Entries categorized as ‘Liquidation’

Aspen Exploration Corporation: Liquidation May Still Have Value

January 6, 2010 · 6 Comments

Aspen Exploration Corporation (ASPN.OB) is being added to the ValueHuntr Portfolio. ASPN is an interesting special situations play we have been following for some time now. Based on yesterday’s trading price, we believe there may still be some value for shareholders in the event of a sale, merger or liquidation even after the payment of $0.73/share dividend.  For the purpose of keeping our estimates as conservative as possible, we assume at least liquidation value.

THE COMPANY

Aspen Exploration Corporation does not have significant operations. It intends to seek possible business combinations with third parties. Prior to June 30, 2009, the company operated 67 gas wells and had a non-operated interest in 26 gas wells in the Sacramento Valley of northern California and approximately 37 oil wells in Montana.

RECENT EVENTS

On November 30, 2009, Aspen held its annual meeting of stockholders in Greenwood Village, Colorado. Two proposals were submitted to the stockholders for approval as set forth in Aspen’s definitive proxy statement dated October 19, 2009. A total of 5,965,534 shares (approximately 70% of the total outstanding as of the record date) were present at the meeting in person or by proxy.

According to the 12/02/09 SEC Filing, Aspen’s stockholders did not approve the resolution to grant Aspen’s Board of Directors the discretion to dissolve the company. To be approved Delaware law required that this proposal be approved by a majority of shares outstanding and entitled to vote thereon. Although more stockholders voted in favor of the proposal than voted against it, only approximately 41% of the total shares outstanding and entitled to vote on the proposal voted in favor of its approval. As a result, Aspen maintained its corporate status and decided to explore other business opportunities.

On November 2, 2009 ASPN declared a cash dividend of $0.73/share. The news release describing the dividend said:

The distribution follows the final settlement of the sale of Aspen’s California oil and gas assets to Venoco, Inc., at which the parties made a number of immaterial adjustments to the purchase price paid at the June 30, 2009 closing, and made certain other payments that were not determined until after the closing. At the final settlement date Aspen received a net payment from Venoco, but was required to make various payments to third parties which ultimately resulted in a cash outflow from Aspen in an amount not considered to be material.

Aspen expects that after the payment of the dividend, and its anticipated operations through the end of the current calendar year, on December 31, 2009 it will have more than $3 million of working capital remaining. Aspen currently intends to utilize its remaining funds to maintain its corporate status as a reporting issuer under the Securities Exchange Act of 1934 and to explore other business opportunities. “

QUICK ANALYSIS

It is likely that if no interested buyer is found for ASPN’s remaining assets, the company will end up liquidating. Our rough estimates for an eventual liquidation, including expected operational expenses to be incurred until March, 2010 is shown below.

Currently trading at $30/share, our estimates show that there is still some value in ASPN. However, our estimates are highly dependent on the timing of the potential liquidation and on the assumptions outlined above. We believe that management will do what is right for shareholders, as the company’s CEO owns 20% of all shares.

THE BOTTOM LINE

ASPN has no significant operations, but it may have enough cash on its balance sheet to offer some value to shareholders. Although we wish we had a larger margin of safety, we believe it is likely that ASPN’s CEO will find the best deal for shareholders, or liquidate the company. As we have shown, even in liquidation the company’s value is above the company’s current price.

Categories: Arbitrage · Liquidation · Special Situations
Tagged: Aspen Exploration, ASPN, Bailey, Liquidation, Special Situations

VIC Submission: La Jolla Pharmaceutical (LJPC)

November 9, 2009 · 1 Comment

Submitted: October 5, 2009

Accepted: November 1, 2009

OVERVIEW

I have encountered a great shorting opportunity within the nanocap universe with La Jolla Pharmaceutical (LJPC). LJPC is a biopharmaceutical company that engages in the discovery and development of orally-active small molecules for the treatment of autoimmune diseases, and acute and chronic inflammatory disorders. Because the company is currently trading at 5X net cash value ($0.22/share) and it is in the process of liquidating, this is a great shorting opportunity.

TIMELINE

In February 2009, the company was informed by an Independent Monitoring Board for the monitoring board that continuing the study of the Riquent drug was futile. LJPC had previously devoted substantially all of its research, development and clinical efforts and financial resources toward the development of Riquent.

