A Buyout Battle Looms at Phoenix Technologies (PTEC)
Posted on January 17, 2007
If you’ve been following Phoenix Technologies (PTEC), one of our top software turnaround picks, we’re sure you noticed that yesterday Ramius Capital offered to purchase PTEC for $5.25 per share, a 15% premium to our purchase price for the shares back in November 2006.
Today, Phoenix management soundly rejected the Ramius offer. What we found interesting about the refusal of the buyout proposal was that Ramius actually considered offering a slightly higher price for the company.
As PTEC management says:
“We have reiterated to you on several occasions our Board’s confidence in the Company’s potential to yield significantly more value to stockholders than your proposed offers, including your revised offer of $5.30 per share made verbally last week and the $5.25 per share offer made today. “
The implication is that Ramius has been pretty active with regards to PTEC and they are not finished here yet. Shareholders can look forward to an interesting hedge fund vs. management battle in the year ahead.
As for us, we’re holding onto our shares of PTEC and we would be buyers on any dip. We are not surprised that management has refused to accept the Ramius offer. New CEO Woody Hobbs has only come to PTEC recently and has clearly not had enough time to make much of an impact, even though he has already implemented several significant restructuring actions.
Given that the vast majority of Mr. Hobbs incentive options are at about $5 per share, we hardly think that the 5% return will be enough to appease this proven software executive. We remind investors that the last company Mr. Hobbs took over, subsequently rose by nearly 500% after he turned it around and sold it to Nokia. And while we’re not expecting that type of return in the case of PTEC, we surely think the company could be worth far more that $5.25 per share when BIOS revenue begins to recover over the next 12 to 18 months.
Please Note: We first recommended Phoenix (PTEC) at $4.55 per share, and still hold a position in the stock. All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise.
Subscribe for FREE
RSS Feeds:
Disclaimer:
This site may include market analysis and we may own shares in the stocks mentioned in our reports. All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise.
Comments
Leave a Comment
If you would like to make a comment, please fill out the form below. Please note that we only require an email for editing purposes. We will NEVER publish your email or use it in any way.
Isn’t the discount between the $5.25 offer and the stock price $4.90 unusually wide for an all-cash offer?
What would you expect to happen at the 14Feb07 PTEC annual meeting - a “showdown”, the election of 2-3 dissident directors or an actual vote on takeover?
With about 85% of PTEC stock held by “institutions” wouldn’t that favor the guy making the all-cash offer? Would that still be true if most of the holders have a loss?
Thanks,
Bill Teter
Hi Bill,
Yes, we agree the discount is getting wide to make this a very attractive risk-arb like play. This situation is somewhat similar to STLW and PCNTF where in both cases the discount also widened and the trades proved to be very profitable. There was also some interesting option exercises/buying reported today at PTEC. See the SEC filings.
We’re not sure what will happen at the meeting, but we still suspect management will never go for this offer, nor will other institutional holders. The hedge funds will need to raise their offer or they will just back away. Either outcome would be favorable since we know at least have some fair value to work off in determining a proper price for the stock.
Now that PTEC has a “Stand Still” Agreement in effect until December, the stock predictably has softened to the %5.7 to $6 range. But the volume has been so low that apparently the late-buying speculators still are holding. Why? This now seems to be a long-term situation.
Have I missed your update on PTEC?
Do you believe the parties have made “peace” and they want the stock to drift down so they can together take it private between now and December?
Do you believe PKEC management an show a long-term true growth trend between now and December — and get the stock up high enouth to avoid a proxy fight next year?
Bill Teter
I believe my questions of 17 March are still pertinent and hope you will be able to address them. I know, getting info out of Woody is difficult!
The stock seems to be inching upwards from a base of 6.0 on very low volume. With no research out, why have the speculators held in there? This seems to represent incredible patience. Do you have any prognosis on the net quarter, and when, exactly, will those results be made public? Have you contacted the company since the Stand-still agreement?
Bill Teter
Hi Bill,
Thanks for following up. We’ve addressed the PTEC situation in this post:
http://www.envoyglobalresearch.com/?p=151
Briefly, it seems clear that if the company can slowly regain its peak revenues, and continue to show quarter to quarter growth, that the stock still has good upside. The next few quarters will hopefully shed some light here.