Monday, July 13, 2009 2 comments ++[ CLICK TO COMMENT ]++

Mathstar shareholders vote against liquidation... Management serious about other plans

During the shareholder meeting on Friday, Mathstar shareholders supposedly voted against the liquidation. This is not what I wanted to see. I was hoping the firms would liquidate but this gives the greenlight for the company to pursue other alternatives.

I'm seriously thinking of selling. I'm up since my initial investment so it will come down to my desire (greed? ;) ) to gain another 20%.

Management made a presentation shedding some details on what they are pursuing. The have two options that they are pursuing (all images below from the management presentation):

I really don't like the restart idea. Management burned through tens of millions over the years and failed to produce anything valuable, and I really don't know if they can be successful the second time around. The first choice of acquiring another company is risky but it does have big upside.

Shareholders will vote on whatever final plan is offered (management has sizeable ownership stake but not enough to pursue any action on their own.)


Here are the slides pertaining to the restart. I really don't like this idea at all. If they pursue this solution, it will be equivalent to investing in a start-up. Some people like these investments but it is not for me. It involves super-high-risk with super-high-upside potential.

Acquiring Another Firm

The main reason for acquiring another firm is to utilize the NOLs (net operating losses). Management indicates that Mathstar has enough NOLs to shield up to $10 worth of earnings (that's like 10x its present market cap.) The downside, on top of the risk of failure of any aquired firm, is that this requires further capital to be raised. As you will see in the slide below, Mathstar thinks it needs to double its share count (basically 50% dilution) and take on debt.

No word on whether it is a profitable business or not.

I don't like the acquistion idea, although I'm not as against it as the restart plan, because Mathstar is way too small. You can't buy anything of decent value for $11 million cash. That's why Mathstar needs to issue a ton of shares and take on debt. In this severe recession, I'm not sure this is such a safe idea.

Final Word

Management, as indicated in the slide below, clearly expects to restart the company this year. Since my main purpose of investing was based on a liquidation thesis, I have to seriously entertain the possibility of selling (or even tendering the shares to Tiberius):


2 Response to Mathstar shareholders vote against liquidation... Management serious about other plans

Daniel M. Ryan
July 14, 2009 at 1:53 AM

It's a bummer in a way, but you still got a profit. MATH didn't get above this latest tender-offer price, so it looks like there's not going to be another one.

July 14, 2009 at 11:46 AM

Each case is unique, but here are some questions I ask myself when I am considering selling.

1)  Would I consider making an initial buy under these conditions?

2)  Has my median expected return on the investment changed?  It is still acceptable?

3)  Has the risk profile on the investment changed?  What is the range of probable outcomes?  Even if the expected return is still acceptable, am I overinvested based on my new assessment of Risk / Reward?

4)  Does the investment still fit into my wider portfolio?  Consider its risks and expected correlations with other investments, including my job / house / outside assets?

5)  If the price goes down 20% or 25%, am I confident enough / liquid enough / not overinvested, so that I can add a few more shares at an even better price?  (This is not how all investors think, but with my style of value investing I am happy to buy more of a good thing).

6)  Is time on my side?  The market may underprice my bargain security for years.  Is the investment increasing in value over time?  Is it decreasing in value over time?

7)  Do I have a better investment idea or ideas?

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