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Posts Tagged ‘CuraGen Corporation (NASDAQ:CRGN)’

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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The Official Activist Investing Blog has published its list of activist investments for March (links are to the relevant post archive for our open positions):

Ticker Company Investor
ACTL Actel Corp Ramius Capital
AGYS Agilysys Inc Ramius Capital
AMLN Amylin Pharmaceuticals Eastbourne Capital
ASPM Aspect Medical Systems First Manhattan Co
ASPM Aspect Medical Systems Coghill Capital
AVCA Advocat Inc. Bristol Investment Fund
AVGN Avigen Inc Biotechnology Value Fund
BARI Bancorp Rhode Island Financial Edge Fund
BASI Bioanalytical Systems Thomas Harenburg
BBI Blockbuster Inc. Mark Wattles
BBW Build-A-Bear Workshop Crescendo Capital
BNV Beverly National Corp Lawrence Seidman
CAMD California Micro Devices Corp Dialectic Capital Management
CEE Central Europe & Russia Fund City of London Investment Group
CHIC Charlotte Russe Holding Inc KarpReilly Capital Management
CITZ CFS Bancorp Inc Financial Edge Fund
CLCT Collectors Universe Shamrock Activist Value Fund
CLHI.PK CLST Holdings Red Oak Partners
CRGN Curagen Corp DellaCamera Capital
CTO Consolidated Tomoka Land Co Wintergreen Advisers
CYBI Cybex International Discovery Partners
DSCM Drugstore.com Discovery Partners
DVD Dover Motorsports, Inc. Gamco Investors
FACE Physicians Formula Holdings, Inc Mill Road Capital
FMMH.OB Fremont Michigan Insurance Corp Harry Long
FSCI Fisher Communications Gamco Investors
GET Gaylord Entertainment GAMCO
GET Gaylord Entertainment TRT Holdings
GMXR GMX Resources Centennial Energy Partners
HWK Hawk Corp Gamco Investors
IPAS iPass Inc Foxhill Opportunity Master Fund
JAX J. Alexanders Corp Mill Road Capital
KFS Kingsway Financial Services Oakmont Capital
KONA Kona Grill Mill Road Capital
LCAV LCA Vision Inc Stephen Joffe
LGF Lions Gate Entertainment Carl Icahn
LNBB LNB Bancorp Richard Osborne
LSR Life Sciences Research Andrew Baker
MCGC MCG Capital Springbok Capital
MCRL Micrel Inc Obrem Capital
MDS Midas Inc. Silverstone Capital
MHGC Morgans Hotel Group Co Edward Scheetz
MIM MI Developments Hotchkis & Wiley Capital
MXF The Mexico Fund Inc. City of London Investment Group
MYE Myers Industries GAMCO Investors
NLCI Nobel Learning Communities Blesbok Inc
NOX Neuberger Berman Income Opportunity Fund Western Investment
NTN NTN Buzztime Trinad Capital
NUF Nuveen Florida Quality Income Municipal Fund Western Investment
PHH PHH Corp Pennant Capital
PNNW Pennichuck Corp Gamco Investors
PPCO Penwest Pharmaceuticals Tang Capital; Perceptive Life Sciences
PXD Pioneer Natural Resources Southeastern Asset Management
RDC Rowan Companies Steel Partners
RHDC.PK RH Donnelley Dodsville Investments
RPT Ramco-Gershenson Properties Trust Equity One
RUBO Rubios Restaurant Alex Meruelo
SCLN SciClone Pharmaceuticals Sigma Tau Financial
SLRY Salary.com Raging Capital Management
SRLS Seracare Life Sciences Ltova Holdings
SSE Southern Connecticut Bancorp Inc Lawrence Seidman
SUAI Specialty Underwriters Alliance Hallmark Financial Services
SUG Southern Union Co Sandell Asset Management
TDS Telephone & Data Systems Inc. Gamco Investors
TGT Target Corp Pershing Square Capital
TMI TM Entertainment & Media Bulldog Investors
TRID Trident Microsystems Inc. Spencer Capital
TRMA Trico Marine Kistefos AS
VSNT Versant Corp Discovery Capital
WBSN Websense Inc Shamrock Actvivist Value fund
WOC Wilshire Enterprises Pennsylvania Avenue Funds
WOC Wilshire Enterprises Bulldog Investors

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CuraGen Corporation (NASDAQ:CRGN) has filed its 10K for the fiscal year ended December 31, 2008.

