Embarcadero Technologies Inc. (NDAQ:EMBT) shares moved up $0.09, or 1.37%, to $6.66 after Chapman Capital issued a press release reiterating its demand that Embarcardero's Board of Directors maximize shareholder value via a change-of-control transaction. The activist hedge fund, which owns a 9.3% stake in the company, also said that it would seek nominees to replace several Class I and II directors.
The company first attracted buyout interest back in September 2006, when it announced it had entered into a definitive agreement to be acquired by an affiliate of the Thoma Cressey Equity Partners in a cash transaction valued at $8.38 per share of common stock. Problems arose in November, however, when the company failed to file on time and eventually uncovered an options backdating problem. This caused Thoma Cressey to terminate their merger agreement on December 18th. Chapman Capital then decided to take an active stance in the company again and began contacting shareholders. By February 28, 2007, Chapman Capital’s research led to the conclusion that there was virtually unanimous sentiment amongst the company's shareholders that the most suitable strategic course of action for the Issuer was to resume the auction process conducted by Morgan Stanley & Co., as compared to the arguably higher risk spend-for-growth strategy that has crippled numerous sub-$100 million technology companies in the past. Particularly in light of the company's February 16, 2007, disclosure regarding the company's ongoing NASDAQ delisting risk, declining license revenue, and option-scandal related inability to announce full earnings results for the fourth quarter ended December 31, 2006, the company's ownership base conveyed a uniform desire for the company's common stock value to be maximized through a change-of-control transaction.
"Embarcadero's Board of Directors is virtually ownership-free, with only one director recently possessing a mere $65,000 in Embarcadero shares vs. funds advised by Chapman Capital owning over $15 million of this $170 million-in- market-capitalization company. The Board, with no meaningful 'skin in the game,' shall not be allowed to 'play venture capitalist' with the hard-earned money of a shareholder base held hostage by weak corporate governance," said Mr. Chapman. "Morgan Stanley & Co., the financial adviser still retained by the
Board, is in possession of a signed merger agreement and germane
fairness opinion that with minor modification could be applied
expeditiously to a revised merger proposal. In a period of record
merger and acquisition activity driven by a multitude of cash-flush
financial and strategic buyers, Morgan Stanley shall not be exculpated
for failure by using the pretext of a shareholder base that is openly
willing to sell."
Combined, these factors make EMBT a stock
worth watching! If Chapman Capital is able to convince the company to put itself up for sale, it could mean significant share appreciation for investors. Typically, when threats of a proxy fight are issued, the company will at least respond to the demands in an attempt to prevent the costly process from occurring. So, the next thing to look for is either a communication from the company or a DEF14A proxy solicitation.
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