares of our common stock outstanding as of June 16, 2009 and Extraordinary Dividend payments of $1.7 million are associated with 460,828 shares of our common stock subject to currently vested options that are in-the-money at $4.13, the per share closing price of our stock on the Nasdaq Global Market on June 16, 2009, which options are assumed to be exercised prior to the dividend payment.

(3) Estimated proceeds from the exercise of currently vested options for 460,828 shares of our common stock that are in-the-money at $4.13, the per share closing price of our stock on the Nasdaq Global Market on June 16, 2009, which options are assumed to be exercised prior to the dividend payment.

(4) Estimated range of cash proceeds from sale of assets, including technology, intellectual property, furniture, fixtures and equipment.

(5) Estimated operating expenses for the period of July 1, 2009 through June 30, 2010 for personnel, facilities and other expenses to conduct our wind up operations but exclusive of all other line items specifically allocated in the table above.

(6) Estimated severance costs for remaining employees involved in the wind up operations.

(7) Estimated accounts payable and accrued liabilities as of June 30, 2009.

(8) Estimated range of cash payments associated primarily with lease and lease related commitments for our headquarters facility.

(9) Estimated range of cash use for the purchase of insurance, including Directors and Officers liability insurance covering the six years from the date of stockholder approval of the plan of dissolution.

(10) Estimated range of cash use for professional fees related to our liquidation and dissolution, as well as ongoing SEC reporting requirements.

(11) Estimated range of cash use for unanticipated claims and contingencies, including potential deductibles and retentions associated with potential insurance claims.

Set out below is an analysis of SOAP management’s estimates, showing the differences between the upper and lower estimates:

SOAP Estimated Liquidating Distributions 2

It becomes clear from the preceding table that 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: Around $3.8M or $0.25 per share.
  2. Proceeds from the sale of Assets: Around $2.2M or $0.14 per share.

We’ve got no real idea about the likely final figures in either of these categories, which means we won’t be buying any more at this stage. Given that the stock is trading at a fraction under the midpoint of management’s estimate of the final distribution, we’re going to hold on to our remaining stock for the time being and see how it plays out.

[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.]

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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.]

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Soapstone Networks Inc (NASDAQ:SOAP) has announced that it intends to liquidate and has filed its Plan of Liquidation.

We been 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 65% 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 press release from the company is set out below:

Soapstone Networks Announces Approval of Plan of Liquidation and Dissolution by Board of Directors and Wind Down of Operations

Billerica, MA, June 15, 2009 — Soapstone Networks Inc. (NASDAQ: SOAP), today announced that its Board of Directors (the “Board”) has unanimously approved a plan of dissolution and liquidation of the Company (the “Plan of Liquidation”) and that it will file a proxy statement seeking stockholder approval of such plan.

As part of this decision, the Company has ceased the development and marketing of the Soapstone Provider Network Controller (PNC) product and has reduced its workforce by 50 to a total of 14 employees. Moreover, if the Company’s stockholders approve the Plan of Liquidation, the Company intends to file a certificate of dissolution, delist its shares from NASDAQ, sell and monetize its non-cash assets, satisfy or settle its remaining liabilities and obligations, including any contingent liabilities and claims, terminate its remaining employees throughout the wind down period, and make one or more distributions to its stockholders of cash available for distribution.

The Company also announced that its Board has unanimously approved an extraordinary cash dividend of $3.75 per share, provided that the Board may adjust such amount at a later date to ensure there is remaining cash to satisfy potential liabilities. Such dividend will be payable after the stockholder meeting at which the Plan of Liquidation is approved by the Company’s stockholders and in connection with the filing of a Certificate of Dissolution with the Delaware Secretary of State.

The Company has analyzed its liquidation value and currently estimates that the amount of subsequent distributions to stockholders will range from $0.25 to $0.75 per share, for a total distribution, including the extraordinary cash dividend, of between $4.00 and $4.50 per share. The amount of these distributions, however, may vary substantially from these estimates based on the resolution of outstanding known and contingent liabilities and the possible assertion of claims that are currently unknown to the Company. If, prior to its dissolution, the Company receives an offer for a transaction that will, in the view of the Board, provide superior value to stockholders than the value of the estimated distributions under the Plan, taking into account all factors that could affect valuation, including timing and certainty of payment or closing, credit market risks, proposed terms and other factors, the Plan of Liquidation and the dissolution could be abandoned in favor of such a transaction.

