Trivium Capital Management sends SourceForge a 13D Valentine
Trivium Capital Management, SourceForge's largest Institutional shareholder increased its position by 3M shares, files 13D, sends letter to LNUX BoD.
Since its June 13G filing Trivium Capital has increased its position by 3M shares pursuant to its Sept 2007 13G filing and most recent 13D filing February 14th. Below is its letter to the Board of Directors encouraging Janab to "enhance shareholder value".
LETTER TO BOARD OF DIRECTORS
February 14, 2008
Robert Neumeister, Jr.
Scott E. Howe
David B. Wright
The Board of Directors at SourceForge
650 Castro Street
Mountain View, CA 94041
Dear Mr. Neumeister, Jr. and The Board of SourceForge,
We are writing to you in our role as a significant institutional investor, Trivium Capital Management. We are the second largest institutional holder of SourceForge. We have asked on many conference calls and discussed with Mr. Jenab the possibility and importance of a stock buyback. We would ask that the Board of Directors discuss this during your next meeting.
In general, while the company has gone through many transformative changes in the past year, the overall business plan execution on the core business has been mediocre, at best. This has resulted in the EV (enterprise value) being a modest $60m with a total market capitalization of $120 million, thereby leaving the equity value of the business at $60m. And this excludes the value in Collabnet which the company can choose to monetize at some point in the future. Clearly, this is unacceptable in terms of the valuation metrics that Wall Street is subscribing to the business prospects of SourceForge. As Chairman and Members of the Board, you have a fiduciary responsibility to enhance shareholder value.
Our suggestion of a buyback versus the company putting itself up for sale is one of respect for Mr. Janeb, Mr. Sobel and the employees on the expectation of better execution of their business plan to monetize the company's strong, sticky websites and customer traffic. On any generally accepted metrics for valuing unique users, Mr. Jenab has opined that the value per unique user to an acquirer could be from $10 to $70 for SourceForge properties (based on market transactions for similar properties). This could result in a stock price between $5 and $15 per share depending on your assumptions. As such, we believe a meaningful buyback is in the best interest of shareholders and the company for the following reasons:
1) In review of 2008-2010 earnings it is highly accretive to EPS.
2) In a sale of the company if would add to the price per share.
3) The company has too much cash both in view of the revenues and as a percent being over 50% of equity value.
4) The company has cash far above their acquisitions needs.
5) It would send a message to investors and company employees that the company believes in itself.
6) It might increase the price per share which would benefit shareholders and help lower the cost of employee retention.
We are recommending that the company do a 10 million share buyback. This would leave the company by the time the buyback it is completed (assuming the stock stays weak) with approximately $40 million in cash more than enough to run the company and do small acquisitions. In addition the company could consider selling the Collabnet holding for more cash to fuel a larger buyback. It is our belief that with all the major changes going on at Sourceforge that a significant acquisition would be disruptive and high risk.
We understand that these are difficult economic times and the company is in a transition period. As a significant shareholder we believe that the company can prosper and improve their long term growth prospects looking forward. We hope the Board will also believe in the long term outlook and initiate a buyback now while the stock is down.
In the event management is unable to execute in 2008, I believe it would be appropriate to seek strategic alternatives.
If I can be helpful in any way please do not hesitate to contact us. Thank you for your consideration.
Trivium Capital Management
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT
TO RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO
(Amendment No. )
SourceForge, Inc. (Name of Issuer)
Common Stock, $0.001 par value (Title of Class of Securities)
83616W101 (CUSIP Number)
c/o Trivium Management, LLC
600 Lexington Avenue, 23rd Floor
New York, NY 10022
United States of America (Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
February 14, 2008 (Date of Event which Requires Filing of This Statement)