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Activist investor makes grab for the wheel at Qualstar
Board's figures squeezed into tightening corset
There has been an unwanted bid for Qualstar, a small tape products and power supply vendor, with an activist investor wanting to drag the company into his vision of a profitable enterprise.
Steven Bronson and the BKF Capital Group, which he controls, are bidding $1.65/share for 3 million shares, valuing their bid at $4.95 million, which would make Bronson the largest shareholder, at around 42 per cent of al the shares, but not a majority shareholder. It would give Bronson the ability to take over the board.
Bronson has tried to replace the board last year but failed to get enough shareholder votes to do so.
Qualstar supplies RLS and XLS tape library products and N2Power supplies. The board bought in a new CEO, Larry Firestone, to get the company's essentials out of the mangle in June last year. He left the chief financial officer job at X-IO to take on the Qualstar CEO role and enjoy, if that's the word, a baptism of fire.
His new firm is going through troubled times. In its latest quarter, ended September 30, 2012, it reported revenues of just $3.5 million, 25 per cent lower than a year ago. It made a loss of $1.9 million which compares to a $57,000 profit a year ago.
Revenues were split between storage, $1.9 million, and power supplies, $1.5 million, which declined 30 per cent on an annual basis. The storage products only (!) declined 21 per cent. Qualstar stated:
"The decrease in revenues was due to an inventory tightening by our OEM customers in two of our stronger markets, servers and telecom."
That's some tightening; any tighter and you might think Qualstar would vanish.
With the recently initiated strategic plan and new management in place we have taken significant steps to restructure the company and lower our break-even with much more to come. We are expanding Qualstar's portfolio of products across its power conversion and storage markets and are targeting a variety of new market opportunities to drive long-term growth and profitability.
Qualstar said it had $19.6 million of cash, cash equivalents and marketable securities at the end of the quarter. For Bronson and BKF to bid $3.5 million and get influence on that looks a good deal.
Qualstar is not a major player and the bid is yet another case of private equity seeking more input into what it perceives as under-performing storage assets. Brocade has had an activist investor on-board. Emulex has Elliott Management to deal with and Quantum is wrestling with Starboard Value. The activist investors and bidders all say they can bump up shareholder value faster than the business' existing management, which says: "Stick with us. We know what we are doing and things will come good."
Qualstar's board will review and consider the unsolicited tender offer and issue a response within ten working days from the end of January. We imagine it might well say go forth and multiply to Steve Bronson and his BKF Capital Group. ®