In July 2009, LJPC announced that, in light of other alternatives, a wind down of the business would be in the best interests of stockholders.

VALUATION ESTIMATES

The Company has no other drugs in the pipeline, and has scheduled a stockholders meeting for october 31, 2009. The board expects the shareholders will approve the liquidation of the business at the stated date. Below is an estimate of the liquidation value of the company, not including the expenses to be incurred in the process of liquidation.

Cash and cash equivalents                              $8,509 (as of June 2009)
Total Liabilities                                                    $3,836
Off-Balance Sheet Obligations                        $0
———————————————————————-
Net Cash Value                                                     $4,673

Est. Additional Operational Expenses       $2,096 (through October 2009)
Adj. Net Cash Value                                           $2577

Adj. Net Cash Value per Share                      $0.04

I estimate the company’s liquidating value to be at $0.04/share at best, compared to the company’s market value of $0.20/share. Because expenses will have to be incurred to liquidate the business, we expect the actual cash distribution to shareholders to be below the estimated $0.04/share.

In a DEF14 form filed with the SEC on October 1, 2009 the company provided its estimates of stockholder distributions. The company’s management estimated that distributions will range from $0.028/share to $0.045/share, significantly below the current market value of $0.20/share.

LIKELIHOOD OF LIQUIDATION

Several reasons why I believe the company’s liquidation is certain:

- For over 6 months, LJPC explored strategic alternatives, including undertaking efforts to identify a merger, reverse merger, stock or asset sale, strategic partnership or other business combination transaction that would have a reasonable likelihood of providing greater value to our stockholders than they would receive in a liquidation, which did not result in the identification of any likely transaction.

- The board believes that there is a low probability that LJPC would be presented with, or otherwise identify, within a reasonable period of time under current circumstances, any viable opportunities to engage in an attractive alternative business combination or other strategic transaction that would provide enhanced value to stockholders.

- LJPC has only three full-time employees remaining, two of which make up the management team consisting of a President and Chief Executive Officer and a Vice President of Finance and Secretary.

RISKS

The biggest risk is the possibility of a merger or buyout above the current market value. This is unlikely, as the company has no patents nor other intellectual property that would encourage potential buyers to pay a value above LJPC’s net cash. The 5X premium to net cash value in unwarranted, as the likelihood of liquidation is high. This presents a great shorting opportunity for investors.


CATALYST

In July 2009, LJPC announced that, in light of other alternatives, a wind down of the business would be in the best interests of stockholders.

 PERFORMANCE AFTER SUBMISSION

Untitled

Categories: Analysis · Liquidation · Value Investing
Tagged: La Jolla Pharmaceutical, LJPC, nanocap, short, value investors club, VIC

Update: SOAP Position Closed for 49% Gain

July 30, 2009 · 1 Comment

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We have closed our position in Soapstone Networks Inc  (SOAP).  SOAP was added on March 9, 2009, when the company was trading at a 49% discount to its net cash value (see original report here). On June 15, 2009, the company announced that its Board of Directors had unanimously approved a plan of liquidation. The company declared an extraordinary cash dividend of $3.75 per share, plus $0.25-$0.75 per share in the future. Correcting for the approved initial distribution of $3.75, SOAP is trading at $0.50, which is in the middle range of the future distributions expected by management. We do not think that an additional potential gain of $0.25 justifies the risk of owning the stock, so we have closed our position for a 49% gain.

Categories: Liquidation · Special Situations · Update
Tagged: Liquidation, SOAP, Soapstone Networks

Soapstone Networks submits Preliminary Proxy

June 23, 2009 · Leave a Comment

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Soapstone Networks Inc. (SOAP) just submitted its preliminary proxy with the SEC regarding the Board’s plan to dissolve the company. The section of the proxy we have posted below, in particular, provides some insight on the management’s estimated range of cash distribution to shareholders. Footnotes are included, some of which explain the assumptions behind the specified range.

soap-est

(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.

Categories: Liquidation · Update
Tagged: dissolution, estimates, Liquidation, SOAP, Soapstone Networks

Soapstone Networks: Preliminary Liquidation Analysis

June 18, 2009 · Leave a Comment

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Our preliminary liquidation analysis for Soapstone Networks (SOAP) indicates that the company has the ability to grants shareholders with initial distributions ranging from $3.84 to $4.38 per share, based in excess cash the company holds. This shows that management opted for the lower range of initial distributions. Our estimates of total distributions, including the value of property, plant, and equipment net of depreciation range from $4.09 to $4.68. We are still awaiting for management estimates, which should be submitted to the SEC soon.

