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Posts Tagged ‘Mithras Capital’

Soapstone Networks Inc (NASDAQ:SOAP) closed Friday at $0.495 following the payment last week of a $57.5M or $3.75 per share special dividend. The company estimates the final distribution at between $0.25 and $0.75 per share. The higher end of the distribution range represents a ~50% upside from Friday’s close, so we’re going to do some work now to determine whether we hold on to the stub, buy some more or close out the position.

We opened the position in SOAP on February 2nd (see our post archive here) because it was trading well below our estimate of its net cash value. An activist investor, Mithras Capital, had disclosed an 8.7% holding and called on the company to liquidate. After some urging on Mithras Capital’s part, management acceded to the request and announced a liquidation. SOAP stockholders approved the liquidation of the company last week and were paid a special dividend of $3.75 per share. Based on our $2.50 purchase price, the $3.75 per share special dividend returns our initial capital plus 50%. At the Friday close, the $0.495 stub represents an additional 20% on our initial purchase price for a total return to date of 70%. Management estimates the final distribution will be between $0.25 and $0.75 per share, which means the stub is trading at a fraction under the midpoint of the distribution range.

The value proposition for the SOAP stub

Following the payment of the special dividend, SOAP has cash of around $17.5M or a little over $1.00 per share. The basis for SOAP management’s calculation of the $0.25 and $0.75 per share distribution is set out below (extracted from the Preliminary Proxy Statement):

SOAP Estimated Liquidating Distributions

(The table above has been modified from the original to fit this space)

(1) Estimated balance is net of cash used for the period April 1, 2009 through June 30, 2009 for estimated operating expenses ($4.2 million), severance costs ($1.7 million) and accounts payable and accrued liabilities ($1.5 million), partially offset by interest income ($0.1 million).

(2) Estimated Extraordinary Dividend payments of $55.8 million are associated with 14,886,107 shares of our common stock outstanding as of June 16, 2009 and Extraordinary Dividend payments of $1.7 million are associated with 460,828 shares of our common stock subject to currently vested options that are in-the-money at $4.13, the per share closing price of our stock on the Nasdaq Global Market on June 16, 2009, which options are assumed to be exercised prior to the dividend payment.

(3) Estimated proceeds from the exercise of currently vested options for 460,828 shares of our common stock that are in-the-money at $4.13, the per share closing price of our stock on the Nasdaq Global Market on June 16, 2009, which options are assumed to be exercised prior to the dividend payment.

(4) Estimated range of cash proceeds from sale of assets, including technology, intellectual property, furniture, fixtures and equipment.

(5) Estimated operating expenses for the period of July 1, 2009 through June 30, 2010 for personnel, facilities and other expenses to conduct our wind up operations but exclusive of all other line items specifically allocated in the table above.

(6) Estimated severance costs for remaining employees involved in the wind up operations.

(7) Estimated accounts payable and accrued liabilities as of June 30, 2009.

(8) Estimated range of cash payments associated primarily with lease and lease related commitments for our headquarters facility.

(9) Estimated range of cash use for the purchase of insurance, including Directors and Officers liability insurance covering the six years from the date of stockholder approval of the plan of dissolution.

(10) Estimated range of cash use for professional fees related to our liquidation and dissolution, as well as ongoing SEC reporting requirements.

(11) Estimated range of cash use for unanticipated claims and contingencies, including potential deductibles and retentions associated with potential insurance claims.

Set out below is an analysis of SOAP management’s estimates, showing the differences between the upper and lower estimates:

SOAP Estimated Liquidating Distributions 2

It becomes clear from the preceding table that two categories account for the majority (80%) of the difference between the upper and lower estimates of the final distribution:

  1. Real Estate and Equipment Lease termination costs: Around $3.8M or $0.25 per share.
  2. Proceeds from the sale of Assets: Around $2.2M or $0.14 per share.

We’ve got no real idea about the likely final figures in either of these categories, which means we won’t be buying any more at this stage. Given that the stock is trading at a fraction under the midpoint of management’s estimate of the final distribution, we’re going to hold on to our remaining stock for the time being and see how it plays out.

[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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Soapstone Networks Inc (NASDAQ:SOAP) has announced that the stockholders have approved the liquidation and dissolution of the company.