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.” DellaCamera Capital Management has since increased its stake from 5.6% to 6.5% and nominated two candidates to the board. The stock is up 33% from $0.67 when we started following it to $0.89 yesterday, giving CRGN a market capitalization of around $50.8M. We initially estimated CRGN’s net cash value to be around $62M or $1.07 per share. After reviewing the filing, we’ve slightly decreased our valuation to $59.9M or $1.05 per share, which means CRGN is still trading at around 85% of its liquidation value.

The value proposition updated

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. CRGN’s value still lies in its $64.9M net cash position (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-2008-10k1CRGN’s $87.6M in cash and cash equivalents consists of $19.1M in cash and equivalents, $30.3M in short-term investments and $38.2M in marketable securities.

Off-balance sheet arrangements and Contractual obligations

According to CRGN’s 10K, the company does not have any off-balance sheet arrangements. Its enforceable and legally binding obligations, along with future commitments related to all contracts that it is likely to continue, regardless of the fact that they are “cancelable as of December 31, 2008,” excluding those captured in the financial statements, are around $5.0M through 2011.

Deducting the $5.0M from the $64.9M in net assets leaves around $59.9M in liquidation value or $1.05 per share.

Conclusion

We are reasonably comfortable with the progress of CRGN and will continue to hold it in the Greenbackd Portfolio.

[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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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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Greenbackd Portfolio Q1 performance and update

March 1, 2009 marked the end of Greenbackd’s first quarter, so we thought we’d take the opportunity to update you on the performance of the Greenbackd Portfolio and the positions in the portfolio, discuss some changes in our valuation methodology since our first post and outline the future direction of Greenbackd.com.

First quarter performance of the Greenbackd Portfolio

We get many questions about the content and performance of the portfolio. We had originally planned to report on a six-monthly basis, but we have now decided to report on a quarterly basis so that we can address these questions on a more frequent basis. Although it is still too early to determine how Greenbackd’s strategy of investing in undervalued asset situations with a catalyst is performing, we’ve set out below a list of all the stocks we’ve included in the Greenbackd Portfolio and the absolute and relative performance of each at the close on the last trading day in our first quarter, Friday, February 28, 2009:

greenbackd-portfolio-performance-2009-q13The absolute total return across the current and former positions as at February 28, 2009 was -3.7%, which was +7.0% higher than the S&P500’s return over the same periods. A negative return for the first period is disappointing, but we are heartened by the fact that we outperformed the market by a small margin.

You may have noticed something odd about our presentation of performance. The S&P500 index declined by 18.0% in our first quarter (from 896.24 to 735.09). Our -3.7% performance might suggest an outperformance over the S&P500 index of +14.3%. We calculate our performance on a slightly different basis, recording the level of the S&P500 index on the day each stock is added to the portfolio and then comparing the performance of each stock against the index for the same holding period. The Total Relative performance, therefore, is the average performance of each stock against the performance of the S&P500 index for the same periods. As we discussed above, the holding period for Greenbackd’s positions has been too short to provide any meaningful information about the likely performance of the strategy over the long term (2 to 5 years), but we believe that the strategy should outperform the market by a small margin.

Greenbackd’s valuation methodology

We started Greenbackd in an effort to extend our understanding of asset-based valuation described by Benjamin Graham in the 1934 Edition of Security Analysis. Through some great discussion with our readers, many of whom work in the fund management industry as experienced analysts or even managing members of hedge funds, we have had the opportunity to refine our process. We believe that what started out as a pretty unsophisticated application of Graham’s liquidation value methodology has evolved into a more realistic analysis of the balance sheet and the relationship of certain disclosures in the financial statements to asset value. We’re not yet ready to send it into space, but we believe our analyses are now qualitatively more robust than when we started and that has manifest itself quantitatively in better performance (more on this below).