SOAP-liq

Categories: Analysis · Liquidation
Tagged: Liquidation, SOAP, Soapstone Networks

Soapstone Networks (SOAP) to Liquidate

June 16, 2009 · 1 Comment

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Soapstone Networks announced yesterday that its Board of Directors has unanimously approved a plan of dissolution and liquidation of the Company.

We added SOAP to the Valuehuntr Portfolio on March 9, 2009, after the company announced it was seeking strategic alternatives to enhance shareholder value. At the time, the company had nearly $6.0/share in cash, but trading at a market cap of $2.8/share.

As part of the decision to liquidate, SOAP has ceased the development and marketing of the Soapstone Provider Network Controller (PNC) product and has reduced its workforce by 50 to a total of 14 employees. Moreover, if the Company’s stockholders approve the Plan of Liquidation, the Company intends to file a certificate of dissolution, delist its shares from NASDAQ, sell and monetize its non-cash assets, satisfy or settle its remaining liabilities and obligations, including any contingent liabilities and claims, terminate its remaining employees throughout the wind down period, and make one or more distributions to its stockholders of cash available for distribution.

SOAP also announced that its Board has unanimously approved an extraordinary cash dividend of $3.75 per share, provided that the Board may adjust such amount at a later date to ensure there is remaining cash to satisfy potential liabilities. Such dividend will be payable after the stockholder meeting at which the Plan of Liquidation is approved by the Company’s stockholders and in connection with the filing of a Certificate of Dissolution with the Delaware Secretary of State.

The Company has analyzed its liquidation value and currently estimates that the amount of subsequent distributions to stockholders will range from $0.25 to $0.75 per share, for a total distribution, including the extraordinary cash dividend, of between $4.00 and $4.50 per share. The amount of these distributions, however, may vary substantially from these estimates based on the resolution of outstanding known and contingent liabilities and the possible assertion of claims that are currently unknown to the Company. If, prior to its dissolution, the Company receives an offer for a transaction that will, in the view of the Board, provide superior value to stockholders than the value of the estimated distributions under the Plan, taking into account all factors that could affect valuation, including timing and certainty of payment or closing, credit market risks, proposed terms and other factors, the Plan of Liquidation and the dissolution could be abandoned in favor of such a transaction.

The Board made this decision after completing an exhaustive evaluation of various strategic alternatives available to the Company for enhancing stockholder value, including but not limited to, continued execution of the Company’s business plan, the payment of a cash dividend to the Company’s stockholders, 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. The Company and its external advisors, including its financial advisor Morgan Stanley & Co. Incorporated, devoted substantial time and effort in identifying potential buyers or strategic partners and entered into negotiations with several potential partners; however, that process did not yield a potential transaction which the Board viewed as reasonably likely to provide greater realizable value to its stockholders than the complete dissolution and liquidation of the Company in accordance with the Plan of Liquidation.

Categories: Liquidation · News · Special Situations · Value Investing
Tagged: Liquidation, SOAP, Soapstone Networks

Is XTNT a Bargain Once Again?

May 18, 2009 · Leave a Comment

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A reader sent us an email yesterday asking whether XTNT is a good investment at $0.30/share given that its Board of Directors approved a plan for liquidation and that the company stock dropped a whopping 70% after the announcement was made. Our personal opinion is that the short answer is “No“, but readers are encouraged to conduct their own research.

Some of you may recall that we opened added XTNT to our portfolio on March 17, 2009. In our article, we outlined our case for XTNT. At the time, the company was selling at $0.46/share with nearly $0.80/share in cash or cash equivalents on its balance sheet. The company had already engaged Piper Jaffray  & Co. to explore strategic alternatives and had reduced its workforce by over 96% in the process. So, in a Graham-like fashion, we concluded that the margin of safety for this investment was high as long as the cash burn rate remained under control and liquidation expenses did not exceed $50M. Two weeks later, the company was trading at $0.76/share, and we exited our position for a 77% gain. 

