Activist Investors, Cheap Stocks, and PB & J
Some things in life just seem as though they were made to go together, such as chocolate and pretzels, bacon and eggs, rum and Coke, and peanut butter and jelly (try it deep fried some time, it will blow your mind). Let's add another one to the list...activist investors and cheap companies.
Activists that gain control of companies from incompetent management are often able to unlock value that the market isn't recognizing. That's the situation that I'm looking at today. Several months ago the activist investor Steel Partners LLC gained control of a company called Adaptec.
Adaptec was once a storage networking giant that traded at over $60/share during the dot com boom. Today the company is a complete mess that trades at a little over $2.80/share.
Adaptec recently agreed to sell its RAID business to PMC-Sierra for $34 million. So what's left? Adaptec still has its small ASIC business, a couple hundred patents, some real estate, and around $400 million in cash.
As I said, ADPT is a mess, but it's a cheap mess that is in the process of liquidating...that's why I am looking at it. It currently has a market cap of only $343 million.
Obviously $400 million in cash alone is less than $343 million. That makes this situation attractive. The question is what is Steel Partners going to do once this company is completely dissolved.
Earlier this month Adaptec that it “plans to explore all strategic alternatives to deploy the proceeds of the sale” of its remaining holdings. I suspect that this includes purchasing another business or returning money to shareholders. I'm sure that it involves lining Steel's pockets, so if I am able to come along for the ride I'm going to.
I haven't done enough research on this idea yet to justify buying this stock in real life, but I have decided to add Adaptec to my CAPS portfolio today at $2.78/share.
I'd love to hear others' thoughts on Adaptec or if Steel Partners anyone out there is familiar with them.
No position in ADPT