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DellaCamera Capital Management ups stake in CRGN

Posted in Activist Investors, CuraGen Corporation (NASDAQ:CRGN), DellaCamera Capital Management, Net Cash Stocks, Stocks, tagged , , , on March 6, 2009| Leave a Comment »

DellaCamera Capital Management has increased its stake in CuraGen Corporation (NASDAQ:CRGN) from 5.6% to 6.5% and nominated two candidates to the board.

We’ve been following CRGN since January 20, 2009 (see our post archive here) because it is a net cash stock with an investor, DellaCamera Capital Management, pushing the company to seek “alternative deployment of [its] capital.” The stock is up a little under 5% from $0.67 when we started following it to $0.70 yesterday, giving CRGN a market capitalization of around $40M. We’ve estimated CRGN’s net cash value to be around 50% higher at $62M or $1.07 per share. The company is not generating any operating cash flow as it is a “biopharmaceutical development company,” so the challenge for DellaCamera Capital Management is to persuade the company to pay a special dividend or liquidate before it dissipates its remaining cash.

The letter annexed to the amended 13D notice dated March 5, 2009 from DellaCamera Capital Management to CRGN is reproduced below:

CuraGen Corporation
322 East Main Street
Branford, Connecticut 06405
Attn: Corporate Secretary

Re: Solicitation Notice to Nominate Candidates for Election as Directors at the 2009 Annual Meeting of Stockholders of CuraGen Corporation (“CuraGen”)

Gentlemen:

DellaCamera Capital Master Fund, Ltd., a Cayman Islands exempted company (the “DellaCamera Fund“), is currently the record holder of 1,000 shares of common stock of CuraGen, par value $.01 (the “Common Stock“), and the beneficial owner of an additional 3,757,988 shares of Common Stock. The DellaCamera Fund, a private investment fund, has a name and address on the CuraGen stock transfer ledger of DELLACAMERA CAPITAL MASTER FUND LTD at 461 FIFTH AVE 10TH FLOOR NEW YORK NY 10017. Because the record date for the CuraGen 2009 Annual Meeting of Stockholders (the “2009 Annual Meeting“) has not been announced publicly, the number of shares of Common Stock which will be owned beneficially or of record by the DellaCamera Fund as of such record date is not known. The DellaCamera Fund currently does not hold any proxies relating to any CuraGen shares.

In accordance with Article I, Section 7(C) of the CuraGen By-laws, the DellaCamera Fund hereby delivers this Solicitation Notice to CuraGen for the purpose of nominating the two (2) individuals (the “Stockholder Nominees“) specified below for election as Class II Directors of CuraGen at the 2009 Annual Meeting (or a special meeting held in lieu thereof). The DellaCamera Fund shall hereafter be referred to as the “Nominating Stockholder.”

THE STOCKHOLDER NOMINEES:

1. Ralph DellaCamera, Jr.

Ralph DellaCamera, Jr., age 55, is a Managing Member and the Chief Investment Officer of DellaCamera Capital Management, LLC (“DCM“), the investment manager of the DellaCamera Fund. Prior to forming the DellaCamera Fund in 2005, Mr. DellaCamera was a Managing Director in the Leveraged Finance Groups of Guggenheim Capital Markets and Maxcor Financial, Inc. from 2002 to 2005. From 2000 to 2002, Mr. DellaCamera co-owned DellaCamera Giordano Securities, a broker/dealer based in Connecticut specializing in convertible and distressed securities. From 1986 until 1999, Mr. DellaCamera worked at Elliott Management Corporation (“Elliott“), a company that provides management services to Elliott Associates, L.P. and other affiliated private investment funds, as the head trader and senior risk manager. Mr. DellaCamera is a graduate of the University of New Haven.

As a Managing Member of DCM, Mr. DellaCamera may be deemed to have beneficial ownership of the securities of CuraGen owned directly by the DellaCamera Fund. As of the date of this notice, Mr. DellaCamera does not, directly or indirectly, beneficially or of record, own any CuraGen securities except as described in the preceding sentence.

The business address of Mr. DellaCamera is DellaCamera Capital Management, LLC, 461 Fifth Avenue, 10th Floor, New York, New York 10017.

2. Richard P. Mansouri

Richard P. Mansouri, age 39, is a Portfolio Manager and Head of Research at DCM. Mr. Mansouri has been with DCM since August 2007, where his primary responsibilities consist of providing research, analysis, and trading recommendations for a wide variety of debt and equity investments, which include select investments in the biopharmaceutical space. Prior to joining DCM, Mr. Mansouri was a Partner/Member of Para Advisors LLC (“Para“), an investment management firm, where he worked from January 2002 through July 2007. Prior to Para, Mr. Mansouri was a Senior Analyst at Elliott, where he worked from January 1995 through September 2001. Mr. Mansouri has been in the financial industry since 1991, including holding positions at Lazard Freres & Co. and Investcorp International Inc. Mr. Mansouri graduated magna cum laude from the University of Pennsylvania with a B.S.E. degree from The Moore School of Electrical Engineering and a B.S.Econ. degree from The Wharton School.