Five days after closing our position on XTNT, the company surged to $1.50/share, which inspired us to write our article “Selling is Harder Than Buying: A Comment on XTNT” on March 31, 2009. In the article we explained that although we would have loved to keep the company for an extra five days,  keeping the company meant going beyond, if not disengaging, not only form our core discipline, but also from our original thesis.

Yesterday, the board announced that they have approved liquidating the company, but this was not the same company we had first encountered back in March. First, the company was trading at $1.00/share, which was above our March estimate for liquidation value. But most importantly, the latest 10-Q filing indicates that the company burned through nearly $7M of cash and cash equivalents between March and May, bringing the company’s net cash value down to nearly $0.50/share. Therefore, it is clear that the company is not worth the $1.00/share it was selling for just a couple of days ago.

Furthermore, the preliminary proxy filed on May 15, 2009  indicates that employee compensation, professional fees, insurance, and operating expenses would range between $0.20/share to $0.40/share, leaving only $0.10 to $0.30 per share to be distributed among stockholders.

xtnt_liq_estimates

The precipitous drop in cash and cash equivalents in XTNT highlights two key learning points:

a) The inclusion of “expected liabilities” is necessary in estimating a proper liquidating value. These can be hard to estimate.

b) “Expected liabilities” will depend on the timing of the transaction, making timing another difficult factor to evaluate in estimating liquidation value.

Both of these points emphasize the need for a wide margin of safety when engaging in this type of investment operation. This will unquestionably force us to take another look at Eden Bioscience Corp. (EDEN), a stock in our portfolio involved on this type of transaction which has a low margin of safety relative to our estimated liquidation value.

Categories: Liquidation · Special Situations · Update · Value Investing
Tagged: Liquidation, Xtent, XTNT

Eden Bioscience Corporation (NASDAQ: EDEN)

May 8, 2009 · 4 Comments

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We are adding Eden Bioscience Corporation (EDEN) to our ValueHuntr Portfolio. On December 5, 2008 the company announced its intention to dissolve, following the board’s consideration of strategic options to maximize shareholder value. The Company intends to hold a special meeting of shareholders to seek approval of the liquidation plan on May 20, 2009. At its current market price of $1.40/share, the company is trading at a discount to our conservative estimate of $1.64/share value at liquidation.

On an April 1, 2009 DEF14A SEC filing, the company’s management estimated a total liquidating distribution of between $1.27 and $1.42 per share. In particular, they expect to make an initial distribution of up to $1.00 per share within 45 days after the effective date of dissolution, and the rest of the distribution six months after dissolution has been approved. Our analysis indicates a slightly higher liquidation value than management has provided. However, investors should be aware that the margin of safety for this particular investment is smaller than in our typical case, so a smaller portfolio allocation would be desirable if this is in fact the case.

About

Eden Bioscience Corporation is sells harpin protein-based products to the home and garden markets in the United States. The company offers Messenger, Messenger Seed Treatment, and MightyPlant with Messenger Gold products for the protection of plants and seeds, and the promotion of plant health. Its products help plants to grow through stress and improve plants uptake of nutrients. Eden Bioscience sells its products through independent distributors and retailers.

On December 5, 2008, the Board of Directors approved the complete liquidation of the business. The press release indicates the following:

Eden Bioscience Corporation announced today that its Board of Directors determined, in its best business judgment after consideration of available strategic options, that it is in the best interests of the Company and its shareholders to liquidate the Company’s assets and to dissolve the Company. The Company’s Board of Directors approved a plan of dissolution and liquidation of the Company (the “Plan”), subject to shareholder approval. The Company intends to hold a special meeting of shareholders to seek approval of the Plan and will file related proxy materials with the Securities and Exchange Commission in the near future.

The Plan contemplates an orderly wind down of the Company’s business and operations. If the Company’s shareholders approve the Plan, the Company intends to file articles of dissolution, sell or otherwise dispose of its non-cash assets, satisfy or settle its remaining liabilities and obligations, including contingent liabilities and claims, and make one or more distributions to its shareholders of cash available for distribution, subject to applicable legal requirements. Following shareholder approval of the Plan and the filing of articles of dissolution, the Company would delist its common stock from NASDAQ.

