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Posts Tagged ‘InFocus Corporation (NASDAQ:INFS)’

InFocus Corporation (NASDAQ:INFS) held a conference call yesterday to discuss the progress of its auction. We’ve previously posted about INFS here, here and here, writing that it is a deeply undervalued asset situation with two activist investors, Nery Capital Partners and Lloyd I. Miller, III, pushing the company to “consider the views expressed by its shareholders and pursue new alternatives to increase shareholder value.”

The call is pretty tightly scripted and doesn’t shed much additional light on the auction progress (the archive of the earnings webcast is available here) (registration required). CEO Bob O’Malley, the speaker, says that INFS has retained Thomas Weisel Partners, an investment bank, to provide advisory services including advice concerning unsolicited offers from outside sources. O’Malley attributes the interest in purchasing the company to INFS’s “good brands, good projectors, market share, channels, strong and dedicated team etc.” He continued that the special committee will work with the investment bank to review the offers “so management can continue running the company.” The “structure and nature of the offers vary” so the review will take an “undeterminate” (sic) amount of time. INFS will provide updates when they reach “definitative offer” and “completed agreement” stages or “the board has terminated the process.” O’Malley reitereated that INFS has “put on hold” the buy back. Other than that, there was little else to report. O’Malley refused to take questions, so no commentary from Nery Capital Partners or Lloyd I. Miller, III, which was a little disappointing.

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We’ve recently posted about INFS’s value proposition here (it’s deeply undervalued) and the effect of a big buy back on the per share value of the company here (it’s hugely positive).

The company today announced plans to restructure and reduce its global workforce by approximately 30%, commencing in January 2009 and spanning a twelve month period. The announcement also says that that INFS “believes it will achieve profitable operations with an 18% gross margin target and operating expenses in the range of $10-11 million per quarter.” While this may appear to be encouraging for stockholders, in our experience projections about future profitability often don’t turn out as projected. They are made by managements deaf to what the market is telling them about the company. As a result, we are much more interested in the company’s plans to unlock the value in the assets. On that front, the news is mixed.

INFS has previously announced that it had retained an investment banking firm to provide “advisory services.” The new announcement says that these advisory services include “advice concerning unsolicited offers from outside sources expressing interest in purchasing the Company.” This is a positive development. The bad news is that the company has suspended the stock repurchase plan, which is slightly disappointing. We say “slightly disappointing” because a buy back of 4 million shares over a three year period does not have a meaningful effect on the per share value, so cutting it makes almost no difference. It does show, however, that management is ignoring obvious value-enhancing opportunities for stockholders.

INFS will host a conference call to discuss the announcement tomorrow, December 16, 2008 at 9:00 a.m. (Eastern). No doubt Nery Capital Partners and Lloyd I. Miller, III will be on.

Hat tip to commenter Steven for the tip.

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A stock buy-back is a great way for a deeply undervalued company to quickly increase its per share value. After identifying an undervalued asset situation, we look through the company’s filings to see if it has any existing plans authorizing it to buy-back its stock. On the rare occasions when we do locate such plans, we are often struck by (a) how few shares the company is authorized to buy back and (b) how few of the shares the company has actually bought back. InFocus Corporation (NASDAQ:INFS), which we posted about on Friday, is a classic example of this phenomenon.

INFS is trading at a big discount to its liquidation value, it has heaps of cash on hand and no debt, all of which makes it a prime candidate to undertake a big buy-back. Given the substantial discount to its current asset backing, any shares bought back at these levels have a huge positive effect on its per share value. It has just initiated a buy-back plan to repurchase over a three-year period up to 4M shares out of 40.7M on issue. As of September 30, the company had repurchased only 50,000 shares at an average price of $1.53 per share. 50,000 shares is simply too little to have any meaningful impact on the company’s value. We’d argue that even 4M (less than 10% of the outstanding common stock) isn’t enough. Why? Let’s look at what happens if the company repurchases many more shares, say 50% of its issued stock.

In our last blog post, we argued that INFS had a liquidation value of around $1.15 per share, 70% higher than its Friday close of $0.67. The company has cash and equivalents of around $55M and no debt as the summary financials demonstrate (the “Carrying” column shows the assets as they are carried in the financial statements, and the “Liquidating” column shows our estimate of the value of the assets in a liquidation):

Before

before-infs-summary

After

If INFS was to repurchase 50% of its stock (20M of its 40.7M shares currently on issue) at $0.67, it would cost INFS only $13.4M, leaving it with nearly $42M in cash on hand:

after-infs-summaryAfter the buy back, INFS’s per share liquidating value increases from $1.15 to $1.61 (a 40% increase).

