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Posts Tagged ‘S. Muoio & Co’

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

We’ve been following MATH since December last year (see our post archive here) when it was trading at $0.68. We initiated the position because MATH was trading below its net cash value and had two substantial stockholders lobbying management to liquidate. The stock is up 33.8% to $0.91 yesterday, giving it a market capitalization of $8.4M. We estimate MATH’s liquidation value to be around $12.0M or $1.31 per share. That value is predominantly cash and short term investments and doesn’t take into account any further value that the sale of the FPOA technology and intellectual property may yield. The two activist investors, Mr. Zachary McAdoo of The Zanett Group and Mr. Salvatore Muoio of S. Muoio & Co., have been urging MATH’s board to consider liquidation rather than a merger. MATH’s board seems to agree, twice rejecting unsolicited merger proposals from PureChoice, Inc., suspending the company’s operations and exploring “strategic alternatives, which could include merger, acquisition, increasing operations in another structure or liquidation.”

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

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

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

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

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

[Full Disclosure:  We do not have a holding in MATH. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]

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The Zanett Group has increased its stake in MATH to 6.58% according to its most recent Schedule 13D amendment.

We’ve been following MATH since December last year when it was trading at $0.68. We initiated the position because MATH is a net cash stock with two substantial stockholders lobbying management to liquidate. The stock is up 19% to $0.87 yesterday, giving it a market capitalization of $8.0M. We estimate MATH’s liquidation value still to be more than 80% higher at $14.4M or $1.57 per share. That value is predominantly cash and short term investments and doesn’t take into account any further value that the sale of the FPOA technology and intellectual property may yield. The two activist investors, Mr. Zachary McAdoo of The Zanett Group and Mr. Salvatore Muoio of S. Muoio & Co., have been urging MATH’s board to consider liquidation rather than a merger. MATH’s board seems to agree, twice rejecting unsolicited merger proposals, suspending the company’s operations and exploring “strategic alternatives, which could include merger, acquisition, increasing operations in another structure or liquidation.”

The Zanett Group’s most recent share purchases were undertaken between January 22 and February 19 this year at prices between $0.81 and $0.90.

[Full Disclosure: We do not have a holding in MATH. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only.]

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S. Muoio & Co. has called on MathStar Inc (OTC:MATH) to include in the proxy statement for the 2009 Annual Meeting a vote by shareholders to approve a voluntary liquidation of MATH.

We’ve been following MATH since December last year when it was trading at $0.68 because it was a net cash stock with a substantial stockholder lobbying management to liquidate. The stock is up 19% to $0.81 Friday, giving it a market capitalization of $7.4M. We estimate MATH’s liquidation value still to be around 94% higher at $14.4M or $1.57 per share. That value is predominantly cash and short term investments and doesn’t take into account any further value that the sale of the FPOA technology and intellectual property may yield. Two activist investors, Mr. Salvatore Muoio of S. Muoio & Co. and Mr. Zachary McAdoo of The Zanett Group, have been urging MATH’s board to consider liquidation rather than a merger. MATH’s board seems to agree, twice rejecting unsolicited merger proposals, suspending the company’s operations and exploring “strategic alternatives, which could include merger, acquisition, increasing operations in another structure or liquidation.”

S. Muoio & Co. attached to its most recent schedule 13D notice amendment the following letter to the board of MATH:

February 10, 2009

Mr. Douglas M. Pihl
Chairman of the Board
MathStar, Inc.
19075 NW Tanabourne, Suite 200
Hillsboro, OR 97124

Dear Mr. Pihl,

It has come to our attention that MathStar has timely received a proposal from another shareholder to include in the proxy statement for the 2009 Annual Meeting a vote by shareholders to approve a voluntary liquidation of MathStar.

As we stated in our letter of December 12, 2008, we believe that a prompt liquidation of MathStar is in the best interest of the company and its stakeholders. We also continue to believe that pursuit of a merger or alternative transaction flies in the face of the wishes of many of the company’s owners.

As such, the board of directors must act in good faith and cause the proposal to be put on the ballot for the forthcoming annual meeting of shareholders.

Sincerely,

Salvatore Muoio, C.F.A.
Managing Member

cc: MathStar, Inc. Board of Directors

[Full Disclosure: We do not have a holding in MATH. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only.]

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MathStar Inc (OTC:MATH) has taken the first steps to liquidation, announcing that it is preparing to sell its Field Programmable Object Array (FPOA) technology and intellectual property.

We started following MATH in December last year when it was trading at $0.68 because it was a net cash stock with a substantial stockholder lobbying management to liquidate. The stock is up 29.4% to $0.88 yesterday, giving it a market capitalization of $8.1M. We estimate MATH’s liquidation value still to be around 80% higher at $14.8M or $1.57 per share. That value is predominantly cash and short term investments and doesn’t take into account any further value that the sale of the FPOA technology and intellectual property may yield. Two activist investors, Mr. Salvatore Muoio of S. Muoio & Co. and Mr. Zachary McAdoo of The Zanett Group, have been urging MATH’s board to consider liquidation rather than a merger. MATH’s board seems to agree, twice rejecting unsolicited merger proposals, suspending the company’s operations and exploring “strategic alternatives, which could include merger, acquisition, increasing operations in another structure or liquidation.”

