Tuesday, July 14, 2009 3 comments ++[ CLICK TO COMMENT ]++

Sold: Mathstar (PK: MATH)

I sold off my entire stake in Mathstar (PK: MATH). I lost confidence in the direction management was headed. I invested on the thesis of a liquidation and, given recent events, there was a risk that the company wasn't going to be liquidated.

There is a still fairly reasonable likelihood (say probability of 30%) that the company will liquidate because (i) it's very hard to pull of a deal of any merit with so little cash, and (ii) activist shareholders that were recommending a liquidation own huge stakes. But I felt the risk was too great for me (the plan to take over another firm could have resulted in a 50% dilution and that is too hard for me to swallow right now; the other plan, which may not involve much dilution, is even worse.)

I also chose not to tender my shares to Tiberius and instead decided to sell on the open market. I lose 4.2% doing that but it's not clear to me that Tiberius will complete their tender. One of their conditions was a requirement that at least 3 million shares to be tendered, and I'm not sure if they will be able to get that many shares. They can withdraw the offer if they don't reach that goal (along with a few other usual legal stuff).

I don't know what to think of all this. This is my first liquidation play and, given how I am a concentrated investor, I took a sizeable stake. At one point, I was willing to put everything I can into this. However, it was difficult to buy shares at low prices (I was aiming for around $0.7 to $0.9) so I never bought as many shares as I would have liked to (I also had to buy using one of my brokerage accounts that permits pink sheet purchases so I was limited.) If I had taken a big stake, I think I may have had difficulties unloading it quickly (although I'm just a small investor so it's not like a fund or a wealthy investor trying to sell hundreads of thousands at once.)

It's dissapointing to sell 17% below my estimate of liquidation value but I'm satisfied with the result. If there is anything to learn from this episode, it's that one needs a really large margin of safety. I was very confident that Mathstar would liquidate but it turned out to be questionable. Mathstar may still liquidate but the path they are taking introduces all sorts of side-effects.

Sale price: US$1.20

Total return: 40.2% (44.6% in US$ terms)

(Thanks to Greenbackd for initially bringing this to my attention. Hopefully I'll return the help at some point :) )


3 Response to Sold: Mathstar (PK: MATH)

July 14, 2009 at 8:25 PM

Good analysis, Sivaram. It's always difficult to make the decision to exit the position at a discount, but we agree that MATH is starting to look a riskier at this level. We're going to persist for the moment, not because we like management but because we think something good might happen with those three funds on the register.

Daniel M. Ryan
July 15, 2009 at 1:44 AM

At least you offloaded the risk to someone else.

July 15, 2009 at 10:20 AM

Thanks for the comments. It's an interesting experience. I was quite certain that the company was goign to liquidate but I was kind of wrong. They still may, but I never imagined that they would seriously consider taking over another firm or assets...

Post a Comment