As of the date of this notice, Mr. Mansouri does not, directly or indirectly, beneficially or of record, own any CuraGen securities.

The business address of Mr. Mansouri is DellaCamera Capital Management, LLC, 461 Fifth Avenue, 10th Floor, New York, New York 10017.

The Nominating Stockholder believes that the background and qualifications of the Stockholder Nominees shows them to be well qualified to serve on the CuraGen Board of Directors, and that each of the Stockholder Nominees would add value and would strengthen the quality of the entire CuraGen Board of Directors. It is the Nominating Stockholder’s present intention to deliver a proxy statement and form of proxy to a sufficient number of holders of CuraGen’s voting shares to elect the Stockholder Nominees. The Nominating Stockholder has not at this time engaged representatives or persons to assist in any proxy solicitation with respect to the 2009 Annual Meeting.

Neither of the Stockholder Nominees has held a position or office with or been a director of CuraGen, and none of the employers listed above are a parent, subsidiary or affiliate of CuraGen.

With respect to all securities of CuraGen purchased or sold by each of the Stockholder Nominees and the Nominating Stockholder within the past two (2) years, the dates on which such securities were purchased or sold and the amounts of such purchases or sales by each are set forth onSchedule 1 attached hereto.

No part of the purchase price or market value of any of the shares purchased and owned beneficially, directly or indirectly by either of the Stockholder Nominees or the Stockholder Nominee within the past two (2) years was borrowed or otherwise obtained for the purpose of acquiring or holding such securities, except as described below. In the normal course of its business, the Nominating Stockholder purchases securities using funds from its general account and funds borrowed against securities it already owns. The Nominating Stockholder cannot determine whether any funds allocated to purchase CuraGen securities were from the Nominating Stockholder’s general account or from borrowings against securities it already owns.

Neither of the Stockholder Nominees is, or within the past year was, a party to any contract, arrangement or understanding with any person with respect to any securities of CuraGen, including, but not limited to, joint ventures, loan or option arrangements, puts or calls, guarantees against loss or guarantees of profit, division of losses or profits, or the giving or withholding of proxies.

Other than DCM, an associate of Mr. DellaCamera which may be deemed to have indirect beneficial ownership of the shares of Common Stock held directly by the DellaCamera Fund in DCM’s capacity as the investment manager of the DellaCamera Fund, no associate of the Stockholder Nominees owns any securities of CuraGen beneficially, directly or indirectly.

Neither of the Stockholder Nominees beneficially owns, directly or indirectly, any securities of any parent or subsidiary of CuraGen.

Except as previously noted regarding the capacity of each Stockholder Nominee in DCM (Mr. DellaCamera as a Managing Member of DCM and Mr. Mansouri as an employee of DCM), neither of the Stockholder Nominees has any arrangement or understanding between him and any other person, including the Nominating Stockholder, pursuant to which such Stockholder Nominee is to be selected as a director or nominee of CuraGen other than his consent to serve as a Director of CuraGen, if elected.

Neither of the Stockholder Nominees or any of their associates has any arrangement or understanding with any person with respect to any future employment by CuraGen or its affiliates or with respect to any future transaction to which CuraGen or any of its affiliates may be a party. The Nominating Stockholder and DCM have had and continue to have periodic discussions with CuraGen regarding methods of delivering additional value to the CuraGen stockholders, including the possible alternative deployment of CuraGen’s capital and possible utilization of CuraGen’s tax assets.

Neither of the Stockholder Nominees has a substantial interest, direct or indirect, by security holdings or otherwise, that will be acted upon at the 2009 Annual Meeting other than as to their election as directors.

In the past five (5) years, none of the Stockholder Nominees has been a party to or convicted in any legal or bankruptcy proceeding or subject to any judgment, order or decree of the type described in Item 401(f) of Securities and Exchange Commission (“SEC”) Regulation S-K.

Neither of the Stockholder Nominees nor any of their associates is a party adverse to or has a material interest adverse to CuraGen or any of its subsidiaries in any material pending legal proceeding.

Since the beginning of CuraGen’s last fiscal year, no Stockholder Nominee has been a party to or had or will have, a direct or indirect material interest in any transaction, series of transactions, or any currently proposed transaction or series of transactions, to which CuraGen or any of its subsidiaries was or is to be a party, in which the amount involved exceeds $120,000.

Neither of the Stockholder Nominees has any knowledge of any transaction described under Item 404(b) of Regulation S-K outside of what has been filed by CuraGen and third parties with the SEC and made publicly available.