There are very few investment opportunities that so quickly increase a company’s per share value. Given that management should know the company’s value better than the value of any other investment opportunity, it is also the most assured way of increasing a company’s per share value. There is simply no better way for an undervalued company to invest its excess cash than in its own stock.

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InFocus Corporation (NASDAQ:INFS) is a deeply undervalued asset situation with two activist investors, Nery Capital Partners and Lloyd I. Miller, III, disclosing holdings in the company. At its closing price yesterday of $0.63, INFS has a market capitalization of $25.6M. We estimate its liquidating value to be more than 80% higher at $46.7M or $1.15 per share. With Nery Capital Partners and Miller pushing the company to enhance its stock price, we believe INFS is an attractive opportunity.

About INFS

INFS is a provider of digital projection technology. The company markets projectors and related accessories for use in the conference room, board room, auditorium, classroom and living room. “InFocus” is the company’s primary brand and is sold worldwide. In addition, many of the products are offered under a global reseller brand, “ASK Proxima.” INFS’s investor relation website is here.

The value proposition

According to its latest 10Q, INFS lost $25.6M last year and has continued to make losses in each of the last three quarters. The company does have some value on the balance sheet, as our summary analysis demonstrates (the “Carrying” column shows the assets as they are carried in the financial statements, and the “Liquidating” column shows our estimate of the value of the assets in a liquidation):

infs-summary

INFS has $124.7M in current assets, $55.2M ($1.36 per share) of which is cash and equivalents. We’ve discounted the receivables by a fifth to $31.4M or $0.77 per share and inventory by a third to $20.3M or $0.50 per share. The company has no debt but total liabilities of $81M or $1.99 per share. Deducting the liabilities leaves a liquidating value of $46.7M or $1.15 per share. INFS is currently trading at $0.63 or 55% of its value in liquidation.

The catalyst

Nery Capital Partners disclosed its original 9.8% holding in INFS in a November 5 13D filing. Initially purchasing its holding in INFS as a passive investment, Nery Capital Partners was moved to an active stance after an “evaluation of [INFS’s] financial performance and in light of [INFS’s] decreasing stock value.” Nery Capital Partners has since contacted the company’s board or management “with respect to, among other things, steps that [INFS] could take to improve [its] financial condition and increase shareholder value.” As of its amended filing dated December 5, Nery Capital Partners holds 11.2% of the company.

Lloyd I. Miller, III disclosed his 5% holding in INFS as a passive investment on November 5 in this 13G filing. On November 19, Miller updated his original filing to an active 13D filing. Miller said in the new filing that he acquired the holding in INFS as a passive investment but:

“…now believes it would be in his best interest, and those of other shareholders, to attempt to influence the governance and business strategies of the Company. Following Miller’s evaluation of the Company’s financial performance and in light of its recent declines in stock value, Miller decided that he may seek to contact the Company’s Board of Directors or management in order to engage in discussions regarding governance and enhancing shareholder value.”

Miller’s new filing states that he agrees with the views of Nery Capital Partners INFS is undervalued and represents an attractive investment opportunity and that the company should “consider the views expressed by its shareholders and pursue new alternatives to increase shareholder value.”

One alternative to increase shareholder value is to complete the stock back that the company initiated in the third quarter of 2008. Authorized to purchase up to 4M shares over a three-year period, as of September 30, the company had only repurchased 50,000 shares at an average price of $1.53 per share. Given the substantial discount of INFS to its current asset backing, any shares bought back at these levels have a large positive effect on the underlying asset value. We would like to see INFS buy back as many of the 4m shares as possible as rapidly as possible. Update (December 15): We’ve conducted an analysis of a buy back on INFS’s per share value. In short, if INFS buys back 20M of its 40.7M issued shares (approximately 50%) at Friday’s closing price of $0.67, it would increase its per share liquidating value from $1.15 to $1.61 (a 40% increase).

Conclusion

At $0.63 INFS is trading at 55% of its $1.15 per share value in liquidation. Although the stock jumped 25% yesterday, it is still very cheap. With Nery Capital Partners and Lloyd Miller in activist mode, this is an interesting opportunity.

Yesterday INFS closed at $0.63 and the S&P 500 Index closed at 873.59.

[Disclosure: We do not have a holding in INFS. 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.]