We started 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 68.4% 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 initial dividend was paid yesterday and the stock trade’s ex-dividend today.

The press release from the company is set out below:

BILLERICA, MA–(Marketwire – July 28, 2009) – Soapstone Networks Inc. (NASDAQ: SOAP), today announced that, at the Company’s annual meeting of stockholders held on July 28, 2009, the stockholders of Soapstone Networks voted to approve the liquidation and dissolution of the Company pursuant to a Plan of Liquidation and Dissolution (the “Plan of Liquidation”).

As previously announced by the Company, in connection with the approval of the Plan of Liquidation, the Company’s Board of Directors has approved an extraordinary cash dividend of $3.75 per share of the Company’s common stock. The dividend will be paid on July 29, 2009 and the Company’s stock will trade ex-dividend commencing July 30, 2009.

The Company intends to file a certificate of dissolution on July 31, 2009 with the Delaware Secretary of State in accordance with the Plan of Liquidation. At the close of business on July 31, 2009, the Company expects to close its stock transfer books and cease recording transfers of shares of its common stock. At that time, the Company’s common stock, and stock certificates evidencing the shares of common stock, will no longer be assignable or transferable on the Company’s books. We have notified Nasdaq OMX of the date we intend to file our certificate of dissolution, and we will seek to delist our shares of common stock as soon as practicable thereafter. In addition, we requested that the Nasdaq Global Market suspend the trading of our common stock effective at the close of business on July 31, 2009. After the Company ceases trading on the Nasdaq Global Market as a result of such suspension, shares of the Company’s common stock held in street name with brokers may be traded in the over-the-counter market on an electronic bulletin board established for unlisted securities such as the OTC Bulletin Board or the Pink Sheets. Such trading will reduce the market liquidity of the Company’s common stock. As a result, an investor would find it more difficult to dispose of, or obtain accurate quotations for the price of the Company’s common stock, if they are able to trade the Common Stock at all.

The Board of Directors has fixed July 31, 2009 as the record date for determining stockholders entitled to receive any future distributions of available assets and as the final date for the recording of stock transfers. Only those stockholders of record as of the close of business on July 31, 2009 (the “Record Stockholders”), will be entitled to such future distributions. The Company anticipates that its first distribution after the July 31, 2009 record date is not likely to occur prior to the first quarter of 2010. Prior to winding up its affairs under Delaware law, the Company intends to make at least one additional liquidating distribution to the Record Stockholders. The Company has not yet established the timing or per share amount of any such distributions.

[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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Soapstone Networks Inc (NASDAQ:SOAP) has filed its 10Q for the quarter ended March 31, 2009.

We been following SOAP (see our post archive here) because it is 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 48.0% from $2.50 when we initiated our position to close yesterday at $3.70, giving SOAP a market capitalization of $52.0M. We last estimated the company’s net cash value to be $86.1M or $5.59 per share. Following our review of the Q1 10Q, we’ve adjusted our valuation down 6% to $80.3M or $5.21 per share as a result of $6.7M of cash burned.

The value proposition updated

The company’s balance sheet value is almost wholly cash, which it continues to burn (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):

soap-summary-2009-3-311

Balance sheet adjustments

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

  • Cash burn: The company used $6.7M in cash in the first quarter. They expect cash burn to continue to be between $6M and $6.5M per quarter.
  • Off-balance sheet arrangements and contractual obligations: SOAP does not have any off-balance-sheet arrangements and its contractual obligations, which consist entirely of operating leases, are $3.9M. These operating lease payments are the minimum rent expense for SOAP’s facilities, including its head office.

Conclusion

We continue to believe that SOAP is a very good opportunity. The company’s ongoing business is small in comparison to its net cash position, so it shouldn’t dissipate its cash any time soon. It has no off-balance sheet arrangements, little in the way of ongoing contractual obligations and no material litigation, so the cash position seems reasonably certain. The company’s engagement of an investment bank to explore strategic alternatives is a promising step in the right direction. We continue to be concerned by the continued issuance of options at a huge discount to liquidation value. The sooner Mithras Capital gets control of this situation the better.