Neither of the Stockholder Nominees was indebted to CuraGen or its subsidiaries at any time since the beginning of CuraGen’s last fiscal year in an amount in excess of $60,000.

Neither of the Stockholder Nominees has a family relationship with any director, executive officer, or other person nominated or chosen as of the date of this notice by CuraGen to become a director or executive officer.

With respect to the information of security ownership of certain beneficial owners and management of CuraGen, as required by Item 403 of Regulation S-K, neither of the Stockholder Nominees has any knowledge outside of what has been filed by CuraGen and third parties with the SEC and made publicly available.

Based solely on public filings to date, to the knowledge of the Stockholder Nominees, there has been no change in control of CuraGen since the beginning of CuraGen’s last fiscal year.

Each of the Stockholder Nominees would be deemed to be an “Independent Director” pursuant to the rules of NASDAQ.

Each of the Stockholder Nominees has consented to being named as a nominee in a proxy statement and on a proxy card and to serve as a director of CuraGen, if elected. Their signed consents are attached hereto.

If there is anything in this notice you do not understand or if you require any additional information please immediately contact Richard Mansouri at (212) 808-3565 or c/o DellaCamera Capital Management, LLC, 461 Fifth Avenue, 10th Floor, New York, New York 10017, or please contact Christopher P. Davis, Esq. at (212) 986-6000 or c/o Kleinberg, Kaplan, Wolff & Cohen, P.C., 551 Fifth Avenue, New York, New York 10176.

DELLACAMERA CAPITAL MASTER FUND, LTD.

By: /s/ Andrew Kurtz
Name: Andrew Kurtz, Director
Title: Director

[Full Disclosure:  We do not have a holding in CRGN. 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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Amtech Systems Inc (NASDAQ:ASYS)

Posted in Activist Investors, Amtech Systems Inc (NASDAQ:ASYS), Greenbackd Portfolio, Net Net Stocks, Richard L. Scott, Stocks, tagged , , on March 5, 2009| 7 Comments »

Amtech Systems Inc (NASDAQ:ASYS) is a new addition to the Greenbackd Portfolio. At its $2.78 closing price yesterday, the company has a market capitalization of $25.3M. We estimate the liquidation value to be almost 60% higher at $40M or $4.40 per share. A private investor, Mr. Richard L. Scott, disclosed a 7.0% holding in July last year. Mr Scott has continued to purchase stock, and, as of February 17 this year, holds 9.1% of ASYS’s outstanding stock. We’re not sure what Mr. Scott has planned for ASYS, but we think the stock is a relatively good bet as it has continued to generate positive operating cash flow and earnings.

About ASYS

ASYS is a supplier of horizontal diffusion furnace systems used for solar (photovoltaic) cell and semiconductor manufacturing. The company operates in two business segments: solar and semiconductor equipment, and polishing supplies, under the brand names Tempress Systems and Bruce Technologies. ASYS also supplies insert carriers to manufacturers of silicon wafers under the PR Hoffman brand, and provides lapping and polishing consumable products, as well as equipment used in various industries. The company’s investor relations website is here.

The value proposition

The summary of our estimate for the company’s liquidation value is set out below (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):

asys-summaryWe estimate ASYS’s liquidation value to be around $40M or $4.40 per share.

Off-balance sheet arrangements and Contractual obligations

According to the company’s most recent 10Q, as of December 31, 2008, ASYS had no off-balance sheet arrangements. The only significant changes in contractual obligations since the end of fiscal 2008 have been purchase obligations in the amount of $6.1M. These purchase obligations consist of outstanding purchase orders for goods and services. While the amount represents purchase agreements, the actual amounts to be paid may be less in the event that any agreements are renegotiated, cancelled or terminated.

The catalyst

Mr. Scott disclosed his initial 7.0% holding in a 13D notice dated July 28, 2008, purchasing $5.4M of stock in ASYS at prices between $8.95 and $9.50. The initial 13D notice contains the standard disclosure for Purpose of Transaction, which we’ve reproduced below:

[Mr. Scott] purchased the Common Stock in open market transactions for general investment purposes. Consistent with such purposes, [Mr. Scott] may seek to engage in future discussions with management of [ASYS] and may make suggestions concerning [ASYS]’s operations, prospects, business and financial strategies, assets and liabilities, business and financing alternatives and such other matters as [Mr. Scott] may deem relevant to his investment in [ASYS]. In addition, [Mr. Scott] may from time to time, depending on prevailing market, economic and other conditions, acquire additional shares of the Common Stock of [ASYS] or engage in discussions with [ASYS] concerning further acquisitions of shares of the Common Stock of [ASYS] or further investments in [ASYS]. [Mr. Scott] intends to review his investment in [ASYS] on a continuing basis and, depending upon the price and availability of shares of the Common Stock, subsequent developments affecting [ASYS], [ASYS]’s business and prospects, other investment and business opportunities available to [Mr. Scott], general stock market and economic conditions, tax considerations and other factors considered relevant, may decide at any time to increase or to decrease the size of his investment in [ASYS].