The company’s announcement of the sale of the technology and intellectual property is as follows:

COLORADO SPRINGS, Colorado – January 26, 2009 – Core Capital’s Electronics and Semiconductor Group (ESG), an investment banking firm with an electronics and semiconductor focus, announces that its client, MathStar, Inc. (OTC: MATH), has prepared its technology for purchase. MathStar, a fabless semiconductor company specializing in high-performance programmable logic, is finalizing its Field Programmable Object Array (FPOA) technology and intellectual property package for sale. Arrangements have been prepared to assist prospective buyers to evaluate the opportunity, including a webinar, a private “data room” web portal, and access to key creators of the technology.

MathStar began its sales efforts in early October 2008, when it signed with the Core Capital Electronics and Semiconductor Group to complete a strategic sale of MathStar’s technology and intellectual property.

[Disclosure: We do not presently have a holding in MATH. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only.]

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

Ticker Company Name Activist Investor
ACLS Axcelis Technologies Inc Sterling Capital
AEPI AEP Industries KSA Capital
ARS Arris Group Shamrock Activist Value fund
ATML Atmel Corp. Microchip Technology
AVGN Avigen Inc Biotechnology Value Fund
BCSB BCSB Bancorp Financial Edge Fund
BIOD Biodel Inc Moab Partners
CAMD California Micro Devices Corp Dialectic Capital Management
CKEC Carmike Cinemas Mark Cuban
CPWM Cost Plus Stephens Investment Management
CRXX CombinatoRX, Incorporated Biotechnology Value Fund
CTO Consolidated Tomoka Land Co Wintergreen Advisers
DANKY Danka Business Systems PLC DCML LLC
DDS Dillard’s Inc. Barington Capital; Clinton Group
DIN DineEquity Inc Southeastern Asset Management
DPS Dr Pepper Snapple Group Trian Fund
DUSA DUSA Pharmaceuticals SRB Management
DVD Dover Motorsports GAMCO
ESIO Electro Scientific Industries Nieremberg Investment Management
FIC Fair Isaac Corp Sandell Asset Management
FSFG First Savings Financial Group Joseph Stilwell
GGP General Growth Properties Pershing Square Capital
GLOB.OB Global Med Technologies Victory Park Capital
HIFN Hifn, Inc Adaptec, Inc
ICGN ICAgen, Inc Xmark Opportunity Partners
INFS InFocus Corp Nery Capital Partners
ITP Intertape Polymer Group KSA Capital Management
JAVA Sun Microsystems Southeastern Asset Management
JTX Jackson Hewitt Tax Service Shamrock
KANA.OB Kana Software KVO Capital Management
KFS Kingsway Financial Services Joseph Stilwell
KONA Kona Grill Mill Road Capital
LAQ The Latin America Equity Fund City of London Investment Management Co
LCAV LCA-Vision Inc. Stephen Joffe
MAG Magnetek Inc Riley Investment Management
MATH.PK Mathstar, Inc Salvatore Muoio; Zannet Opportunity Fund
MGAM Multimedia Games Dolphin Limited Partnership
MGLN Magellan Health Services Shamrock
MOVE Move Inc. Nierenberg Investment Management
MVCO Meadow Valley Corp Carpe Diem Capital
NDD Neuberger Berman Dividend Advantage Fund Western Investment
NTMD Nitromed Inc Deerfield Capital
OFIX Orthofix International Ramius Capital;
OPTV OpenTV Corp. Discovery Equity Partners
ORNG Orange 21 Costa Brava Partnership
PHMD PhotoMedex, Inc. James Sight
PIF Insured Municipal Income Fund Bulldog Investors
PPCO PenWest Pharmaceuticals Perceptive Advisors
PRXI Premier Exhibitions, Inc Sellers Capital
RDC Rowan Companies Steel Partners
RHIE RHI Entertainment Baupost Group
RIVR River Valley Bancorp Davee Thomas
SLRY Salary.com Cannell Capital
SLTC Selectica, Inc Versata
SUG Southern Union Co Sandell Asset Management
SUTM.OB Sun-Times Media Group Inc. K Capital
TIER Tier Technologies Inc Discovery Equity Partners
TLGD Tollgrade Communications Inc Bradford Capital
TMI TM Entertainment & Media Bulldog Investors
TRGL Toreador Resources Nanes Delorme Partners
TRMA Trico Marine Kistefos AS
TXCC TranSwitch Corp Brener International Group
TXI Texas Industries Southeastern Asset Management
WBSN Websense Inc Shamrock
WEDC White Electronic Designs Corp Wynnefield Capital
WOC Wilshire Enterprises Bulldog Investors
WRLS Telular Corp Simcoe Partners

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A new investor has filed a 13D notice in relation to MathStar Inc (OTC:MATH).