[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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Soapstone Networks Inc (NASDAQ:SOAP) has announced that it is reducing its headcount by approximately 40% “to reduce expenses and conserve cash in the current economic environment without diminishing the overall value of the Company.”

We been following SOAP (see our post archive here) because it is 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 40.0% from $2.50 when we initiated our position to close yesterday at $3.50, giving SOAP a market capitalization of $52.0M. We estimate the company’s net cash value to be $86.1M or $5.59 per share. We continue to believe that SOAP is a very good opportunity. The company’s ongoing business is small in comparison to its net cash position, so it shouldn’t dissipate its cash any time soon. It has no off-balance sheet arrangements, little in the way of ongoing contractual obligations and no material litigation, so the cash position seems reasonably certain. The company’s engagement of an investment bank to explore strategic alternatives is a promising step in the right direction. Of concern is the continued issuance of stock and options at a huge discount to liquidation value. The sooner Mithras Capital gets control of this situation the better.

The press release from SOAP is as follows:

Billerica, MA, April 14, 2009 – Soapstone Networks Inc. (NASDAQ: SOAP) today announced that it has undertaken an initiative to further reduce its total headcount by approximately 40%, in order to reduce expenses and conserve cash in the current economic environment without diminishing the overall value of the Company.

The Company expects to incur charges for severance and related costs of approximately $0.5 million in the second quarter of fiscal 2009 in connection with this action and anticipates overall incremental cost savings of approximately $3.0 million during 2009 as a result of these reductions, in addition to the $5.0 million in cost savings anticipated to result from the reduction in force previously announced February 12, 2009.

“We have taken these additional steps as we continue to aggressively explore strategic alternatives with the help of our financial advisor, Morgan Stanley & Co. Incorporated,” said Bill Leighton, Soapstone’s CEO. “We believe that this is a level at which we can continue with our PNC development and sales effort into the Carrier Ethernet market, while conserving a significant amount of cash.”

Hat tip to Double F.

[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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Soapstone Networks Inc (NASDAQ:SOAP) has filed its 10K for the year ended December 31, 2008.

We started following SOAP on February 2 this year (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 18.8% from $2.50 when we initiated our position to close Friday at $2.97, giving SOAP a market capitalization of $39.1M. We last estimated the company’s net cash value to be $86.1M or $5.78 per share. We are maintaining our estimate of the company’s net cash value but reducing the per share estimate to $5.59 because there is additional stock on issue.

The value proposition updated

The company’s balance sheet value is now almost wholly cash (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):

soap-summary-2009-1-31

Off-balance sheet arrangements and Contractual obligations

SOAP does not have any off-balance-sheet arrangements and its contractual obligations, which consist entirely of operating leases, are $4.1M. These operating lease payments are the minimum lease payments under SOAP’s non-cancellable operating leases. SOAP treats payments made under its operating leases as rent expense for the facilities, including its head office.

Conclusion

As we’ve said on a number of occasions, we continue to believe that SOAP is one of the best opportunities available at the moment. The company’s ongoing business is small in comparison to its net cash position, so it shouldn’t dissipate its cash any time soon. It has no off-balance sheet arrangements, little in the way of ongoing contractual obligations and no material litigation, so the cash position seems reasonably certain. The company’s engagement of an investment bank to explore strategic alternatives is a promising step in the right direction. The only concern for us is the continued issuance of stock and options at a huge discount to liquidation value. The sooner Mithras Capital gets control of this situation the better.

[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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Soapstone Networks Inc (NASDAQ:SOAP) has engaged an investment bank to explore strategic alternatives for enhancing shareholder value, which may include paying a cash dividend, repurchasing shares, selling or spinning off assets, merging, sale or liquidation.

We started following SOAP on February 2 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. At its $2.54 close yesterday, SOAP has a market capitalization of $37.7M. We estimate the company’s net cash value to be 142% higher at $91.2M or $6.15 per share 128% higher at $86.1M or $5.78 per share [Thanks, shp].