Mr. Scott has continued to purchase stock in ASYS and has disclosed a 9.1% holding in an amended 13D notice dated February 20, 2009.

Stock repurchase program

According to the most recent 10Q, the company’s board approved a stock repurchase program in December authorizing the repurchase of up to $4M of ASYS’s common stock. If the buy-back is completed at the current stock price, we estimate that the company’s per share liquidation value would increase by around 7% to $4.70.

Conclusion

At its $2.78 close yesterday, ASYS is trading at a little under two-thirds of our estimate of its value in liquidation.  Given that it has continued to generate positive operating cash flow and earnings in a difficult operating environment, we think ASYS represents very good value at a discount to its liquidation value. Management seem to have recognized that the stock is too cheap, and have taken the right steps by authorizing a $4M stock buy-back. Our only criticism is that the buy-back could be bigger. For example, if the buy-back was increased to $10M and stock bought back at the current stock price, the company’s per share liquidation value would increase by 24% to $5.45, leaving ASYS with around $28M in cash and short-term investments. This is a very small criticism, and ASYS has the option to increase the buy-back in subsequent quarters if the stock price continues to trade at a discount to liquidation value. We don’t know anything about Mr. Scott, but we like to see large stockholders increasing their stakes when the stock price drops. We think ASYS is very good value, and that’s why we’re adding it to the Greenbackd Portfolio.

ASYS closed yesterday at $2.78.

The S&P500 Index closed yesterday at 712.87.

[Full Disclosure:  We do not have a holding in ASYS. 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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Where in the world is Chapman Capital?

Posted in Activist Investors, Chapman Capital, Stocks, tagged , , on March 4, 2009| 4 Comments »

Robert L. Chapman, Jr.’s 13D poison pen letters are welcome relief in the generally flat, arid landscape of SEC filings, and so it’s no small disappointment to us that he has been quiet of late. When we started Greenbackd, we imagined that we’d be covering his missives on a regular basis. Unfortunately, aside from his appointment in January as Chief Executive Officer of EDCI Holdings Inc (NASDAQ:EDCI), Chapman hasn’t troubled the SEC filing clerk at 5670 Wilshire Boulevard with so much as a Form 13F this year and hasn’t filed a 13D since August last year. We think it’s a shame, and so we ask, “Where in the world is Chapman Capital?”

Chapman is widely regarded as the progenitor of the 13D poison pen letter. He’s also one of the more literate shareholder activists prepared to share his letters with the world at large. Said The New Yorker, in an August 7, 2006 article, 13D:

Bob writes letters-publicly filed with the Securities and Exchange Commission-that no recreational user of, say, the Microsoft Word thesaurus could dare parse, let alone compose. A sampling of Chapman’s correspondence from the past two months reveals the following usages: “pretermit,” “fustigation,” “macerate,” “ablated,” “accretive,” “remora,” “phlebotomizing,” “gasconade.” Only occasionally does he bother to define his terms for the benefit of the less literate. (” ‘Remora’: any of several marine fishes of the family Echeneidae, having on the head a sucking disk with which they attach themselves to sharks; see volatility injected into other activist portfolios due to the remora’s often swashbuckling behavior.”)

…

As with all genres, the 13D attack letter has its tropes: macho swagger about work ethic, war metaphors, regional stereotyping. Chapman’s contributions stand out, however, with a baroque style that is reminiscent of David Foster Wallace: heavy on footnotes (there are fourteen in one paragraph of a recent filing) and on wordplay (no alliteration is too much: “expeditious exercise,” “tutelary tactics,” “insidious ink”). In early June, Chapman fired off a letter (”Dear Denny”) to the C.E.O. of the Dallas-based software company Carreker, whom he called “Long Winder of the Year.” “I have nightmares involving my choking down gourmet tuna sandwiches and uninformed, ‘long-term’ business judgments, both being served in abundant quantity by you and your Texas ‘pardners,’ ” he wrote. (At one point, he referred to the C.E.O.’s brother “Jimbo,” whose “bloodline,” in a recent press release, had evidently “pressed the surface like a varicose vein.”)

Chapman’s oeuvre is “asset-rich companies with battered stock prices” (WSJ.com subscription required) and he often operates in the universe of stocks trading below liquidation value. With more stocks fitting his criteria available now than at any time in recent history, we figure that Chapman Capital should be quite, er, active. Unfortunately, that doesn’t seem to be the case, and the 13D genre is the poorer for it.

Come back, Bob, and bring your poison pen.