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The Official Activist Investing Blog has published its list of activist investments for November:

Ticker Company Activist Investor
ABTL Autobytel Inc Trilogy Inc
ACF AmeriCredit Corp Fairholme Capital Management
ACTL Actel Corp Ramius Capital
ADPT Adaptec, Inc Steel Partners
ARCW Arc Wireless Solutions Brean Murray Carret Group
ATSG Air Transport Services Group Perella Weinberg Partners
AVGN Avigen Inc Biotechnology Value Fund
BBI Blockbuster Inc Marlin Sams Fund
BEE Strategic Hotels & Resorts Security Capital Research & Management
BITI Bio-Imaging Technologies Healthinvest Partners
CHG CH Energy Group Inc Gamco Investors
CHIC Charlotte Russe Holding Inc KarpReilly Capital Management
CPN Calpine Corp Harbinger Capital
CRXX CombinatoRX, Incorporated Biotechnology Value Fund
CTO Consolidated Tomoka Land Co Wintergreen Advisers
CWLZ Cowlitz Bancorporation Crescent Capital
DBD Diebold Inc Gamco Investors
DCAP DCAP Group Infinity Capital Partners
DVD Dover Motorsports Mario Cibelli
ENTU Entrust Inc. Empire Capital Partners
FACE Physicians Formula Holdings, Inc Mill Road Capital
FSCI Fisher Communications Gamco Investors
FTAR.OB Footstar Inc Schultze Asset Management
GBE Grubb & Ellis Company Anthony Thompson
GGP General Growth Properties Pershing Square Capital
GSLA GS Financial Corp FJ Capital Long/Short Equity Fund
HCBK Hudson City Bancorp Gamco Investors
HFFC HF Financial Corp PL Capital
INFS Infocus Corp Nery Capital Partners
INFS Infocus Corp Lloyd Miller
ISH International Shipholding Corp Liberty Shipping Group
KANA.OB Kana Software KVO Capital Management
KEYN Keynote Systems Ramius Capital
KFS Kingsway Financial Services Joseph Stilwell
KONA Kona Grill Mill Road Capital
LCAV LCA-Vision Inc Stephen Joffe
LDIS Leadis Technology Inc Kettle Hill Capital Management
LNET LodgeNet Interactive Corporation Mark Cuban
LTM Life Time Fitness Green Equity Investors
MCGC MCG Capital Corporation Springbok Capital Management
MGAM Multimedia Games Inc. Dolphin Limited Partnership
MGI Moneygram Interntaional Inc Blum Capital
MIM MI Developments Greenlight Capital
MYE Myers Industries Inc Gamco Investors
NAV Navistar International Owl Creek
NLS Nautilus Inc Sherborne Investors
NOOF New Frontier Media Steel Partners
NYT New York Times Harbinger Capital
OEH Orient-Express Hotels SAC Capital; DE Shaw
ORNG Orange 21 Costa Brava
PBIP Prudential Bancorp Inc. of PA Joseph Stilwell
PGRI.OB Platinum Energy Resources Inc Syd Ghermezian
PHH PHH Corp. Pennant Capital Management
PNNW Pennichuck Corp Gamco Investors
PPCO Penwest Pharmaceuticals Co Perceptive Advisors
PRXI Premier Exhibitions, Inc Sellers Capital
PWER Power One Bel Fuse
PXG Phoenix Footwear Group Reidman Corp
RDEN Elizabeth Arden Shamrock Activist Value Fund
SCOP Scopus Video Networks Ltd. Optibase Ltd
SECX.PK SED International Holdings Hummingbird Management
SLTC Selectica Inc Trilogy Inc (Versata Enterprises)
SNG Canadian Superior Energy Palo Alto Investors
SNSTA Sonesta International Hotels Gamco
SUAI Specialty Underwriters Alliance Philip Stephenson
SUMT SumTotal Systems Discovery Capital
SUTM.OB Sun-Times Media Group Inc. K Capital
SUTM.OB Sun-Times Media Group Inc. Davidson Kempner Partners
SWWI Simon Worldwide Inc Everst Special Situations Fund
TIKRF.OB Tikcro Technologies Ltd Steven Bronson
TXCC TranSwitch Corp Brener International Group
TXI Texas Industries Shamrock Activist Value Fund
UIS Unisys Corp MMI Investments
UTEK Ultratech Inc Temujin Fund
WBSN Websense Inc Shamrock Activist Value Fund
WEDC White Electronic Designs Wynnefield Capital
WINS SM&A Mill Road Capital
YHOO Yahoo Carl Icahn
ZLC Zale Corp. Breeden Capital Management

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