At a market value of $8.3M, the company is currently trading at an 86% discount to the net cash assets the company carried on its books as of December 31, 2008. The latest balance sheet indicates that the company is holds nearly $60M in cash equivalents and short-term investments. The company’s shares are traded over the counter, so its financial situation is not widely followed by Wall Street.
It is our view that the company’s intrinsic value is equal to at least its net cash value, or $1.82/share compared to its current market value of $0.25/share, so ALSC.PK is being added to our ValueHuntr Portfolio.
Alliance Semiconductor Corporation was originally in the business of designing and manufacturing memory and memory-intensive logic. Its product lines included Static Random Access Memory (SRAM), Pseudo SRAM (PSRAM), Dynamic Random Access Memory (DRAM), Flash Memory, and embedded memory and logic solutions. For a little while they also sold some video chipsets for PCs. However, since 2005 Alliance Semiconductor has made a significant transition from being an operating company focused on the semiconductor industry with synergistic investments in emerging companies into a holding company. In the wake of mounting losses, ALSC sold all its 3 business units (memory, mixed signal, and system).
In early 2006, as the result of a proxy contest, large Alliance shareholder Riley Investment Management effectively took control of the then money-losing and mismanaged company and installed Melvin Keating as CEO. Under Keating, ALSC has spent the past few years divesting assets and reducing expenses. After accumulating a sizeable cash hoard through a series of asset sales, Alliance has returned value to shareholders over the past year through a series of special cash dividends. Since July of 2007, ALSC has returned a total of $4.37 a share in cash dividends to shareholders.
We estimate that ALSC’s intrinsic value at liquidation to be nearly 600% greater than the current market value, excluding costs associated with the dissolution and liquidation of the company’s assets. The company has no long-term liabilities, and minimum near-term commitments to fulfill. Additionally, nearly all of ALSC’s current assets are in the form of cash or short-term investments.
On September 3, 2008 Alliance Semiconductor Corporation issued a press release announcing that its Board of Directors has determined to begin proceedings to dissolve the corporation. Melvin Keating, President and CEO, noted that the company has for some time been considering whether to re-invest in another business or to liquidate and distribute its net assets to shareholders. Mr. Keating noted that the amount and timing of additional distributions to shareholders is uncertain, especially because the company’s holding of auction rate certificates will need to be monetized in an orderly manner. Bryant Riley, Alliance’s chairman, noted that since the new board took office, Alliance had sold its operating businesses and its venture capital portfolio, and had liquidated its holdings in two publicly traded semiconductor companies. To conserve cash and reduce costs, Alliance has substantially reduced its staff and the amount of office space it leases.
Alliance Semiconductors is a stock traded over the counter, so it has been widely neglected by Wall Street and the general market. Given that the company has already decided to pursue liquidation and has taken the right steps to preserve cash, we believe this is a rare opportunity where substantial returns and a high probability of realization are both present. We estimate that the company’s value at liquidation ($1.82/share) is at least 600% than the current market value of $0.25/share. ALCS has been added to our ValueHuntr Portfolio.
[Full Disclosure: We do not have a holding in ALSC.PK. 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.]