Glenayre Technologies, Inc.
(NDAQ:GEMS) shares jumped $0.18, or 8.18%, to $2.38 today after Daniel
Loeb's Third Point disclosed a 6.3% stake in the company and demanded
that the company immediately put itself up for sale.
Daniel
Loeb is well known for unlocking value in his funds' investments
through shareholder activism. This typically involves authoring letters
to boards of directors and replacing them in proxy fights if they do
not heed his demands. And it works - his hedge fund has returned an
annual average of 28.9% between 1995 and 2005, beating both the market
and most other hedge funds!
So, what does he see in Glenayre?
Well, the company is currently set on an acquisition-based strategy
that Loeb insists will run it into the ground. The company's SG&A
spending - which includes executive compensation - is simply too high
for a company of its size. The company also has $355 worth of net
operating loss carryfowards (NOLs) that can be used to offset future
income.
Given the elimination of these costs (along with
compliance costs for Sarbanes-Oxley) and the addition of the NOLs'
value, Loeb suggests that the company currently trades at less than 2x
adjusted EBITDA. This would make it a logical buyout target for
strategic or financial buyers at a considerably higher valuation.
Consequently, Loeb suggests that the board can best maximize
shareholder value by putting the company up for sale.
Whether or
not this occurs depends on how close the board is to management.
However, if no action is taken, Loeb said at the end of his letter to
the board that he would explore all legal and other options to combat
them - including removing them from office. This makes GEMS a stock
worth following!
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