The one sentence bullish case for INFS is that the company’s largest shareholder now controls the board of directors and will be handpicking the new management team, the company has the balance sheet needed to turn itself around, and the stock is currently trading at a discount to acquisition value.
As I mentioned in my initial post on INFS, one of the reasons that I am looking at this stock is because Caxton is now the largest shareholder of the company with 11.2% of the shares outstanding and they control the board. Stated another way, going forward the shareholder with the most money at stake will be running the show.
If you read my posts on CPY, you know that I consider such direct aligning of interests between shareholders and the people running the company (board of directors and management as their agents) as a must for profitable turnaround investments. Because of this, I consider piggy-backing onto large institutional investors who are planning to act as activists to facilitate the turnaround as a very attractive strategy.
If you read the original letter written by Caxton when they reported their holding but before they were given their first 2 board seats , their discontent with INFS is pretty generic:
- board has no vision
- board has no significant shareholders
- must have a new business plan that assures profitability or sell the company
So far, Caxton has been able to fix one of the three points. As part of their agreement with the company to call of a proxy fight, Caxton got to name 2 directors in April if INFS was not sold. With the April and June appointments, Caxton has control of the board and there is now representation on the board from a significant shareholder.
Off the four Caxton board members, two have industry experience and the other two are from the financial sector. Robert Ladd was one of the two directors appointed on June 6th, Ladd runs Laddcap Value Associates which owns 0.6% of INFS shares.
Interestingly, the other director from the financial sector is John Abouchar who according to this article covered INFS as a sell side analyst and was critical of the company. You don’t often get to see sell side guys getting to make changes in the company’s they cover
Its unclear at this point what Caxton will do to regarding the other two points raised in their letter, 1) vision, and 3) new business plan.
According to the previously linked article, Caxton has called for INFS to turn itself into a an intellectual property company as opposed to a manufacturer, call center provider, parts manufacturer, etc. I have only listened to the latest few conference call and the only thing I have ever heard the Caxton guy say is that he is upset about the company performance and as the largest shareholder they are pissed-off. Naturally!
I think the intellectual property route is an attractive one for INFS. This company will never be able to compete with the big boys (Sony, etc.) or the low cost generic manufacturers so spending less time and money on the non-research related business functions would free up time and resources to spend on being a technology innovator. The company has already outsourced all its manufacturing but there are still a lot of non-R&D functions done by the company that I think Caxton and the new CEO will be looking to cut.
As I said in the beginning of the post, I consider having a large shareholder on the board of directors as a must before investing in a turnaround situation.
* DISCLOSURE: I or accounts I manage may be long or short any and/or all stocks mentioned in this post. This is not a recommendation to buy or sell any security. For informational and educational purposes only.
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