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Posts Tagged ‘Lloyd Miller’

Lamassu Holdings has blasted the board of Ditech Networks Inc (NASDAQ:DITC). In a letter to the board, Lamassu Holdngs accuses DITC management of “spending as though Ditech Networks has money to burn, adding to the amount of money you have already lost for shareholders during your tenure,” “aggressively [overstepping] the bounds of good corporate governance” and “clearly [violating] your fiduciary responsibility.”

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.” Lloyd I Miller III has also disclosed a 5.9% holding and has come out in support of 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.” The stock is up 44.9% from our initial $0.89 to close yesterday at $1.29, giving the company a market capitalization of $33.9M. 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.

The press release setting out the text of the letter from Lamassu Holdings is set out below (via Yahoo Finance):

NEWPORT BEACH, Calif.–(BUSINESS WIRE)–Lamassu Holdings, LLC (“Lamassu”) has sent the following letter to the Board of Directors of Ditech Networks, Inc. (NASDAQ:DITC – News) (“Ditech Networks”) Members of the Board:

Over the past month a significant number of shareholders have either publicly, through filings, or privately rejected your leadership by expressing their support for Lamassu’s director nominees. Instead of listening to these shareholders and correcting your course, you push forward spending as though Ditech Networks has money to burn, adding to the amount of money you have already lost for shareholders during your tenure. Your recent decision to tie executive compensation to a level of investment associated with mStage/toktok, an unproven technology that to date has produced no revenues and has no immediate prospects, is outrageous and limits management’s ability to make the hard but intelligent decisions to reduce investment in that technology if its prospects for revenue continue to be elusive. With this measure we believe you have aggressively overstepped the bounds of good corporate governance and have clearly violated your fiduciary responsibility.

Investors in Ditech Networks (NASDAQ: DITC – News) are not venture capitalists and did not sign up for this type of speculative investing with such a large portion of the Company’s assets. Management needs to have the latitude to make the decisions that are appropriate given the revenue prospects of each product and the Board should ensure that no individual investment puts the Company in as much jeopardy of total failure as the mStage/toktok investment does.

In addition, given the level of support for Lamassu’s slate of director nominees, we remain completely perplexed by your apparent desire to engage in a pointless proxy fight and waste Company resources to protect your own interests. It is obvious shareholders will aggressively reject the idea of spending millions of dollars of their money in this manner when the addition of Lamassu’s nominees to the Board will clearly provide a much needed new perspective that is not steeped in the countless mistakes of the past or married to visions and dreams that produce little or nothing in the way of actual revenue.

For the sake of all investors we encourage you to radically alter your behavior and begin listening to shareholders as opposed to pursuing your own interests and extremely risky agendas. While you personally will not be significantly harmed if mStage/toktok is unsuccessful and Ditech Networks ultimately fails, many investors are not in a position to so casually lose their money.

Sincerely Lamassu Holdings, LLC

Hat tip to Toby.

[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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Nery Capital has increased its holding in InFocus Corporation (NASDAQ:INFS) according to its most recent 13D amendment filed January 5 this year.  Nery Capital now controls 12.2% of INFS’s outstanding stock, up from 11.2% at its last filing on December 5, 2008.

We’ve been following INFS because it is a deeply undervalued asset situation with two activist investors, Nery Capital and Lloyd I. Miller, III, pushing the company to “improve [INFS]’s financial condition and increase shareholder value” (see our first post here). A second potential bidding group, including INFS’s founder Steve Hix, emerged last year to fend off the “New York sharks,” and we think that is a positive development for stockholders (see our last post here).

INFS is up 28.6% to $0.81 since we started following it, but we see the liquidating value 42% higher at $1.15 per share, so we will continue to hold it.

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According to the Portland Business Journal, a group of “high-powered executives” plan to save InFocus Corporation (NASDAQ:INFS) from “New York sharks” who want to liquidate the company for a quick profit. The group, which includes Steve Hix, INFS’s co-founder, wants to buy the company if they can get financing. The group says its strategy, which entails expanding beyond projectors, could save the company. Said one of the group:

We’ve got some whispers that there’s a guy in New York looking at buying 50 percent of this company, and he’ll liquidate it. We are scared. We don’t want that to happen to this company. We’ve been working for nine months on a way to save it.

We’ve been following INFS recently (see earlier posts here, 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.” We see a second bidding group as a positive catalyst.

Hat tip to commenter Steven.

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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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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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