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TRID gets a date for the ball

Posted in Activist Investors, Net Cash Stocks, Spencer Capital Management, Stocks, Trident Microsystems Inc (NASDAQ:TRID), tagged , , , on March 3, 2009| 7 Comments »

Spencer Capital Management LLC has announced that it intends to nominate an alternate slate of candidates for the board of Trident Microsystems Inc (NASDAQ:TRID). We’ve been following TRID since January 21 this year, arguing that it’s a good candidate for an activist campaign for the following reasons:

  1. It’s large for a net cash stock: As its $1.30 close yesterday, the company has a market capitalization of $83M. That puts it into the strike zone for funds with around $100M under management.
  2. It’s deeply undervalued: We estimate its liquidation value is around $167M or $2.66 per share, which is more than 100% higher than its close yesterday.
  3. Its value is predominantly cash: TRID is trading at half net cash value of approximately $155M or $2.48 per share.
  4. Its stock is liquid enough: According to TRID’s Google Finance page, the average volume for the stock is more than 530,000 shares per day. It traded more than 655,000 yesterday. With 63M shares on issue, an investor seeking ~5% of TRID needs a few more than 3M shares, which should be readily achievable in a reasonably short period of time.
  5. Management holds a vanishingly small number of shares and are net sellers.

Spencer Capital Management is a “New York-based fund advisor that specializes in deep value investing” headed by Kenneth H. Shubin Stein, MD, CFA. We’re not sure how much stock Spencer Capital Management holds. TRID doesn’t seem to feature in its most recent Form 13F and no 13D has been filed since December 31, 2008, the end of the period covered by the Form 13F. The investor’s press release reads as follows:

SPENCER CAPITAL MANAGEMENT, LLC SEEKS TO RESTRUCTURE THE BOARD OF DIRECTORS OF TRIDENT MICROSYSTEMS

Effort Aimed At Strengthening Corporate Governance And Repositioning Struggling Technology Company

Spencer Capital Management LLC, a New York-based investment partnership, announced today its intention to put forth a slate of candidates for election to the board of Trident Microsystems, Inc. (TRID). Trident Microsystems, based in Santa Clara, California, is a designer of integrated circuits for the digital television market.

Kenneth H. Shubin Stein, MD, CFA, and founder of Spencer Capital Management is leading the effort to restructure the board with an aim towards improving corporate governance and repositioning the company.

“This is a company whose revenue has deteriorated significantly, product line has lost ground and business model is under enormous pressure,” said Dr. Shubin Stein. “We intend to run a slate of candidates whose interests will be aligned with shareholders and who have the investing and technological expertise to effectively analyze the assets of the company and maximize their value. We encourage all shareholders to reach out to us to further discuss this proposal.”

Hat tip to JM.

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NSTR files plan of liquidation

Posted in Activist Investors, Northstar Neuroscience Inc (NASDAQ:NSTR), Stocks, tagged , , on March 3, 2009| Leave a Comment »

Northstar Neuroscience Inc (NASDAQ:NSTR) has filed its notice of special meeting of shareholders annexing the Plan of Complete Liquidation and Dissolution (Plan).

We started following NSTR because it is a net cash stock that has announced that it plans to liquidate. NSTR closed yesterday at $1.85, giving it a market capitalization of $48.4M. We originally estimated the final pay out figure in the liquidation to be around $59M or $2.26 per share, which presents an upside of around 25%. The company estimates a slightly lower pay out figure of between $1.90 and $2.10 “assuming we are unable to sell our non-cash assets” and expects to make an initial distribution within approximately 45 days after the Effective Date (which is to be announced) of approximately $1.80 per share. The following is extracted from the Plan:

Q: What will shareholders receive in the liquidation?

A: Pursuant to the Plan of Dissolution, we intend to liquidate all of our remaining non-cash assets and, after satisfying or making reasonable provision for the satisfaction of claims, obligations and liabilities as required by law, distribute any remaining cash to our shareholders. We can only estimate the amount of cash that may be available for distribution among our shareholders. We currently estimate that the amount ultimately distributed will be between approximately $1.90 and $2.10 per share of common stock, assuming we are unable to sell our non-cash assets. Many of the factors influencing the amount of cash distributed to our shareholders as a liquidating distribution cannot be currently quantified with certainty and are subject to change. Accordingly, you will not know the exact amount of any liquidating distributions you may receive as a result of the Plan of Dissolution when you vote on the proposal to approve the Plan of Dissolution. You may receive substantially less than the amount we currently estimate. See “Proposal 1: Approval of Plan of Dissolution-Estimated Liquidating Distributions.”

Q: When will shareholders receive payment of any available liquidation proceeds?