The company’s announcement is as follows:

Billerica, MA, February 19, 2009 – Soapstone Networks Inc. (NASDAQ: SOAP), today announced that it has engaged Morgan Stanley & Co. Incorporated (“Morgan Stanley”) as its advisor to assist the Company in exploring strategic alternatives available to the Company for enhancing shareholder value, including but not limited to, continued execution of the Company’s business plan, the payment of a cash dividend to the Company’s shareholders, 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. There can be no assurance that the exploration of strategic alternatives will result in any agreements or transactions, or that, if completed, any agreements or transactions will be successful or on attractive terms. The Company’s strategic review is underway, but no timetable has been set for its completion.

“Like many companies in this macro-economic environment, we have heard from certain of our shareholders that, for their particular interests, a near-term cash return from the Company is desirable,” said Bill Leighton, the Company’s CEO. “With the help of our outside advisors, we will carefully consider this expressed interest in a cash return, within the process of evaluating a range of alternatives, understanding that our goal is, as always, to provide enhanced value to all of our shareholders.”

We continue to believe that SOAP is one of the best opportunities available at the moment. The company’s ongoing business is small in comparison to its net cash position, so it shouldn’t dissipate its cash any time soon. It has no off-balance sheet arrangements, little in the way of ongoing contractual obligations and no material litigation, so the cash position seems reasonably certain. The company’s engagement of an investment bank to explore strategic alternatives is a promising step in the right direction.

[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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Soapstone Networks Inc (NASDAQ:SOAP) is a net cash stock with an activist investor, Mithras Capital, disclosing an 8.7% holding in October last year. At its $2.50 close Friday, SOAP has a market capitalization of $37.1M. We estimate the company’s net cash value to be almost 150% higher at $91.2M or $6.15 per share. We’re adding it to the Greenbackd Portfolio.

About SOAP

According to the company’s investor relations website, SOAP “helps service providers and enterprises connect their physical transport infrastructure to Next-Generation Network (NGN) software frameworks.”

The value proposition

SOAP’s cash flow from operating activities has decreased over the last four quarters from $28.9M in the December 2007 quarter to -$5.96M in the most recent quarter as it has exited its router business (described in the company’s most recent 10Q). Over the same period, revenue decreased from $44.9M to $2.3M, and operating expense dropped from $14.9M to $8.9M. The company’s balance sheet value is now almost wholly cash (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):

soap-summaryIn the second quarter of 2007, SOAP paid a special cash dividend of $28.3 million or $2.00 per share. Even after paying the dividend SOAP’s balance sheet value is still predominantly cash in the amount of $98.1M. Deducting its total liabilities of $6.9M, we estimate SOAP’s net cash value to be $91.2M or $6.15 per share. The company is now largely a cash box with little ongoing business.

Off-balance sheet arrangements and Contractual obligations

At September 30, 2008, SOAP did not have any off-balance-sheet arrangements and its contractual obligations, which consist entirely of operating leases, were $4.3M. These operating lease payments are the minimum lease payments under SOAP’s non-cancellable operating leases. SOAP treats payments made under its operating leases as rent expense for the facilities, including its head office.

The catalyst

Mark Nelson filed a 13D notice on behalf of Mithras Capital on October 1 last year. You might recognise Nelson from his vocal support of Microsoft’s bid to acquire Yahoo Inc (NASDAQ:YHOO) last year (you can see his Seeking Alpha articles on the subject here and here). While Nelson has not disclosed his intentions for SOAP, his YHOO campaign demonstrates that he is a strong advocate for boards properly exercising their fiduciary duty to stockholders. We think he should be a good bet to wring some value from SOAP.

Conclusion

SOAP is one of the most deeply discounted net cash stocks we’ve come across. The company has a market capitalization of just $37M based on its Friday close of $2.50 against a net cash value some 146% higher at $91.2M or $6.15 per share. Its ongoing business is small in comparison to its net cash position, so it shouldn’t dissipate its cash any time soon. It has no off-balance sheet arrangements, little in the way of ongoing contractual obligations and no material litigation, so the cash position seems reasonably certain. We think Nelson should be able to unlock that cash value. One simple way to do so: SOAP should pay another special dividend. We’re adding it to the Greenbackd Portfolio.

SOAP closed Friday at $2.50.

The S&P500 Index closed Friday at 825.88.

[Full Disclosure:  We do not have a holding in SOAP. We now 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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