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Archive for the ‘Net Cash Stocks’ Category

MATH files 2008 annual meeting presentation to shareholders

Posted in Activist Investors, MathStar Inc (OTC:MATH), Net Cash Stocks, Stocks, tagged , , , on July 14, 2009| 4 Comments »

MathStar Inc’s (OTC:MATH) board has filed the slides from its presentation to shareholders at the 2008 annual meeting. In the presentation, MATH’s board discusses in some detail its rationale for recommending that stockholders reject Tiberius Capital’s $1.25 per share cash tender offer. We’ve unpacked the slide show below to see if we can arrive at a decision about Greenbackd’s position in MATH.

We’ve been following MATH since December last year (see our post archive here) when it was trading at $0.68. We initiated the position because MATH was trading below its net cash value and had two substantial stockholders lobbying management to liquidate. The stock is up 79.4% to close yesterday at $1.22, giving it a market capitalization of $11.2M. We estimate MATH’s net cash value to be around $11.7M or $1.27 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 board’s estimate of the company’s liquidation value is slightly higher than ours, at $1.40 per share. The board’s estimate also excludes revenue from any sales of the MATH’s existing inventory of field programmable object array chips or its FPOA technology.

Prior to Tiberius Capital’s offer, MATH had received several unsolicited merger proposals from PureChoice, Inc, all of which have been rejected by MATH. 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 has suspended the company’s operations and has been exploring “strategic alternatives, which could include merger, acquisition, increasing operations in another structure or liquidation.”

Tiberius Capital launched its tender offer for MATH on June 1 this year at $1.15 cash per share, bidding for 51% of the outstanding shares. Robert T. Sullivan, one of the principals of Tiberius said in the press release announcing the initial offer:

We are making the tender offer to enhance shareholder value. The potential strategies that we may cause MathStar to pursue include a partial repurchase of Shares, an extraordinary dividend, liquidation, selling or licensing MathStar’s technology assets, a business re-start in which MathStar would hire new personnel to improve and commercially exploit its technology assets, and/or a merger or other business combination. We will use the balance of 2009 to carefully examine whether to re-start MathStar’s business and/or to identify a suitable merger partner.

Tiberius Capital has since increased its offer to$1.25 per share in cash. MATH’s board continues to recommend against acceptance. The board’s presentation to the annual meeting discusses in some detail the board’s rationale for recommending against Tiberius’ offer, and the other possibilities for MATH.

The Annual Meeting Presentation

MATH’s board values MATH as follows:

  • $1.40 per share in cash; plus
  • NOLs (which could shelter up to $10 per share in future earnings (if any)); plus
  • MATH’s FPOA intellectual property; plus
  • MATH’s status as a public company:

MATH Presentation Slide 1MATH has been reviewing other “business combination opportunities,” presumably in an effort to capture the additional value beyond MATH’s cash (i.e. the value of the NOLs, other IP and status as a public company).  All have been rejected “primarily on the basis of valuation, excessive risk to upside, or excessive risk to our cash position.”

The presentation sets out what MATH seeks in a merger partner:

MATH Presentation Slide 2

MATH is presently conducting “deep due diligence” on two possible business opportunities, the first a private company “that could proactively use a portion of MathStar’s cash” and the second “a possible restart involving video encoding technology, which we could acquire and commercialize.”

The first opportunity – the private company – has annual revenues “over $10M.” The terms for the deal with the private company are as follows:

MATH Presentation Slide 3The second opportunity – the restart – seems to be technology only, with no established revenue. Says MATH, “We would plan to build a sustainable profitable revenue stream derived from sales of software solutions, board-level solutions and, eventually, chip solutions.” The terms for the restart deal are as follows:

MATH Presentation Slide 4The final material slide sets out MATH’s board’s plan for 2009:

MATH Presentation Slide 5

Conclusion

MATH’s board’s view boils down to this: Tiberius Capital’s $1.25 per share offer should be rejected because it is lower than the board’s $1.40 per share estimate of MATH’s liquidation value, which value also excludes the value of the MATH’s NOLs (which could shelter up to $10 per share in future earnings (if any)), the value of MATH’s FPOA intellectual property and the value of MATH’s status as a public company. In MATH’s board’s view, the better options for MATH are the two business opportunities. Let’s consider those now:

The first deal – the private company – makes use of MATH’s status as a public company and makes capturing the value of the NOLs a possibility. From that perspective, it’s a commendable deal. On the downside, we do not know if the new combined entity will generate any net income to make use of the NOLs. We do know that MATH’s existing shareholders will be diluted down from owning 100% of MATH’s cash to approximately 50% of MATH’s cash and 50% of a unknown private company generating annual revenues of “over $10M,” although there is  no word on the profitability of the private company.