A: Although we are not able to predict with certainty the precise nature, amount or timing of any distributions, we presently expect to make an initial distribution, within approximately 45 days after the Effective Date, to holders of record of our common stock as of the close of business on the Effective Date of approximately $1.80 per share. We do not intend to make any further distributions until after we sell, liquidate or otherwise dispose of our remaining non-cash assets, consisting primarily of our RenovaTM Cortical Stimulation System and related intellectual property, and pay or otherwise make reasonable provision for the payment of claims against and obligations of Northstar. We are not able to predict with certainty the precise nature, amount or timing of any distributions, primarily due to our inability to predict the amount of our remaining liabilities or the amount that we will expend during the course of the liquidation and the net value, if any, of our remaining non-cash assets. To the extent that the amount of our liabilities or the amounts that we expend during the liquidation are greater, or the value of our non-cash assets is less, than we anticipate, our shareholders may receive substantially less than the amount we currently estimate. Our board of directors has not established a firm timetable for any final distributions to our shareholders. Subject to contingencies inherent in winding up our business, our board of directors intends to authorize any distributions as promptly as reasonably practicable in the best interests of Northstar and its shareholders. Our board of directors, in its discretion, will determine the nature, amount and timing of all distributions.

Assuming shares can be purchased at NSTR’s $1.85 close yesterday, after receiving the initial $1.80 per share, an investor will have $0.05 per share of capital invested for an upside of between $0.10 ($1.90 minus $1.80) and $0.30 ($2.10 minus $1.80) per share plus the possibility of receiving a further amount for NSTR’s non-cash assets, which we estimate could be as much as $0.16 per share. That seems like a favorable risk:reward ratio to us. The liquidation is still subject to stockholder approval, but we think NSTR presents a reasonable prospect for a good return in a short time frame.

[Full Disclosure:  We do not have a holding in NSTR. 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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OrthoLogic Corporation (NASDAQ:CAPS)

Posted in Activist Investors, Biotechnology Value Fund, Greenbackd Portfolio, Net Cash Stocks, OrthoLogic Corporation (NASDAQ:CAPS), tagged , , on February 27, 2009| 2 Comments »

OrthoLogic Corporation (NASDAQ:CAPS) is a little unusual for us. While it trades below its net cash value and Biotechnology Value Fund (BVF) has disclosed a 13.42% holding, BVF’s holding is passive. At CAPS’s $0.60 close yesterday it has a market capitalization of $24.4M. We estimate the net cash value to be 80% higher at $1.08 per share. CAPS’s cash burn rate is quite high relative to its net cash position, so rapid steps need to be taken for this to be a profitable investment. We think that BVF is a good bet, so we’re adding CAPS to the Greenbackd Portfolio.

About CAPS

CAPS is a development stage biotechnology company focused on the development and commercialization of the synthetic peptides Chrysalin (TP508) and AZX100. Effective October 1, 2008, OrthoLogic Corp. is known and doing business as Capstone Therapeutics. The company’s investor relations website is here.

The value proposition

The summary of our estimate for the company’s liquidation value is set out below (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):

caps-summary

Note that we have used the September 10Q. CAPS’s most recent filings indicate that cash is actually $48M (see slide 13), but we don’t know what the rest of the balance sheet looks like. The presentation also gives cash burn guidance this year of $14M to $16M.

The company also included the following in its 10Q, which seems to indicate a shift to cash preservation:

We announced that we have no immediate plans to re-enter clinical trials for Chrysalin-based product candidates and a strategic shift in our development approach to our Chrysalin Product Platform. We currently intend to pursue development partnering or licensing opportunities for our Chrysalin-based product candidates, a change from our previous development history of independently conducting human clinical trials necessary to advance our Chrysalin-based product candidates to market. We will continue to explore Chrysalin’s therapeutic value in tissues and diseases exhibiting endothelial dysfunction as well as the science behind and potential of Chrysalin. We will also continue research and development expenditures for further pre-clinical studies supporting multiple indications for AZX100 and plan to continue AZX100 dermal scarring human clinical trials.

Off-balance sheet arrangements and Contractual obligations

There is no discussion in the September 10Q about CAPS’s off-balance sheet arrangements or contractual obligations.

The catalyst

Given that BVF has filed a 13G notice, which indicates a passive investment, we’re not entirely sure what BVF has planned for CAPS. It’s possible that it is simply a passive holding. We’re reasonably comfortable following BVF into CAPS because of their efforts with Avigen Inc (NASDAQ:AVGN) and Neurobiological Technologies Inc (NASDAQ:NTII).

CAPS has been undertaking a stock repurchase program since March 5, 2008. At September 30, 2008, the company had repurchased 1.1.M shares of its common stock, at a total cost of $1.0M, and had allocated approximately a further $1.1M to fund possible future stock repurchases. We don’t know the status of the buy-back at this time.