In February 2007, the Company completed the sale of its proprietary harpin protein technology and substantially all of the assets related to its worldwide agricultural and horticultural markets to Plant Health Care, Inc. Since that sale, the Company’s business strategy has been to use any revenue generated by its home and garden business to support the Company’s continued operations while it explored whether there may be opportunities to realize potential value from the Company’s remaining business assets, primarily its tax loss carryforwards. Despite its significant efforts, the Company has been unable to identify an acceptable transaction that would enable it to implement this utilization strategy. At the same time, the Company has continued to incur net losses in its home and garden business. Given these and other circumstances, the Company’s Board of Directors, after careful evaluation of strategic alternatives available with respect to the Company’s future operations, concluded that the distribution of the Company’s assets in liquidation was in the best interests of the Company and its shareholders when compared to other alternatives.

On April 3, 2009 EDEN filed the SEC proxy regarding the company’s voluntary dissolution:

Dear Eden Bioscience Corporation Shareholder:

On May 5, 2009, we filed with the Securities and Exchange Commission our quarterly report on Form 10-Q for the fiscal quarter ended March 31, 2009 (the “Form 10-Q”). The Form 10-Q, which is enclosed with this letter, contains important business and financial information about our company and should be read carefully.

As previously announced, a special meeting of shareholders will be held on May 20, 2009, at 9:00 a.m., Pacific time, at the Country Inn & Suites By Carlson, 19333 North Creek Parkway, Bothell, Washington 98011, for the following purposes:

1. To consider and vote upon a proposal to approve the voluntary dissolution and liquidation of our company pursuant to a plan of complete dissolution and liquidation (the “Plan of Dissolution”).

2. To consider and vote upon a proposal to adjourn the special meeting to another date, time or place, if necessary in the judgment of the proxy holders, for the purpose of soliciting additional proxies to vote in favor of Proposal 1.

3. To transact such other business as may properly come before the meeting and any adjournments or postponements thereof.

OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” APPROVAL OF PROPOSALS 1 AND 2.

The proposal to approve the Plan of Dissolution requires the affirmative vote of at least two-thirds of the outstanding shares of our common stock and the proposal to grant discretionary authority to the proxy holders to adjourn the special meeting requires that the votes cast in favor of the proposal exceed the votes cast against the proposal. Therefore, it is very important that your shares be represented at the special meeting.

Valuation

At $1.40/share, we believe the company is slightly undervalued relative to our estimated liquidation value of $1.64/share, which implies a potential absolute return of 17% at liquidation. Our analysis includes off-balance sheet arrangements, cash burn assumptions from March 31, 2009 filing date to date of liquidation, and the costs associated with liquidating the company’s assets.

eden_balance

Off-Balance Sheet Assets

The company may be able to realize benefits due to its tax loss carryfowards. For the sake of conservatism, we assume no tax benefits in our analysis for liquidating value. The company’s latest 10Q explains the company’s tax situation:

The Company files a U.S. Federal and certain foreign and state tax returns and did not record an income tax benefit for any of the periods presented because it has experienced operating losses since inception. The Company’s total U.S. Federal tax net operating loss carryforwards were approximately $118.8 million at December 31, 2008 and expire between 2009 and 2027. The Company’s total foreign tax net operating loss carryforwards were approximately $4.3 million at December 31, 2008, of which $1.4 million expires between 2011 and 2018 and $2.9 million does not expire. The Company has total net operating loss carryforwards in 19 states that range between $12.6 million to $2,000 per state and expire between 2009 and 2027. The Company’s total general business credit carryforwards were approximately $1.4 million at December 31, 2008 and expire between 2013 and 2026.

If the Company were to undergo an “ownership change” as defined in Section 382 of the U.S. Internal Revenue Code (the “Code”), its net tax loss and general business credit carryforwards generated prior to the ownership change would be subject to annual limitations, which could reduce, eliminate, or defer the utilization of these losses. Based upon an analysis of past changes in the Company’s ownership, the Company believes that it has experienced ownership changes (as defined under Section 382) on March 20, 1996 and October 2, 2000 and absent any other ownership changes in the future, there are no significant limitations on the Company’s future ability to use net operating loss carryforwards generated prior to those dates. The Company does not believe it has experienced any other ownership changes that would further limit its future ability to use net operating loss carryforwards generated after October 2000.

Conclusion

We have added Eden Bioscience Corporation (EDEN) to our portfolio because at its current market price of $1.40/share, the company is trading at a discount to our estimate of $1.64/share value at liquidation, which represents an expected absolute return of 17% if liquidation is approved. However, already at the upper level of the $1.27-$1.42 guidance provided by management, the margin of safety for this investment is not as large as in our typical case.