The second deal is harder to value. With no revenue history, the restart technology-only deal is a crapshoot. It seems quite conceivable to us that MATH spends a large portion of its cash on the technology and then spends the rest on commercializing it, never generating any revenue, let alone net income.

Our own estimate of MATH’s value is considerably more conservative than MATH’s board’s view. We ascribe minimal value to MATH’s FPOA technology and status as a public company. The NOLs certainly have value, but we question how successful MATH can be in harnessing that value given the regulations around preserving them. We also believe it will be extremely difficult for MATH to find a worthwhile merger partner, and the length of time MATH has taken in its search seems to bear out this view. MATH needs 50%+ of the combined entity and has only limited cash, which means either a tiny merger partner or an acquisition of technology with no revenue – lo and behold, those are the two options on the table. The second deal – the restart – is a non starter. We’ll take cash over commercially unproven, pre-revenue technology any day. The first deal – the private company – is better than the second, but not by much. It still doesn’t meet Greenbackd’s threshold for a deal, which is the exchanging of a known quantity of cash for unknown earnings. Long term readers of this site will recognize that our vast preference for cash over unknown future earnings means that we will almost always lean away from deals of this stripe.

So where does that leave our position in MATH? Our estimate of MATH’s liquidation value is its net cash value after deducting around $2M of cash burn, professional fees and other liquidation costs, or around $11.7M or $1.27 per share. If a near-term liquidation was a real possibility, our estimate of the liquidation value would be closer to the board’s view of $1.40 per share. Given the foregoing presentation by the board, we don’t believe that liquidation is likely in the near-term or at all. It seems much more likely that the board will undertake one of the two business opportunities outlined above, and we don’t believe either is likely to increase the value of our stake in MATH with any certainty. Accordingly, we’re going to consider our ongoing position in MATH in light of the results of the annual meeting. More tomorrow.

[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.]

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Lloyd I Miller III discloses DITC holding; Supports Lamassu Holdings’ candidates

Posted in Activist Investors, Ditech Networks Inc (NASDAQ:DITC), Greenbackd Portfolio, Lamassu Holdings LLC, Lloyd I. Miller III, Net Cash Stocks, Net Net Stocks, Stocks, tagged , , , , on July 10, 2009| Leave a Comment »

Lloyd I Miller III has disclosed a 5.9% holding in Ditech Networks Inc (NASDAQ:DITC). According to the 13D filing, Mr. Miller supports Mr. Leehealey and Mr. Sansone – the director candidates nominated by Lamassu Holdings for election to the board of directors at the DITC annual meeting – as “candidates who are independent of management and he seeks to encourage greater attention to corporate governance by all members of the Board of Directors.”

We’ve been following DITC (see our archive here) because it is trading below its net cash value with an investor, Lamassu Holdings LLC, disclosing a 9.4% holding in November last year. Lamassu has previously offered to acquire DITC for $1.25 per share in cash. Lamassu says that it “anticipates its due diligence requirement will take no more than two weeks and there is no financing contingency.” Lamassu has now nominated two candidates for election to the board “who are committed to enhancing shareholder value through a review of the Company’s business and strategic direction.” The stock is up 49.4% from $0.89 to close yesterday at $1.33, giving the company a market capitalization of $35M. We last estimated the net cash value at around $32.2M or $1.23 per share and the liquidation value at around $43.4M or $1.65 per share. While the deterioration in value is a concern, Mr. Miller’s support of Lamassu Holding’s director candidates introduces a new element to the position. We’re inclined to hold on to see how the annual meeting plays out.