Conclusion

At its $0.60 close yesterday, CAPS is trading at 55% of our estimate of its $1.08 per share net cash value. The risk for this investment – as it is for all of these types of investment – is that CAPS dissipates its cash before it or BVF can salvage that value. Management is taking steps to reduce its cash burn and repurchase undervalued stock, which is encouraging. Perhaps this is what BVF has seen, and the reason BVF hasn’t filed a 13D notice. We think that BVF is a good bet, so we’re adding CAPS to the Greenbackd Portfolio.

CAPS closed yesterday at $0.60.

The S&P500 Index closed yesterday at 752.83.

Hat tip to ef.

[Full Disclosure:  We do not have a holding in CAPS. 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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ACLS agrees to sell SEN Corp interest for $133M

Posted in Activist Investors, Axcelis Technologies Inc (NASDAQ:ACLS), Sterling Capital Management, Stocks, tagged , , , on February 27, 2009| 6 Comments »

Axcelis Technologies Inc (NASDAQ:ACLS) has announced that it has agreed to sell its 50% interest in SEN Corporation, its joint venture with Sumitomo Heavy Industries, Ltd. (SHI) to SHI for Y13 billion, or approximately $133 million, in cash. This is an outstanding achievement by ACLS management under difficult conditions. The sale will provide the liquidity necessary to meet the $85M due to the holders of the company’s 4.25% Convertible Senior Subordinated Notes, upon which ACLS defaulted in January.

We started following ACLS on January 8 this year because it is an undervalued asset play with an activist investor, Sterling Capital Management, holding 10.7% of its outstanding stock. In our initial post we estimated ACLS’s liquidating value at $134.9M, or $1.31 per share. Assuming the sale is completed, we estimate ACLS’s liquidating value to be slightly higher at $147M or $1.43 per share, which is more than 300% higher than its close yesterday of $0.35.

The value proposition updated

ACLS is generating substantial and increasing operating losses, reaching a $22.8M nadir for the September quarter (see the September 10Q here). We have adjusted the September 10Q balance sheet to account for the sale of the SEN JV and to back out several other payments and projected it forward to March (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):

acls-summary-sen-sale1This summary balance sheet assumes that the $133M to be received in March 2009 from the sale of SEN is used to pay off the notes first (approximately $85M) with the remainder added to cash. We have backed out a further $15M in termination payments from cash. This summary balance sheet also assumes that ACLS burns an additional $22M in cash in the current quarter. The company is still making substantial operating losses that have widened over the last five quarters, so these amounts are likely to be substantial on an ongoing basis.

The press release

ACLS has not yet filed an 8K but the press release is as follows (via Tradingmarkets.com):

Axcelis Technologies, Inc. (Nasdaq:ACLS) today announced that it has entered into a Share Purchase Agreement in which Sumitomo Heavy Industries, Ltd. (“SHI”) will purchase Axcelis’ 50% interest in their joint venture, SEN Corporation, an SHI and Axcelis Company, (“SEN”), for Y13 billion, or approximately $133 million, in cash at current conversion rates. Axcelis and SHI each currently own 50% of SEN, a Japanese company that is licensed by Axcelis to manufacture and sell certain implant products in Japan.

It is anticipated that the transaction between Axcelis and SHI will be completed on March 31, 2009. Axcelis will use a portion of the proceeds from the sale of its SEN interests to meet its obligations under its 4.25% Convertible Senior Secured Subordinated Notes, which were due in January. Pending the closing, the trustee for the notes has agreed to stand down on litigation filed in connection with Axcelis’ default on the notes.

Mary Puma, Chairman and CEO of Axcelis, said: “This transaction serves the best interests of Axcelis shareholders as it enables us to fulfill our senior debt obligations and gives us greater financial flexibility during this difficult economic climate and semiconductor industry downturn. Axcelis will continue to fully focus its efforts on tight cash and cost controls and on developing and selling innovative products like our Optima implanters and Integra dry strip tools, both of which have received strong customer reviews. With these products, Axcelis believes that we can compete and gain market share once demand for semiconductor equipment returns.”

As part of the transaction, at the closing Axcelis and SEN will enter into cross licenses that will allow the two companies to continue to use certain patents and technical information owned by the other to make and sell ion implant systems on a worldwide, royalty-free, perpetual basis. Axcelis’ license to SEN would not include patents, licenses, or technical information developed by Axcelis for the Optima HD, Optima XE, or any non-implant products. The transaction will terminate all existing agreements among Axcelis, SHI and SEN relating to the SEN joint venture.

More information can be found in the Form 8-K that Axcelis will file with the Securities and Exchange Commission at http://www.sec.gov.

Hat tip to manny.