The Board made this decision after completing an exhaustive evaluation of various strategic alternatives available to the Company for enhancing stockholder value, including but not limited to, continued execution of the Company’s business plan, the payment of a cash dividend to the Company’s stockholders, a repurchase by the Company of shares of its capital stock, the sale or spin off of Company assets, partnering or other collaboration agreements, a merger, sale or liquidation of, or acquisition by, the Company or other strategic transaction. The Company and its external advisors, including its financial advisor Morgan Stanley & Co. Incorporated, devoted substantial time and effort in identifying potential buyers or strategic partners and entered into negotiations with several potential partners; however, that process did not yield a potential transaction which the Board viewed as reasonably likely to provide greater realizable value to its stockholders than the complete dissolution and liquidation of the Company in accordance with the Plan of Liquidation.

[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.]

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Soapstone Networks Inc (NASDAQ:SOAP) has filed its 10Q for the quarter ended March 31, 2009.

We been following SOAP (see our post archive here) because it is 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 48.0% from $2.50 when we initiated our position to close yesterday at $3.70, giving SOAP a market capitalization of $52.0M. We last estimated the company’s net cash value to be $86.1M or $5.59 per share. Following our review of the Q1 10Q, we’ve adjusted our valuation down 6% to $80.3M or $5.21 per share as a result of $6.7M of cash burned.

The value proposition updated

The company’s balance sheet value is almost wholly cash, which it continues to burn (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-summary-2009-3-311

Balance sheet adjustments

We need to make the following adjustments to the balance sheet estimates above:

  • Cash burn: The company used $6.7M in cash in the first quarter. They expect cash burn to continue to be between $6M and $6.5M per quarter.
  • Off-balance sheet arrangements and contractual obligations: SOAP does not have any off-balance-sheet arrangements and its contractual obligations, which consist entirely of operating leases, are $3.9M. These operating lease payments are the minimum rent expense for SOAP’s facilities, including its head office.

Conclusion

We continue to believe that SOAP is a very good opportunity. The company’s 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. The company’s engagement of an investment bank to explore strategic alternatives is a promising step in the right direction. We continue to be concerned by the continued issuance of options at a huge discount to liquidation value. The sooner Mithras Capital gets control of this situation the better.

[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.]

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Soapstone Networks Inc (NASDAQ:SOAP) has announced that it is reducing its headcount by approximately 40% “to reduce expenses and conserve cash in the current economic environment without diminishing the overall value of the Company.”

We been following SOAP (see our post archive here) because it is 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 40.0% from $2.50 when we initiated our position to close yesterday at $3.50, giving SOAP a market capitalization of $52.0M. We estimate the company’s net cash value to be $86.1M or $5.59 per share. We continue to believe that SOAP is a very good opportunity. The company’s 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. The company’s engagement of an investment bank to explore strategic alternatives is a promising step in the right direction. Of concern is the continued issuance of stock and options at a huge discount to liquidation value. The sooner Mithras Capital gets control of this situation the better.

The press release from SOAP is as follows:

Billerica, MA, April 14, 2009 – Soapstone Networks Inc. (NASDAQ: SOAP) today announced that it has undertaken an initiative to further reduce its total headcount by approximately 40%, in order to reduce expenses and conserve cash in the current economic environment without diminishing the overall value of the Company.

The Company expects to incur charges for severance and related costs of approximately $0.5 million in the second quarter of fiscal 2009 in connection with this action and anticipates overall incremental cost savings of approximately $3.0 million during 2009 as a result of these reductions, in addition to the $5.0 million in cost savings anticipated to result from the reduction in force previously announced February 12, 2009.

“We have taken these additional steps as we continue to aggressively explore strategic alternatives with the help of our financial advisor, Morgan Stanley & Co. Incorporated,” said Bill Leighton, Soapstone’s CEO. “We believe that this is a level at which we can continue with our PNC development and sales effort into the Carrier Ethernet market, while conserving a significant amount of cash.”

Hat tip to Double F.

[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.]

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