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Technology Stocks : DSP Group: an incredible bargain? -- Ignore unavailable to you. Want to Upgrade?

To: Tom Caruthers who wrote (974)	2/17/1999 1:00:00 PM
From: Bob Richmann	Read Replies (1) \| Respond to of 1055

At Tom's suggestion, here are reprints of my recent comments on DSPG. Some of the issues raised maybe out-dated (see today's PR), but for the most part the concerns still exist. I haven't been posting the same items hear because this board doesn't have what I believe to be misplaced optimism that the Yahoo board has. Sorry for the length of this post. I don't really share the optimism of my fellow posters. It's hard to come up with a scenario for the recent events that doesn't seem scripted. The company issues a weak warning at their conference call, share price free falls, and somebody comes into buy 2 million shares at the sweetheart price of $15. The company already has an excess of cash, with no apparent need for it. Sound like a class action lawsuit in the making. Two reasons given by the company for this stock offering are: 1) to help protect the company from possible take over & 2) to have some investors with a long term outlook on the stock involved. 1) The company could have more effectively protected itself by buying back its own shares. For $30-40 million ($15-20/share) the company could have bought back 2 million shares, and still have had $26-36 million in cash (based on last quarters balance sheet). This would have been a higher percentage of the outstanding stock than Magnum now owns, because the 20% dilution would not have taken place. There would be the added bonus of the company not having to trust an outside force not to have a change of heart and deciding to either dump the shares in a year or offer them up to someone wanting to take over the company. There would also have been the added bonus of not reducing its existing shareholders holdings by 20%. And this talk about expanding the stock buy-back just doesn't make sense. If you're going to buy back your stock you don't make large private placements prior to doing it. Also it doesn't make sense to buy back stock at over $15/share and then giving it away in a private placement at the cost of $15/share. The company just flushed the difference down the toilet for some reason. 2) Wanting "long-tem" investors involved in the company. Perhaps the company could attract "long-term" investors by developing an attitude that's more cognizant of protecting their shareholders investment. If you look at the insider activity, it's all exercising options and selling. Why would investors have a long-term view, when none of the people who actually know what's going on at the company do. Several insiders all dumping hundreds of thousands of dollars worth of stock, regardless of price is definitely not a long term perspective. How do all these guys rate the seemingly endless supply of options when the stock has fallen from the 40s to the low teens? I've held it on the ride up and the ride back down. Obviously my "long-term" perspective wasn't in my best interest. Regarding Magnum not being stupid, I agree, but how stupid do you think long-term shareholders or even the short-term shareholders who bought it in the 20s the week prior to the bargain private placement feel. DSPG has done very little to protect shareholder value and probably don't deserve the long-term investors they do have. All IMHO, Bob Richmann ********************************************************************************************* From DSPG's most recent 10-Q. Point conceded, they bought some of their shares below what they were sold at. My numbers show the average cost per share of $16.71, which would mean they lost over 10% of the purchase pricing on all of these. <FINANCING ACTIVITIES. During the three and nine months ended September 30, 1998, the Company received $342,000 and $1,042,000, respectively upon the exercise of employee stock options and through purchases pursuant to the employee stock purchase plan. In the first three quarters of fiscal 1998, the Company repurchased 764,000 shares of its Common Stock at an average purchase price of $17.84 per share, for an aggregate purchase price of approximately $13.6 million. In the three months ended September 30, 1998, the Company repurchased 385,000 shares at an average purchase price of $14.48 per share. > Regarding the M&A activity as the need to make this private placement - I don't buy it for a minute. When I go looking to buy a house my first step isn't to ask the bank for a million dollar loan because I might end up buying a million dollar house. DSPG has a solid balance sheet, a ton of cash, and no reason in the world they couldn't get what financing they need in a way that doesn't damage their existing shareholders. If for some reason this isn't able to happen THEN would be the time to consider/execute a private placement. Then at least the shareholders know why it's being done, instead of wondering if the board members have buddies at Magnum who they're doing a favor for. We were planning to load up on DSPG after the earnings report. We have a long-term perspective and DSPG looked to be a good buy until the private placement was announced. Now we have to reevaluate everything and devalue the company by 20% because of the dilution. Now there's a trust issue because we can't find a legitimate reason for the private placement. There was supposed to be a big announcement by the company which would shed light on what they were doing, but the time frame they indicated for that announcement has come and gone. I'm not surprised Magnum is buying more stock. If they thought it was a good deal at $15, then they probably think it's a great deal at $13. I don't have a problem with them owning part of the company. I have a problem with the company putting the interests of Magnum over the interests of their existing shareholders. They absolutely are riding on the existing shareholders expense. Where do you think the 2 million shares came from? The board arbitrarily decided that I wouldn't mind if the company cut my percentage ownership in the company by 20%. That 20% interest came from each of our brokerage and IRA accounts. I'm willing to overlook the endless stream of stock options to and sells by insiders because that unfortunately a pretty common practice these days and the overall damage to shareholder value is pretty small. I don't think they're deserved when the company goes from the 40s to the low teens, but I also realize that for the most part the company has been performing financially. They don't have control of how highly the market values their company. They have complete control over the private placement and the market should react fairly punitively to the stock because of it. If the company makes another 2 million share placement to a company other than Magnum at the cost of $12/share, you can rest assured that Magnum will be chewing ass at DSPG and trying to change the composition of the board of directors. Unfortunately, since none of us has a 20% stake in the company, we don't have the same capabilities to affect change. DSPG may go to $40 this year. I won't argue that point. But unless DSPG announces a major acquisition in the immediate future you will never win the argument that they are/were looking out for shareholder value. Sorry to all who've trudged through this ranting, I'll try to be more concise in the future. Good Luck to all, Bob Richmann