Disclosure: We currently have a position on EDEN.

Categories: Liquidation · Special Situations · Valuation · Value Investing
Tagged: EDEN, eden bioscience, Liquidation

Facet Biotech Corporation (NASDAQ: FACT)

April 15, 2009 · 3 Comments

We are adding Facet Biotech Corporation to our ValueHuntr Portfolio. FACT is a company with a market cap of $239M ($9.72/share) with $295M ($12.00/share) of net-cash as of December 31, 2008. On December 18, 2008, Facet Biotech completed its spin-off from PDL BioPharma, Inc. (PDL). PDL capitalized Facet with $405 million in cash and cash equivalents and contributed to Facet its biotechnology operations and related assets, including four clinical-stage programs, research and development capabilities and protein engineering technology assets.  Our estimates indicate FACT is worth at least $14/share at liquidation, which means the company is currently trading at a substantial discount to its intrinsic value.

 

About

 

FACT is a biotechnology company focused on developing therapeutics for cancer and immunologic diseases. Its products include Daclizumab, Volociximab, Elotuzumab, PDL192, and PDL241. Daclizumab is a humanized monoclonal antibody, with a potential in a range of inflammatory diseases, including multiple sclerosis. It can be used as a maintenance therapy for organ transplant. Volociximab is a chimeric monoclonal antibody, with a potential in treating a range of solid tumors and its role in angiogenesis also aid in the treatment of age related macular degeneration (AMD). Elotuzumab is a humanized monoclonal antibody used to treat multiple myeloma. PDL192 is a humanized monoclonal antibody used to treat tumor indications including pancreatic, colon, lung, renal, breast, head, and neck cancers. PDL241 is a humanized monoclonal antibody, with a potential in immunologic diseases. In January, following the completion of a previously announced strategic business review, Facet announced that it would restructure to focus in the therapeutic area of oncology and significantly reduce its operating costs.

 

Valuation

 

On December 18, 2008, Facet Biotech completed its spin-off from PDL BioPharma, Inc. (PDL). PDL capitalized Facet with $405 million in cash and cash equivalents. However, the company is burning cash at a very rapid rate. The company anticipates cash utilization of approximately $95 to $100 million for 2009, which is a reduction from the $110 million previously announced in January of 2008. FACT management also anticipates 2009 total costs and expenses of $140 to $160 million, which includes $22 to $25 million of anticipated depreciation, amortization and stock-based compensation, as well as approximately $4 million in anticipated employee-related restructuring charges related to the company’s previously announced restructuring activities. We estimate that the company is worth at least $14/share at liquidation, which indicates a potential 46% gain at liquidation relative to the company’s current market price.

 

fact_balance 

 

Catalyst

In a conference call with Facet’s management on March 26, 2009, Roderick Wong expressed dissatisfaction over the company’s business plan and burn rate, and suggested dividend payment of up to $15 per share and sale of the remaining assets of the company. Additionally, Wong proposed the appointment of an alternate slate of five directors, including Wong himself, Philip R. Broenniman, Robert L. Chapman, Jr., David Gale, and Bradd Gold.  The five nominees collectively own 124,828 shares of Facet, or about 0.5% of the company, and would replace the entire 5-member board FACT currently has in place.

In an email to employees, Facet CEO Faheem Hasnain shared his views regarding Wong’s proposal and it is clear that he disagrees with Wong’s plans:

Dear Facet Team Members,

As you may have seen, a press release was issued by one of our stockholders yesterday. The stockholder proposed an alternate slate of directors for the Facet board, in advance of our annual stockholder’s meeting in May, and called for the company to issue a substantial cash dividend followed by a sale of the company.  Late last week, we also received a letter from this stockholder that included his alternate director slate.  We issued a press release earlier this morning indicating we had received the nomination notice.  It is our policy to listen to all of our stockholders and our Board is in the process of evaluating the notice. Although we thoughtfully evaluate stockholder input, we believe we are headed in the right direction strategically and do not believe these proposals are currently in the best interests of the company and our stockholders.

Given all that you have endured over the last couple of years, I realize that this information may be unsettling to many of you. But let me assure that we have a solid strategy in place — our goal for Facet is to build an oncology-focused biotech company that is committed to developing drugs to improve patient lives — and we have the support of our board of directors.  The most important thing we can do is to continue to focus on our day-to-day responsibilities while working to achieve our goals.

