Cash-Out of Fractional Shares Foiled:
In previous posts (e.g., "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). Asure Software announced today that its shareholders rejected its go-private plan, so it has canceled its special shareholders meeting that was scheduled for tomorrow. So, my initial hopes of getting my shares cashed out at 36 cents have been dashed.
Mistakes Made, Lessons Learned:
In hindsight, when considering what might prevent this plan from going through, my focus was on the company's balance sheet and its burn rate: whether it would have enough cash to cash out the fractional shares. Given that most of the company's shareholders stood to benefit from the cash out, I didn't consider it a major risk that they wouldn't vote for it. A commenter on the company's Yahoo message board, whom I quoted here in March presciently did consider this a risk:
In any event, the risk isn't whether they will have enough cash, it's whether they can muster the required number of votes.
Just make sure you cast yours, ok?
At the time, I also didn't expect activist institutional investors to get involved in a $5 million market cap stock (though after activist investors came out against the plan, I still figured there was still a good chance of the go-private plan passing despite their involvement, considering that most of the company's shareholders were small holders who would benefit from the plan. Of course, most of those small shareholders probably never voted their proxies). There may be a useful lesson in this though: if companies with such tiny market caps can be the target of activist investors, it might be profitable to consider investing in more tiny companies with negative enterprise values, in anticipation of activist shareholders targeting the companies.
ASUR Going Forward:
In its press release today, the company said it had scheduled an annual meeting for July 30th. Given the rejection of its go-private plan, I would expect the company's current board to be ousted by activist investors. As I mentioned in my previous post on this, one of the activist investors, David Sandberg of Red Oak Partners, told me he felt he could unlock significant value from the company by getting more effective management in place,
[Sandberg] 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 don't know if Sandberg's 70 cent per share target is reasonable, but considering that ASUR had, at last count, 39 cents in net cash per share, it ought to have some upside from here based on that net cash, and the likelihood that, if the current management gets deposed, the company's cost structure should drop significantly, perhaps the point where it could become profitable from its existing business lines.