[Full Disclosure:  We do not have a holding in DITC. 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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SOAP announces liquidation

Posted in Activist Investors, Mithras Capital, Net Cash Stocks, Soapstone Networks Inc (NASDAQ:SOAP), Stocks, tagged , , , on June 16, 2009| 5 Comments »

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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NSTR shareholders approve liquidation

Posted in Activist Investors, Net Cash Stocks, Northstar Neuroscience Inc (NASDAQ:NSTR), Stocks, tagged , , on May 26, 2009| 4 Comments »

The shareholders of Northstar Neuroscience Inc (NASDAQ:NSTR) have approved the complete liquidation of NSTR at a special meeting of shareholders.

We started following NSTR because it was a net cash stock that has announced that it plans to liquidate. NSTR closed Friday at $1.97, 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 company’s announcement is as follows:

On May 14, 2009, Northstar Neuroscience, Inc. (the “Company”) held a special meeting of shareholders, at which the shareholders of the Company approved the voluntary dissolution and liquidation of the Company pursuant to a Plan of Complete Liquidation and Dissolution (the “Plan”). Pursuant to the Plan, the Company intends to file articles of dissolution (the “Articles”) with the Secretary of State of the State of Washington as soon as reasonably practicable after resolution of the audit of the Company’s State of Washington tax obligations and receipt of the required revenue clearance certificate from the Department of Revenue of the State of Washington. The Company will be dissolved upon the effective date of the Articles (the “Effective Date”), which may be the date on which the Articles are filed or a later date specified in the Articles. The Company intends to make a public announcement in advance of the anticipated Effective Date and to delist its Common Stock from the Nasdaq Global Market as of the Effective Date.

Pursuant to the Plan, the Company is also authorized to dispose of its remaining non-cash assets, on such terms and at such prices as the Company’s board of directors, without further shareholder approval, may determine to be in the best interests of the Company and its shareholders, to pay or make reasonable provision to pay all claims against and obligations of the Company, to make such provisions as will be reasonably likely to be sufficient to provide compensation for any claim against the Company which is the subject of a pending action, suit or proceeding to which the Company is a party, to distribute on a pro rata basis to the shareholders of the Company the remaining assets of the Company, and, subject to statutory limitations, to take all other actions necessary to wind up and liquidate the Company’s business and affairs.

[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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MATH’s board rejects third merger offer

Posted in Activist Investors, MathStar Inc (OTC:MATH), Net Cash Stocks, Stocks, tagged , , , on May 21, 2009| Leave a Comment »

MathStar Inc’s (OTC:MATH) board has rejected the $1.04 per share cash merger offer from PureChoice, Inc. because “the $1.04 per share price is less than the liquidation value of MathStar, including the value from any technology sale, and, in the Merger, MathStar’s shareholders would derive no value from MathStar’s net operating loss carryforwards.”

We’ve been following MATH since December last year (see our post archive here) when it was trading at $0.68. We initiated the position because MATH was trading below its net cash value and had two substantial stockholders lobbying management to liquidate. The stock is up 48.5% to $1.01 yesterday, giving it a market capitalization of $9.3M. We estimate MATH’s liquidation value to be around $12.0M or $1.31 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 PureChoice, Inc’s previous unsolicited merger proposals and now rejecting PureChoice, Inc for a third time, suspending the company’s operations and exploring “strategic alternatives, which could include merger, acquisition, increasing operations in another structure or liquidation.”

The press release from MATH is below:

On May 11, 2009, MathStar, Inc. received a letter containing an unsolicited proposal by PureChoice, Inc. (“PCI”) to enter into a merger transaction with MathStar (the “Merger”). As proposed by PCI, MathStar’s stockholders would receive cash consideration of $1.04 per share in the Merger for all of their MathStar shares.

MathStar’s Board considered and analyzed PCI’s Merger proposal. It concluded that PCI’s proposal was not acceptable because, among other reasons, the $1.04 per share price is less than the liquidation value of MathStar, including the value from any technology sale, and, in the Merger, MathStar’s shareholders would derive no value from MathStar’s net operating loss carryforwards. Thus, the Board rejected PCI’s Merger proposal as not being in the best interests of MathStar’s stockholders. The Board will continue to pursue strategic alternatives.

