Keeping a Casual Eye on ASUR, Part IV

The stock soars on news that the interim CEO picked up 500k shares. So far, so good for Sandberg and associates. The stock is now higher than the cash-out offer. The gamble of small holders to turn down the 36 cents per share in cash may yet work out.

We'll keep an eye on this, for reasons I mentioned in previous posts.

Keeping a Casual Eye on ASUR, Part III

As I mentioned in a previous post ("Keeping a Casual Eye on ASUR"), I closed out my positions in Asure Software (Nasdaq: ASUR) at .25, but I planned to keep a casual eye on the stock to see

if Red Oak succeeds in unlocking some shareholder value here. If so, it might be worth considering piggybacking on their next venture in micro cap shareholder activism.

David Sandberg and his associates have succeeded in ousting ASUR's management: "Shareholders oust Forgent’s board". Now it will be interesting to see if Sandberg can make the company profitable again and increase shareholder value. If memory serves, his average cost on this is about 18 cents per share.

Keeping a Casual Eye on ASUR, Part II

As I mentioned in a previous post ("Keeping a Casual Eye on ASUR"), I closed out my positions in Asure Software (Nasdaq: ASUR) at .25, but I planned to keep a casual eye on the stock to see

if Red Oak succeeds in unlocking some shareholder value here. If so, it might be worth considering piggybacking on their next venture in micro cap shareholder activism.

Red Oak and other current ASUR shareholders just suffered a setback: after the close yesterday, ASUR management announced that the firm had lost its trial against its former law firm, and was liable for nearly $5 million in damages, attorney's fees, and interest. If that judgment stands, that would wipe out half of the cash on ASUR's balance sheet. The stock dropped 20% on this news, in response to which a commenter on the company's Yahoo! Finance message board wrote,

1. Warrent Buffett: "You should invest in a business that even a fool can run, because someday a fool will."

2. Now, I understand why Warrent Buffett doesn't like cigar butts anymore.

3. Why this pending lawsuit is not on the 10K?

The litigation actually was mentioned in the company's 10-K, but, to be honest, I didn't pay enough attention to it. I lucked out with the verdict being released now versus last month, when I still held the stock. I wonder if this verdict was a surprise to Red Oak Partners as well. I am going to e-mail David Sandberg at Red Oak now and ask him. I'll update this post with his answer if he is kind enough to respond.

Keeping a Casual Eye on ASUR

As I mentioned in a previous post, I closed out my Asure Software (Nasdaq: ASUR) positions at about .25 last week. Today I got a half dozen copies of the hard copy version of this notice from ASUR management, asking shareholders to support the current management in its impending proxy fight with the activist hedge fund Red Oak Partners. My guess is that Red Oak will win this proxy fight, given the current management's track record, poor relationship with shareholders, and the recent defeat of the current management's go-private plan. I am curious to see if Red Oak succeeds in unlocking some shareholder value here. If so, it might be worth considering piggybacking on their next venture in micro cap shareholder activism.

Penny Ante Arbitrage Update IV

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.

Penny Ante Arbitrage Update III

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.