When we started following MATH, it had a market capitalization of just $6.2M based on its December 16, 2008 close of $0.68. We estimated its liquidating value to be more than 120% higher at $14.4M or $1.57 per share. The value in liquidation was predominantly cash and short term investments in the amount of $14.8M. The board had largely suspended the company’s operations and was in the process of evaluating its “strategic alternatives, which could include merger, acquisition, increasing operations in another structure or liquidation.”  MATH had twice rejected unsolicited merger proposals and Salvatore Muoio of S. Muoio & Co. LLC had been urging MATH’s board to consider liquidation rather than a merger.

Mr. Zachary McAdoo on behalf of The Zanett Group – the new investor entering the fray at MATH – filed its 13D notice on December 30, 2008 and attached the following letter to the company:

December 30, 2008

Douglas Pihl
Chairman of the Board
Mathstar, Inc.
19075 NW Tanabourne, Suite 200
Hillsboro, OR 97124

Dear Mr. Pihl,

I am writing to express my opinion as a shareholder that we strongly urge the
Board to liquidate Mathstar, Inc. rather than acquire another company.

Sincerely,

Zachary McAdoo, CFA

Short, sweet and to the point. Hopefully management can hear the drum beats calling for liquidation.

MATH is up around 18% since we started following it, but it’s still trading at half its liquidating value and a little more than half its net cash backing, so we’re maintaining our position.

[Disclosure: We do not presently have a holding in MATH. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only.]

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MathStar Inc (OTC:MATH) is another tiny net cash stock with a substantial stockholder lobbying management to liquidate the company. The stock closed yesterday at $0.68, giving it a market capitalization of just $6.2M. We estimate the liquidating value to be more than 120% higher at $14.4M or $1.57 per share. The value in liquidation is predominantly cash and short term investments in the amount of $14.8M. MATH has twice rejected unsolicited merger proposals. The board has largely suspended the company’s operations and is in the process of evaluating its “strategic alternatives, which could include merger, acquisition, increasing operations in another structure or liquidation.” Salvatore Muoio of S. Muoio & Co. LLC filed a Schedule 13D on December 15, 2008 urging MATH’s board to consider liquidation rather than a merger.

About MATH

MATH is a fabless semiconductor company engaged in the development, marketing and selling of high-performance, programmable platform chips and design tools required to program chips. The company’s investor relations website can be found here.

The value proposition

MATH has rapidly burned cash throughout the year, mainly on research and development. The company has now put a stop to its R&D activities, which has reduced the cash burn significantly from $6.6M in the June quarter to $1.6M in the September quarter. From the Business Overview section of the September 10Q:

During 2008, sales of our field programmable object array, or FPOA, did not materialize as expected, and development of the next generation of FPOA fell even further behind schedule. As a result, on May 20, 2008, the Board of Directors voted to suspend research and development activities and ongoing operations while analyzing strategic alternatives to protect the remaining value and increase the liquidity to the stockholders. The Board of Directors continues to explore these strategic alternatives, which could include merger, acquisition, increasing operations in another structure or liquidation.

Set out below is our summary analysis of the company’s balance sheet (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):

math-summary

The company has a net cash position (i.e. cash remaining after paying out all liabilities) of $13.9M or $1.52 per share, which is around 120% higher than MATH’s closing price yesterday of $0.68.

The catalyst

This is one of the rare instances where management seems to have taken proactive steps to protect the company’s remaining value. The board also appears to be seeking a way to unlock that value through a merger, acquisition, increasing operations in another structure or liquidation. Salvatore Muoio of S. Muoio & Co. LLC annexed to his 13D filing the following letter setting out his preference for a liquidation over a merger:

December 12, 2008

Mr. Douglas M. Pihl
Chairman of the Board
MathStar, Inc.
19075 NW Tanabourne, Suite 200
Hillsboro, OR 97124

Dear Mr. Pihl,

Thank you for taking time out to speak with me today about MathStar’s history and current status.

To reiterate, and for the record, given the current business environment and the company’s assets and prospects, we strongly urge the Board to pursue a path of liquidation.

We have been investors in the securities of companies in liquidation for over 25 years and believe the process to be relatively straight-forward, in particular for companies as clean and litigation-free as MathStar.

As I mentioned, we don’t believe the current environment represents an attractive opportunity to merge with a speculative business in need of the company’s cash. We also don’t believe the incremental but uncertain future value of the company’s NOL in a merged entity offsets the hard cash equivalent value shareholders would receive in a liquidation in the current environment.

In addition, we would be particularly concerned if a transaction were to be announced where any appearance of a conflict of interest were present.

Sincerely,

Salvatore Muoio, C.F.A.
Managing Member

Conclusion

MATH is one of the best prospects we’ve run across recently. It is undervalued at $0.68, trading at 45% of its net cash of $1.52 per share. Management has already taken proactive steps to reduce its formerly significant cash burn rate and seems to be actively seeking a way to unlock the company’s value. We feel more comfortable that Salvatore Muoio is keeping an eye on management’s exploration of strategic alternatives and has expressed his strong preference for a liquidation. As always, the risk is that MATH is unable to unlock its value before dissipating its remaining cash but in this instance we believe that risk is low.

MATH closed yesterday at $0.68.

The S&P 500 Index closed yesterday at 913.18.

[Disclosure: We do not presently have a holding in MATH. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only.]

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