In previous posts ("Penny Ante Arbitrage" and "Penny Ante Arbitrage Update") I mentioned that I bought 749 shares of Asure Software (Nasdaq Capital Market: ASUR) at between 17 and 18 cents per share in several different accounts, in the hopes of getting them cashed out at 36 cents each after the company's proposed 750-1 reverse split (the first step in the company's plan to go private). Today, a hedge fund issued a press release ("Pinnacle Fund Issues Letters Requesting Asure Software Abandon its Pending Go-Private Transaction, Requests Shareholder List.") opposing the company's plan to go private. Excerpt:
NEW YORK, May 4 /PRNewswire/ -- Pinnacle Fund (controlled by Pinnacle Partners, LLC which is partly controlled by Red Oak Partners, LLC) announced today that it has issued two letters to Asure Software ("ASUR" or the "Company") requesting that its concerns be addressed, including: a) calling a 2009 annual meeting - thus far ASUR's Board has failed to call nor indicated its intention to call such a meeting; b) excess compensation at the senior management level; c) increasing shareholder representation on a Board which currently has very low insider stock ownership and representation along major shareholders; c) the inability of management to historically forecast its business; and d) an imprudent going-private transaction despite the Company's ability to realize the bulk of ASUR's stated cost savings while remaining public as well as to save additional monies by not paying out certain stockholders at 2x current market price levels. Pinnacle's first letter was issued on April 17th, 2009, followed by a second letter and a shareholder list request issued on May 4, 2009. The letters ask for "immediate and radical changes in the cost structure" to better align costs with revenues and that ASUR abandon its pending go-private transaction and instead effect immediate changes - inclusive of Board changes, setting a date for its annual meeting, and enacting both a reverse stock split in order to satisfy NASDAQ minimum price requirements and an active stock repurchase program.
David Sandberg, the portfolio manager of the Pinnacle Fund, further states, "We would still like to work with the Company's current board and management to address and resolve our concerns. But unless the board and management withdraw from this go-private proposal and map out a workable strategy to restore profitability, our ability to work together appears limited and a proxy fight more inevitable."
According to its 13-D amended today, Red Oak Partners owns 7.35% of the outstanding shares of Asure Software (Nasdaq: ASUR), which it acquired this year. In its two recent letters to Asure's management, Red Oak criticized the company's recent mismanagement, and questioned whether it was necessary to go private to achieve significant cost savings. For example, Red Oak noted that, as a micro-cap company, Asure could save money by hiring a less expensive, smaller auditing firm than Ernst & Young.
David Sandberg of Red Oak Partners was kind enough to spend a few minutes on the phone with me discussing this today, and, in addition to reiterating some of the points in his two letters to Asure's management, he mentioned that he invested in this stock with a higher price target in mind than 36 cents per share. He said that he could have easily had an assistant open a bunch of accounts holding 749 shares each, but he thought he could unlock more value by getting more effective management in place. He noted the cash on the company's balance sheet, that both of the company's businesses are high-margin ones, and said he thought a 70 cent price target was reasonable for the stock, given more effective management.
I'd be happy to take the 36 cent bird in the hand over the 70 cent birds in the bush here, and I imagine most small shareholders would be as well. We'll see what happens.