We said on the filing of the letter to MATH that we thought that, to be successful, any merger offer would, at the minimum, need to be pitched at MATH’s liquidation value (which we estimated at $12.0M or $1.31 per share). Hopefully PureChoice, Inc. will return with a genuine bid that reflects this value.

[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.]

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CuraGen Corporation (NASDAQ:CRGN) Q1 update; Greenbackd exits

Posted in Activist Investors, CuraGen Corporation (NASDAQ:CRGN), DellaCamera Capital Management, Net Cash Stocks, Stocks, tagged , , , on May 18, 2009| Leave a Comment »

CuraGen Corporation (NASDAQ:CRGN) has filed its 10Q for the period ended March 31, 2009. CRGN’s stock has risen strongly over the last few months, and is now trading at $1.02, giving it a market capitalization slightly higher than our estimate of its liquidation value. Accordingly, we’re going to take this opportunity to exit. The stock was at $0.67 when we started following it and closed Friday at $1.02, which means we’re up 52.2% on an absolute basis. The S&P500 Index closed on the day we opened the position at 850.12 and closed Friday at 882.88, which means we’re up 48.4% on a relative basis.

Post mortem

We started following CRGN on January 20, 2009 (see our post archive here) because it was a net cash stock with an investor, DellaCamera Capital Management, pushing the company to seek “alternative deployment of [its] capital.” DellaCamera Capital Management increased its stake from 5.6% to 6.5% and nominated two candidates to the board. We last estimated CRGN’s net cash value to be around $59.9M or $1.05 per share. After reviewing the 10Q, we slightly reduced our valuation to $56.9M or $1.00 per share. We exited because the stock is trading at a premium to that estimated value.

The company is not generating any operating cash flow, so was a pure undervalued asset play. The major change to the balance sheet since we opened the position was CRGN’s February repurchase of $4.8M of its 4% convertible subordinated debentures due February 2011, for an aggregate purchase price of $3.8M, which reflected an aggregate discount from the face value of such 2011 notes of approximately 21%. We’ve updated the summary balance sheet 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):

CRGN Summary 2009 3 31CRGN’s $79.8M in cash and short term investments consists of $45.6M in cash and equivalents, $18.0M in short-term investments and $16.1M in marketable securities.

Balance sheet adjustments

In reaching our estimate, we made the following adjustments to the balance sheet estimates above:

  • Cash burn: The company used $4.0M in cash in operations in the first quarter. We have included cash burn of $3M in our estimate for the remainder of the quarter.
  • Off-balance sheet arrangements and contractual obligations: According to CRGN’s 10Q, it has no off-balance sheet arrangements. Its contractual obligations (excluding the convertible notes, which we’ve included in the summary balance sheet above) are $3.7M in total.

Deducting the $6.7M from the $63.6M in net assets leaves around $56.9M in liquidation value or $1.00 per share.

Conclusion

We are reasonably happy with the outcome in CRGN. While DellaCamera Capital Management’s campaign has not been run to its conclusion, we feel that with the stock trading at around CRGN’s liquidation value, it is an opportune time to exit. CRGN has announced a plan to undertake a review of strategic alternatives that it says could enhance shareholder value, which might range from selling or licensing CR011, to acquiring additional assets or business lines, to selling the company. While these alternatives might offer more value from here, there is no assurance that the process will result in any specific action or transaction, and CRGN will continue to burn cash as it funds its operations and develops CR011-vcMMAE. For these reasons, we’ve taken our chips off the table.

[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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Avigen Inc (NASDAQ:AVGN) Q1 10Q update

Posted in Activist Investors, Avigen (NASDAQ:AVGN), Biotechnology Value Fund, Net Cash Stocks, Stocks, tagged , , , on May 14, 2009| Leave a Comment »

Avigen Inc (NASDAQ:AVGN) has filed its 10Q for the period ended March 31, 2009.