[Full Disclosure:  We have a holding in ACLS. 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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Zanett Group ups stake in MATH

Posted in Activist Investors, MathStar Inc (OTC:MATH), Net Cash Stocks, S. Muoio & Co, Salvatore Muoio, Stocks, Zachary McAdoo, tagged , , , , , , on February 26, 2009| 2 Comments »

The Zanett Group has increased its stake in MATH to 6.58% according to its most recent Schedule 13D amendment.

We’ve been following MATH since December last year when it was trading at $0.68. We initiated the position because MATH is a net cash stock with two substantial stockholders lobbying management to liquidate. The stock is up 19% to $0.87 yesterday, giving it a market capitalization of $8.0M. We estimate MATH’s liquidation value still to be more than 80% higher at $14.4M 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. The 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. 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 Zanett Group’s most recent share purchases were undertaken between January 22 and February 19 this year at prices between $0.81 and $0.90.

[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.]

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Zale Corporation (NYSE:ZLC) position closed

Posted in Activist Investors, Breeden Capital Management, Richard Breeden, Stocks, Zale Corporation (NYSE:ZLC), tagged , , , , on February 26, 2009| 2 Comments »

Zale Corporation (NYSE:ZLC) has released its results for the quarter to January 31, 2009. After reviewing the results, we have significantly reduced our original estimate for the company’s liquidating value since we initiated the position at $4.82 on December 3, 2008. Our initial analysis of ZLC’s balance sheet was overly optimistic. We’ve now applied more dour assumptions to ZLC’s results and, as a result, we’ve decided to close the position.

We started following ZLC believing it to be an undervalued asset situation. With former Chairman of the SEC turned activist investor, Richard Breeden of Breeden Capital Management LLC, holding two seats on the board, we thought it looked like a reasonable opportunity. At its $4.82 closing price on December 3, 2008 the company had a market capitalization of $154M. We estimated ZLC’s liquidation value at that time to be around $243M or $7.63 per share. After reviewing ZLC’s Q2 financial results and applying more dour assumptions for the value of the assets in liquidation, we now believe there is a risk that ZLC has no value in liquidation.

The value proposition updated

Set out below is our summary analysis of the balance sheet (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):

zlc-summary-2009-q2Conclusion

At its $1.35 close yesterday, ZLC has a market capitalization of just $43M. When we started coverage in December last year, ZLC traded at $4.82 and had a market capitalization of $154M. Our ZLC position is down a punishing 72% on an absolute basis. The S&P 500 Index closed at 848.81 on December 3, 2008 and closed yesterday at 764.90. That’s a return of -9.9% for the index and means we’re off 62.1% on a relative basis, which is still very disappointing. The simple fact is that this was an unforced error. Our original analysis of ZLC was overly optimistic. We’ve been applying more dour assumptions about the recovery values of assets in liquidation to our most recent analyses. If we had been applying the more dour assumptions at the time we made our original assessment of ZLC, we would not have initiated the position.

[Full Disclosure:  We do not have a holding in ZLC. 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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BVF extends AVGN tender offer to March 6

Posted in Activist Investors, Avigen (NASDAQ:AVGN), Biotechnology Value Fund, Greenbackd Portfolio, Net Cash Stocks, Stocks, tagged , , , , on February 25, 2009| Leave a Comment »

Biotechnology Value Fund (BVF) has extended its tender offer for the outstanding shares of Avigen Inc (Nasdaq: AVGN).

We’ve been following AVGN (see archived posts here) because it’s a net cash stock (i.e. it’s trading at less than the value of its cash after deducting all liabilities) and specialist biotechnology activist fund BVF has been pushing it to liquidate and return its cash to shareholders. MediciNova Inc (NASDAQ:MNOV) has made an offer for AVGN that we think represents a clever way for AVGN’s stockholders to receive cash equivalent to that which they would receive in a liquidation (less $7M to be paid to MNOV) with the possibility for “an extraordinary, uncapped return” if MNOV is successful post-merger. We estimate AVGN’s cash at around $1.22 per share (BVF estimates $1.20 per share), which is around 20% higher than AVGN’s $1.01 close yesterday.

The full text of BVF’s press release is reproduced below:

BVF Acquisition LLC (the “Purchaser”), an affiliate of Biotechnology Value Fund L.P. (“BVF”), which has commenced a cash tender offer to purchase all of the outstanding shares of Avigen, Inc. (Nasdaq: AVGN) (“Avigen”) for $1.00 per share, announced today that it has extended the expiration date for the tender offer to 6:00 p.m., New York City time, on Friday, March 6, 2009. The tender offer was previously set to expire at 12:00 midnight, New York City time, on Monday, February 23, 2009. As of the close of business on February 20, 2009, a total of 1,132,192 shares had been tendered in and not withdrawn from the offer, which together with the shares owned by BVF and affiliates, represents approximately 33% of the total shares outstanding of Avigen.

[Full Disclosure: We have a holding in AVGN. 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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