The two main differences between our early analyses and our more recent ones are as follows (these are truly cringe-worthy, but that’s why we undertook the exercise):

  1. We didn’t take account of the effect of off-balance sheet arrangements and contractual obligations. This caused us to enter into several positions we should have avoided, including BGP and VVTV.
  2. We were using overly optimistic estimates for the recovery rates of assets in liquidation. For example, we started using 50% of Gross PP&E. We now use 20% of Net PP&E. We now apply Graham’s formula as the base case and deviate only when we believe that Graham’s formulation doesn’t reflect reality.

The effect of these two broad errors in analysis was to create several “false positives,” which is to say that we added stocks to the portfolio that wouldn’t have passed our current, more rigorous standards. The performance of those “false positive” stocks has been almost uniformly negative, and dragged down the performance of the portfolio. As an exercise, we went back through all the positions we have opened since we started the site and applied our current criteria, which are more stringent and dour than our earlier standards. We found that we would not have opened positions in the following eight stocks:

  • BRN (-13.1% on an absolute basis and +4.9% on a relative basis)
  • BGP (-10.8% on an absolute basis and -21.6% on a relative basis)
  • COBR (-17.1% on an absolute basis and +3.6% on a relative basis)
  • HRT (-25.3% on an absolute basis and -9.7% on a relative basis)
  • KONA (+87.8% on an absolute basis and +81.9% on a relative basis)
  • MGAM (-24.2% on an absolute basis and -5.0% on a relative basis)
  • VVTV (-25.0% on an absolute basis and -23.1% on a relative basis)
  • ZLC (-72.0% on an absolute basis and -61.1% on a relative basis)

It seems we got lucky with KONA, but the performance of the balance of the stocks was wholly negative. The performance across all stocks listed above was -12.5% on an absolute basis and -3.9% on a relative basis. Excluding these eight stocks from our portfolio (i.e. treating the portfolio as if we had not entered into these positions) would have resulted in a slightly positive absolute return of +0.7% and a relative performance over the S&P500 of +12.5%. This is a compelling reason to apply the more dour and rigorous standards.

We like to think we’ve now learned out lesson and the more dour and rigorous standards are here to stay. Set out below is an example balance sheet summary (for Chicago Rivet & Machine Co. (AMEX:CVR)) showing our present base case discounts from book value (circled in red):

example-summary-2

Readers will note that these are the same base case discounts from book value suggested by Benjamin Graham in the 1934 Edition of Security Analysis, more fully described in our Valuing long-term and fixed assets post under the heading “Graham’s approach to valuing long-term and fixed assets.” Why we ever deviated from these standards in the first place is beyond us.

Update on the holdings in the Greenbackd Portfolio

Leading on from our discussion above, four of the stocks we picked using the initial, overly optimistic criteria no longer meet our more stringent standards but haven’t yet been removed from the portfolio. We’re going to take our medicine now and do just that. To make it clear, these stocks aren’t being removed because the value has deteriorated, but because we made a mistake adding them to the portfolio in the first place. As much as we’d like to treat these positions as void ab initio (“invalid from the beginning”), we’re not going to do that. We’ve made a full accounting of the impact they’ve had on the portfolio in the First quarter performance of the Greenbackd Portfolio section above, but we don’t want them affecting our future performance. The stocks to be removed from the Greenbackd Portfolio and their absolute and relative returns are as follows:

  • BRN (-13.1% on an absolute basis and +4.9% on a relative basis)
  • HRT (-25.3% on an absolute basis and -9.7% on a relative basis)
  • MGAM (-24.2% on an absolute basis and -5.0% on a relative basis)
  • COBR (-17.1% on an absolute basis and +3.6% on a relative basis)

We’ll provide a more full discussion of where we went wrong with these stocks at a later date, but suffice it to say for present purposes that all were errors from the second bullet point in the Greenbackd’s valuation methodology section above (i.e. overly optimistic estimates for the recovery rates of assets in liquidation).