We started following AVGN in December last year (see archived posts here) because it was a net cash stock (i.e. it was trading at less than the value of its cash after deducting all liabilities), albeit a cash burning net cash stock, and specialist biotechnology investor Biotechnology Value Fund (BVF) was pushing it to liquidate and return its cash to shareholders. Despite BVF’s failure to remove the board, we continued to maintain our position in AVGN because BVF won a number of important concessions from the board that made AVGN a much more attractive stock than it was when we started following it. The stock price reflects this: AVGN is up 97% from $0.65 when we initiated the position to close yesterday at $1.28. We’ve reduced our estimate of the net cash slightly to $34M or $1.14 per share. We believe that the there is a good chance that AVGN will yield considerably more than its net cash value. The net cash estimate does not take into account AVGN’s AV411 assets and program or near term payments from Genzyme, which could be worth as much as $6M to $25M or between $0.18 or $0.75 per share more.

The value proposition updated

Set out below is our adjusted balance sheet for AVGN (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):

AVGN Summary 2009 3 31Conclusion

While BVF’s slate was not successful at the special meeting, AVGN’s board is now developing its own plan of liquidation, which should put a floor on AVGN’s stock at around its net cash value of $34M or $1.14 per share less wind down costs. There exists a good chance that AVGN will yield considerably more than its net cash value. The net cash estimate does not take into account AVGN’s AV411 assets and program or near term payments from Genzyme, which could be worth as much as $6M to $25M or between $0.18 or $0.75 per share more. With the downside protected, and a good chance at a substantial $0.18 or $0.75 per share upside from here, we think AVGN still represents good value, and we’re going to maintain our position accordingly.

[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. Do your own research before investing in any security.]

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MATH receives $1.04 per share merger offer from twice-spurned suitor

Posted in Activist Investors, MathStar Inc (OTC:MATH), Net Cash Stocks, S. Muoio & Co, Salvatore Muoio, Stocks, tagged , , , , on May 12, 2009| 1 Comment »

MathStar Inc (OTC:MATH) has received another merger offer from PureChoice, Inc., this one providing for a $1.04 per share cash payment to the MATH stockholders.

We’ve been following MATH since December last year (see our post archive here) when it was trading at $0.68. We initiated the position because MATH was trading below its net cash value and had two substantial stockholders lobbying management to liquidate. The stock is up 33.8% to $0.91 yesterday, giving it a market capitalization of $8.4M. We estimate MATH’s liquidation value to be around $12.0M or $1.31 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 from PureChoice, Inc., suspending the company’s operations and exploring “strategic alternatives, which could include merger, acquisition, increasing operations in another structure or liquidation.”

The press release from PureChoice, Inc. (via Earth Times) is as follows:

BURNSVILLE, Minn., May 11 /PRNewswire/ — PureChoice, Inc., a leader in building performance software, has made a merger offer to MathStar, Inc. providing for a $1.04 per share cash payment to the MathStar stockholders. The offer represents a 23 percent premium over Friday, May 8, 2009 market close of $.84 per share.

The merger offer was outlined Monday in a letter to the MathStar board of directors from Bryan Reichel, President and CEO of PureChoice.

The merger offer is contingent upon several factors, including minimum MathStar cash balances and maximum MathStar liabilities at closing, and the absence of certain specified transactions, commitments or other arrangements between January 1, 2009 and the closing date.

We need to see the full terms of the offer, but it seems to be pitched at a large discount to MATH’s liquidation value. We would hope that any merger offer would, at the minimum, reflect MATH’s liquidation value of $12.0M or $1.31 per share. We’ll keep a weather eye on the negotiations.

[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.]

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Vanda Pharmaceuticals Inc (NASDAQ:VNDA) up on FDA approval; Greenbackd exits

Posted in Activist Investors, Net Cash Stocks, Stocks, Tang Capital Partners, Vanda Pharmaceuticals Inc (NASDAQ:VNDA), tagged , , , on May 8, 2009| 3 Comments »

Vanda Pharmaceuticals Inc. (NASDAQ:VNDA) yesterday announced that the US Food and Drug Administration (FDA) had granted marketing approval following its Phase III clinical study of Fanapt™ (iloperidone). Tang Capital Partners has ended its proxy contest by withdrawing its nominations of director candidates for election to VNDA’s Board of Directors and its stockholder proposal to liquidate VNDA. We are closing our position too. The stock ran 900% on the announcement to $10.00 in after-hours trade and closed yesterday at $7.84. We opened the position on March 12, 2009 at $0.78, so we’re up 905.1% on an absolute basis. The S&P500 Index closed at 721.36 on the same day, and closed yesterday at 907.39, which means we’re up 881.7% on a relative basis.

