Adaptec Inc. (NDAQ:ADPT) is a struggling technology company that designs, manufactures and markets storage products and software. The company recently reported weak financials, including a 28% decline in year-over-year revenues and a bleak outlook for 2008. So, why is this company one worth a second look for investors?
The first thing worth noting about Adaptec is their cash stockpile. The company currently has approximately $572 million in cash, which amounts to $4.81 per share. Compare that to a stock price of $3.71 and it is easy to see why the cash is appealing! The problem is that the company has embarked on an acquisition-driven strategy that could burn through this cashpile. Luckily, there is an activist hedge fund that is hoping to prevent this from happening and unlock value for shareholders!
Late last month, Steel Partners disclosed a 12.7% stake in the company and demanded representation on the Board of Directors. The activist hedge fund conveyed its disappointment in the company's recent performance and insisted that the company's acquisition-driven strategy was illconceived. Steel Partners also threatened to nominate an entire slate of new directors at the 2007 annual meeting if they are not granted representation. Given Steel Partners' successful track record with activist investing, this is definitely good news for shareholders!
The final thing that Adaptec has going for it are it's restructuring efforts and net operating loss carryforwards. The company has been embarking on efforts to reduce its costs for the past several years. Recently, these efforts have resulted in the company's first
net savings of $9 million beginning in the second quarter of 2007. These reductions in spending help preserve the cash stockpile that represent the real value in this investment. Also, thanks to the company's previous spending, they have built up significant net operating losses that can be carried forward to offset future tax on gains!
Overall, these factors make ADPT a stock
worth watching closely over the next few months as Steel Partners works to unlock value!
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