Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: Tom Caruthers who wrote (976)	2/18/1999 2:36:00 PM
From: Bob Richmann	Read Replies (1) \| Respond to of 1055

I spoke with Michael Cohen yesterday morning to follow up on some of my recently stated concerns, primarily in regards to the recent private placement. He stated that the primary purpose for the offering was not monetary. These reasons for the offering were given as 1) strengthen shareholder base by having a long-term investor involved in the stock. 2) Minimize the company's vulnerability to be a take-over target, and to a lesser extent 3) to raise funds for merger and acquisition activities. I had a series of questions on the effectiveness of this particular method of accomplishing the stated goals. RE: Strengthening the share holder base. My primary question was how does diluting your existing shareholders strengthen your base. He said he realized that the placement was hard on existing shareholders and he had had several calls from upset shareholders regarding it. There was then some discussion that having a large shareholder with knowledge of the industry in general and appropriate contacts would be of long-term benefit to existing shareholders. These benefits were somewhat ill defined, but I would guess there might be some in the M & A arena. I suggested that diluting the existing shareholders was probably going to greatly weaken the base, to which he replied that this was the way the board felt most comfortable in trying to accomplish the goal. RE: Company vulnerability to take over Again, I suggested that using the available cash to repurchase about 2 million shares would more effectively accomplish this goal. He said that that was one way to go about doing it, but the company didn't want to reduce the float, would not have much use for the shares, and didn't want to start going in the direction of privatizing the company. Usage of purchased stock to fill options granted to employees was one possible use identified but the volume of these options would not effectively make a dent in the quantity of shares purchased. My opinion was that a company repurchase would move stock price hire, eliminate the need for trusting a 3rd party to protect your company, and improve investor opinion of the company. The float could later be increased by bleeding off some of these shares when the company is more reasonably valued or keeping the shares and splitting the stock when the company was more reasonably valued. Selling a large block of shares to a single investor has the same effect on the stock float if you're counting on them to continue to hold the stock and protect you from future take over. RE: Financing A&M activity. I restated that paying cash, assuming debt, etc. would all have been better and MC said there were several different ways to accomplish their goals but this is the one that the board of directors felt most comfortable with. This was pretty much the standard answer I got when it was clear I wasn't satisfied with the answer and was trying to get a more logical thought process for the BOD. Obviously he is pretty limited in what he can say about their machinations. The recent purchase of AMD unit was described as a “negligible percentage” of the recent cash raised. The vote on the issue of the private placement was unanimous and the above discussions are the only insight provided for their reasoning. He said they were currently talking with several acquisition candidates & in particular had serious ongoing discussions with two companies. Asked about the companies comfort level with current estimates, he said they were comfortable with them & then clarified that within the next few days they would be completing discussions with their analysts, who would be probably changing their estimates and these new estimates were the ones they were comfortable with. That discussion left me a little uneasy, but we'll see what comes out. Maybe they'll be increasing their projections. Asked about insider sales in 98 he stated that the reasons for these were generally personal decisions by the individuals and the probably included home buying/repair, children's tuition, etc. which is pretty much the answer everyone gives when you question insider selling. He said the quantity of sales ($650-700,000) was not of great significance and that the options granted were part of their compensation. I mentioned that the award of options for taking a company from the 40s to the low teens is a pretty tough sell for some investors. In general my opinions were unchanged on the issue of the private placement. MC was a nice enough guy & I wasn't particularly asking easy questions but the answers I got were pretty much the same ones that have been floating around for awhile. No new enlightenment was expected or gained. I still have sincere and significant doubts that the board of directors has any concern about protecting shareholder value. I would have liked to hear the discussion that took place concerning this placement, but I get the feeling they thought it was no big deal. Regards, BR