We started following VNDA (see our post archive here) because it was trading below its net cash value and Tang Capital Partners (TCP) had called for the company to “cease operations immediately, liquidate [VNDA]’s assets and distribute all remaining capital to the Stockholders.” TCP had filed a preliminary proxy statement for the 2009 Annual Meeting urging stockholders to support TCP’s slate of two director nominees, Kevin C. Tang and Andrew D. Levin, M.D., Ph.D. We estimated VNDA’s net cash value to be around $38.6M or $1.45 per share, and believed that the investment turned on TCP’s ability to get control of the board at the Annual Meeting. It seems we were wrong about that. The big run up in the stock occurred because the FDA granted marketing approval of Fanapt™, which demonstrates one of the great things about investing in liquidation plays: good surprises. We generally ascribe zero value to the intangibles, because more often than not, that’s what they’re worth. Very occassionaly, however, the  intangibles are worth something, and purchasers below liquidation value have a free option on them. We’re not going to pretend that we thought it was a real possibility in this instance. As Lefty Gomez liked to say, “I’d rather be lucky than good.”

Here’s the text of the announcement of the FDA approval:

FDA Approves Vanda Pharmaceuticals’ Fanapt for the Treatment of Schizophrenia

Rockville, MD. (May 6, 2009)— Vanda Pharmaceuticals Inc. (NASDAQ: VNDA) announced today that the US Food and Drug Administration (FDA) has granted marketing approval of Fanapt™ (iloperidone) for the acute treatment of adult patients with schizophrenia. The approval was supported by two placebo-controlled Phase III clinical studies comparing Fanapt™ to placebo and active control in patients with schizophrenia, as well as safety data from more than 3,000 patients.

Fanapt™ is a mixed dopamine D2 / serotonin 5HT2A receptor antagonist, and belongs to the class of atypical antipsychotics.

“The approval of Fanapt™ marks a new opportunity for many patients with schizophrenia, who experience only partial responses to current therapies, to achieve better control of their symptoms,” remarked Dr. Peter J. Weiden, Professor of Psychiatry and Director of the Psychotic Disorders Program at the University of Illinois at Chicago. “Having Fanapt™ available is a major help for our patients in offering an effective antipsychotic with an excellent side effect profile across a wide range of major tolerability problems associated with other antipsychotic therapies.”

The efficacy of Fanapt™ for the treatment of schizophrenia was supported by two placebo-controlled short-term (4- and 6-week) trials. Both trials enrolled patients who met the DSM-III/IV criteria for schizophrenia, and Fanapt™ was shown to be superior to placebo in controlling symptoms of schizophrenia across doses of 12mg to 24mg per day. The recommended target dose range of Fanapt™ is 12mg to 24 mg per day. Titration to the target dose of 12mg per day can be achieved in 4 days.

Vanda plans to make Fanapt™ available in pharmacies later this year.

–snip–

And TCP’s withdrawal of its director nominees:

Vanda Pharmaceuticals Announces Withdrawal of Director Nominees and Proposal to Liquidate Submitted by Tang Capital

Rockville, MD. (May 7, 2009) — Vanda Pharmaceuticals Inc. (NASDAQ: VNDA) (“Vanda” or the “Company”) announced today that Tang Capital Partners, LP (“TCP”) has ended its proxy contest by withdrawing its nominations of director candidates for election to Vanda’s Board of Directors and its stockholder proposal to liquidate the Company. TCP had previously notified the Company of its intention to solicit proxies for the election of two of its candidates to the Vanda Board at the Company’s 2009 Annual Meeting and for its proposal that the Board take action to liquidate the Company.

Kevin Tang, the managing director of the general partner of TCP, notified Vanda of TCP’s intention not to pursue a proxy contest on May 6, 2009 in an email to Vanda’s Chief Executive Officer, Mihael H. Polymeropoulos, M.D. and Chairman of the Board, Argeris N. Karabelas, Ph.D. TCP’s withdrawal of its nominations and stockholder proposal follows Vanda’s announcement that the U.S. Food & Drug Administration had granted marketing approval of its product, Fanapt™ (iloperidone), for the acute treatment of adult patients with schizophrenia.