There are fifteen stocks remaining in the Greenbackd Portfolio:

Eight of these positions (ABTL, ACLS, ARCW, CAPS, CRC, CRGN, NSTR, and VOXX) are trading at or below our nominal purchase price and initial valuations. The remaining seven positions (AVGN, DITC, IKAN, MATH, NENG, NTII, and SOAP) are trading above our intial purchase price but are still at varying discounts to our valuations. We’ll provide a more full update on these positions over the course of this week.

The future of Greenbackd.com

We are going to trial some small changes to the layout of the site over the next few weeks. We’ve already made the first change: the newest comments now appear at the top of the list. We’ll also be amalgamating some pages and adding some new ones, including a page dedicated to tracking the portfolio with links to the analyses. We’re also considering some options for generating income from the site. At the moment, Greenbackd is a labor of love. We try to create new content every week day, and to get the stock analyses up just after midnight Eastern Standard Time, so that they’re available before the markets open the following day. More than 80% of the stocks that are currently trading at a premium to the price at which we originally identified them (NTII, SOAP, IKAN, DITC, NENG, MATH and AVGN) traded for a period at a discount to the price at which we identified them. This means that there are plenty of opportunities to trade on our ideas (not that we suggest you do that). If you find the ideas here compelling and you get some value from them, you can support our efforts by making a donation via PayPal.

We look forward to bringing you the best undervalued asset situations we can dig up in the next quarter.

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CuraGen Corporation (NASDAQ:CRGN) has announced that it is considering strategic alternatives to enhance shareholder value including selling or licensing CR011, acquiring additional assets or business lines, or selling the company.

We started following CRGN on January 20 this year because it is a net cash stock with an investor, DellaCamera Capital Management, disclosing a 5.6% holding in January. We estimate CRGN’s net cash value to be around $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 company’s press release (via Earth Times) is as follows:

CuraGen Corporation (Nasdaq: CRGN) announced today that it is undertaking a review of a broad range of strategic alternatives to enhance shareholder value.

Robert E. Patricelli, Chairman of the Board of CuraGen commented that “The Board believes that management is making exciting progress as CR011 moves through the current Phase II clinical trials and that it has taken the necessary actions over the past two years to ensure that CuraGen is a well capitalized organization in a difficult external financing environment. The Board further believes we should consider strategic alternatives that could enhance shareholder value. These alternatives range from selling or licensing CR011, to acquiring additional assets or business lines, to selling the company. The company will retain an investment bank to assist the Board with its strategic review. During our evaluation process, management will remain focused on executing our current business plan.”

Dr. Timothy M. Shannon, President and Chief Executive Officer, also announced that CuraGen has retained JSB-Partners to identify potential acquirers of CR011-vcMMAE. “In an ongoing multi-center study in heavily pretreated patients with breast cancer, CR011 is well tolerated and there is early evidence of activity. Our Phase II program in melanoma also continues to show promising activity”, commented Dr. Shannon. “The potential to move CR011-vcMMAE into more advanced development in both patients with breast cancer and patients with melanoma makes this a good time to seek strategic interest in the marketplace.”

There is no assurance that this process will result in any changes to the Company’s current business plans or lead to any specific action or transaction. While the process is underway, the Company does not intend or expect to disclose any developments regarding the process until, if ever, a definitive agreement is entered into or the board determines to terminate the process.

“We ended 2008 with $88 million of cash and investments on hand, have a clinically active attractive Phase II development asset, and over $500 million in net operating loss carryforwards (NOLs). Yet, our stock price does not reflect the intrinsic value of our assets and we continue to trade at a deep discount to our cash.” commented Dr. Shannon. “We seek to address these value disconnects through the strategic review process.”

The Company also recently completed a privately negotiated transaction with a holder of the Company’s 4% Convertible Subordinated Notes due February 2011 (the “2011 Notes”) in which the Company retired a total of $4.8 million of the 2011 Notes for an aggregate purchase price of $3.8 million or a 21% discount off of face value. This transaction added $1.0 million of net cash to the Company’s balance sheet. The Company now has $14.1 million of the 2011 Notes outstanding. The Company’s burn guidance for the first half of 2009 remains unchanged at $7.0 to $8.0 million and the Company now expects to end the second quarter of 2009 with between $76 and $77 million of cash and investments.