FACT responded to Roderick Wong with the following letter:

Dear Dr. Wong:

 

We are in receipt of your letter dated March 26, 2009 and the accompanying notice of your intent to nominate directors at our 2009 Annual Meeting of Stockholders.  We welcome the input of our stockholders, and our Board has considered the suggestions articulated in your letter and March 30, 2009 press release.

 

Our Board and management remain firmly committed to increasing the value of the Company to our stockholders.  To this end, our Board has regularly evaluated the Company’s business plan as well as strategic alternatives to create value for our stockholders since the Company’s spin-off less than four months ago.  In this regard, we note the following:

 

-          Facet has undergone a rigorous analysis of its strategy, both in connection with our recent spin-off and subsequently.

 

-          Our goal has been to focus on therapeutic areas that we believe hold the greatest opportunity for us to create meaningful value for our stockholders.  As a result of our continued review and analysis, we are focusing our efforts on oncology.

 

-          We believe our development programs and technology capabilities represent substantial potential value for our stockholders.  Indeed, our collaborations with Bristol-Myers Squibb and Biogen Idec on certain of our development programs validate the value of these programs.  We firmly believe that by continuing to advance these and other programs, as well as our proprietary protein engineering technology platform, we can enhance value for our stockholders.

 

-          Furthermore, in an effort to maintain strict financial discipline, we have aggressively lowered our cost structure.  In particular, as we recently announced, we have reduced our headcount and our overall anticipated cash utilization in 2009, thereby extending the time period for which we have funding.

 

We believe that our current Board, comprised of four independent directors and Faheem Hasnain, our President and Chief Executive Officer, and the management of the Company have a record of working to advance the interests of all stockholders, consistent with their fiduciary duty.

 

Based on our strategic review and ongoing analyses, the Board believes that our current strategic plan is the right plan to build value for our stockholders.  Since we are committed to considering all alternatives to creating value, we have reviewed your proposal for the liquidation of the Company.  We have, however, unanimously concluded that the interests of our stockholders are best served by continuing to focus on executing our current strategy.  Moreover, the Board believes that the assumptions stated in your March 30 press release with regard to the Company’s ability to distribute a significant cash dividend do not properly take into account, among other things, the Company’s significant lease and other obligations, which are detailed in the Company’s 2008 Annual Report on Form 10-K.  Further, we believe that in this current economic environment, your proposals would significantly impair the Company’s ability to realize appropriate value for its existing assets.

 

Accordingly, we do not believe that your suggestions are in the best interests of our stockholders.  We intend to maintain an open and active dialogue with our stockholders as we continue to work to enhance stockholder value.

 

Sincerely,

 

Brad Goodwin

Chairperson of the Board

 

Furthermore, Seth Klarman, managing director of The Baupost Group, nearly doubled his stake on the company from 2.7M to 4.4M shares following Wong’s proposal according to a 13D filed on April 8, 2009. Baupost is now 17.8% owner of FACT.

 

Disclosure:  The ValueHuntr portfolio does not represent an actual portfolio, and it is tracked for informational and educational purposes only. We do not have an actual holding in FACT. This is not a recommendation to either buy or sell any securities.

Categories: Activist · Activist Investing · Liquidation · Net Cash · Special Situations · Value Investing
Tagged: Activist, baupost group, facet biotech, FACT, roderick wong, seth klarman, shareholder activism, Value Investing

XTNT position realized after 77% gain

March 25, 2009 · 2 Comments

On March 13, 2009 we wrote an article about XTENT Inc. where we explained our reasons for adding the $10M company to our ValueHunter Portfolio. At the time, we estimated the company’s intrinsic value to be nearly $15M at liquidation. However, two weeks later, XTNT is now trading at nearly $17M market cap, which is $2M above our estimate of intrinsic value. Because XTNT has no revenues and is now overpriced based on our estimates for liquidation value, we are terminating the XTNT position. As of today, XTNT is no longer in the ValueHuntr Portfolio.

 

We did not intend to hold the stock for such a short amount of time, but it is clear that we have now realized as much value as we intended. The company is now trading 12% above our estimate for liquidation value.

Categories: Liquidation · News · Update · Value Investing
Tagged: Update, Value Investing, Xtent