[Full Disclosure:  We do not have a holding in VNDA. 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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VaxGen Inc (OTC:VXGN) Q1 10Q update

Posted in Net Cash Stocks, Stocks, VaxGen Inc (OTC:VXGN), tagged , , on May 6, 2009| 12 Comments »

VaxGen Inc (OTC:VXGN) has released its quarterly report for the period ended March 31, 2009.

We started following VXGN (see our post archive here) because it was trading at a substantial discount to its net cash position, had ended its cash-burning product development activities and is “seeking to maximize the value of its remaining assets through a strategic transaction or series of strategic transactions.” If the company is unable to identify and complete an alternate strategic transaction, it proposes to liquidate. At its $0.44 close yesterday, VXGN has a market capitalization of $14.6M. We initially estimated the company’s net cash value to be around $27.7M or $0.84 per share. We’ve now reduced that slightly to $26.5M or $0.80 per share. VXGN has other potentially valuable assets, including a “a state-of-the-art biopharmaceutical manufacturing facility with a 1,000-liter bioreactor that can be used to make cell culture or microbial biologic products” and rights to specified percentages of future net sales relating to its anthrax vaccine product candidate and related technology.

The value proposition updated

VXGN has taken steps to minimize its cash burn, reducing its workforce to three employees, terminating its anthrax and smallpox development activities and selling the assets related to its anthrax product candidate. The company’s value rests on its vestigial holding of cash and equivalents (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):

vxgn-summary-2009-3-31

Balance sheet adjustments

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

  • Cash burn: The company used $2.1M in cash in the first quarter. We have included cash burn of $5M in our estimate for the remainder of the year. We have also assumed termination payments of $0.2M.
  • Off-balance sheet arrangements and contractual obligations: According to VXGN’s 10Q, it has no off-balance sheet arrangements.

One concern is the lawsuit against VXGN by its landlords, in which they seek $22.4M:

In February 2009, a lawsuit was filed against the Company by plaintiffs, Oyster Point Tech Center, LLC. The plaintiffs generally allege that the Company defaulted on the lease on the 349 Oyster Point, South San Francisco facility. The complaint seeks possession of the premises and the balance of lease plus unpaid rent and expenses totaling $22.4 million, as well as an award of plaintiffs’ attorneys’ fees and costs. The Company’s biopharmaceutical manufacturing facility is located in the leased premises that are the subject of the dispute. At a February hearing, the court denied the writ and the temporary protective order sought by landlord. The parties are currently in discussions to achieve an amicable resolution to the matters alleged in the complaint and a negotiated termination of the lease. However, if necessary, the Company intends to vigorously defend against such allegations.

The Company may incur substantial expenses in defending against such claim, and it is not presently possible to accurately forecast the outcome. The Company does not believe, based on current knowledge, that the foregoing legal proceeding is likely to have a material adverse effect on its financial position, results of operations or cash flows. In the event of a determination adverse to the Company, the Company may incur substantial monetary liability and could have a material adverse effect on the Company’s financial position, results of operations or cash flows.

If the lawsuit is succesful, then VXGN has next to no value. We’re taking our guidance from the company, which “does not believe, based on current knowledge, that the foregoing legal proceeding is likely to have a material adverse effect on its financial position, results of operations or cash flows.”

Conclusion

At its $0.44 close yesterday, VSGN has a market capitalization of $14.6M. We estimate the net cash value to be around 82% higher at $26.5M or $0.80 per share. VXGN has other potentially valuable assets, including rights to portion of future net sales on its anthrax technology and a state-of-the-art biopharmaceutical manufacturing facility. One concern is lawsuit by the landlord against the company, but that company states that it does not believe the lawsuit will have a material adverse effect on its financial position.With its stock at a substantial discount to its net cash position, its cash-burning product development activities at an end and a proposal to identify and complete an alternate strategic transaction or liquidate, we think VXGN is a good prospect, and we’re going to maintain our position.

[Full Disclosure: We have a holding in VXGN. 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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