[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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The Official Activist Investing Blog has published its list of activist investments for January (the investments with links are to our latest update at the time of this post):

Ticker Company Activist Investor
ABVA Alliance Bankshares Corp John Edgemond
AMLN Amylin Pharmaceuticals Carl Icahn; Eastbourne Capital
AVGN Avigen Inc. Biotechnology Value Fund
BIOD Biodel Inc Moab Partners
BKS Barnes & Noble, Inc Yucaipa Companies
CHUX O’Charley’s Inc Crescendo Partners
CITZ CFS Bancorp Financial Edge Fund
CLCT Collectors Universe Shamrock Activist Fund
CNBC Center Bancorp Lawrence Seidman
CPWM Cost Plus Inc Stephens Investment Holdings
CRGN CuraGen Corp DellaCamera Capital
CTO Consolidated Tomoka Land Co Wintergreen Advisers
CWLZ Cowlitz Bancorporation Crescent Capital
DFZ R.G. Barry Corporation Mill Road Capital
DITC Ditech Networks Lamassu Holdings
EDCI EDCI Holdings Chapman Capital
ENZN Enzon Pharmaceuticals DellaCamera Capital; Carl Icahn
EPL Energy Partners Wexford Capital
FNHM.OB FNBH Bancorp Andrew Parker
FSBI Fidelity Bancorp Finacial Edge Fund
FSCI Fisher Communications Gamco Investors
FSFG First Savings Financial Group Joseph Stilwell
GET Gaylord Entertainment TRT Holdings
ICGN ICAgen Inc Xmark Opportunity Partners
INFS InFocus Corp Nery Capital Partners
ISH International Shipholding Corporation Liberty Shipping Group
JTX Jackson Hewitt Tax Service Shamrock Activist Value Fund
KANA Kana Software Inc KVO Capital Management
KFS Kingsway Financial Sevices Joseph Stillwell
KONA Kona Grill Mill Road Capital
LAQ The Latin America Equity Fund City of London Investment Management
MGAM Multimedia Games Inc Dolphin Limited Partnership
MIPI Molecular Insight Pharmaceuticals David Barlow
NDD Neuberger Berman Dividend Advantage Western Investment
NTII Neurobiological Technologies Highland Capital Management
NTMD Nitromed Inc Deerfield Capital Management
OFIX Orthofix Ramius Capital
PIF Insured Municipal Income Fund Inc Bulldog Investors
PPCO PenWest Pharmaceuticals Perceptive Advisors;

Tang Capital Partner

PRSC Providence Service Corp 73114 Investments
PRXI Premier Exhibitions, Inc Sellers Capital
QDHC Quadramed Corp BlueLine Capital
RDC Rowan Companies Steel Partners
SLTC Selectica Inc Trilogy
SONS Sonus Networks Legatum Limited
SSE Southern Connecticut Bancorp Lawrence Seidman
SUAI Specialty Underwriters Alliance Hallmark Financial Services
SUG Southern Union Co Sandell Asset Management
SUMT SumTotal Systems Discovery Capital
SUTM.PK Sun Times Media Group Davidson Kempner Partners
TEC Teton Energy Corp First New York Securities
TESS Tessco Technologies Discovery Equity Partners
TIER Tier Technologies Inc Parthenon Capital
TMI TM Entertainment & Media Bulldog Investors
TRGL Toreador Resources Nanes Delorme Partners
TRMA Trico Marine Services Kistefos AS
TUTR Plato Learning Stephen Becker
TWMC TransWorld Entertainment Riley Investment Management
VLCY.PK Voyager Learning Company FoxHill Opportunity
WFMI Whole Foods Market Inc Yucaipa Companies
WMPN.OB William Penn Bancorp Joseph Stilwell
WOC Wilshire Enterprises Bulldog Investors
WRLS Telular Corp Simcoe Partners
YSI U-Store-It Trust Todd Amsdell
ZEP Zep Inc. Gamco

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