Herb on TheStreet
Shareholders Still Bitter Over the Sorry Story of Shiva's Sale to
Intel
By Herb Greenberg
Senior Columnist
2/22/99 6:30 AM ET
URL: thestreet.com
You could've argued that Intel (INTC:Nasdaq) took Shiva (SHVA:Nasdaq) out of its misery when it offered to buy the
company last October for $6 per share in cash when the stock was trading at 4. (I know one networking analyst who thinks
they're lucky to get $1.) You could also argue that Intel got a steal, which is what shareholders pretty much allege in a
class-action lawsuit. But the story of Shiva, and the Intel deal, got buried in the midst of a market run amok.
With shareholders slated to vote on the deal this Friday, don't count on Curtis Jensen checking the "yes" box. The manager of
Third Avenue Small Cap Value Fund, who owns 244,800 shares bought at an average price of 10, thinks the deal is a
classic example of "terrible management" that was looking out more for itself than for shareholders. (They received transition
bonuses and new jobs inside Intel. Talk about landing on your feet!)
Consider that:
Shiva's investment bank, Lazard Freres, published research just two and a half months before the deal calling for a
Shiva price target of 17. "The report specifically cited 'strong management engineering a turn-around' and 'a sizeable
installed base' that 'gives Shiva a unique position in the market," Jensen says. "Is it conceivable that the same firm can,
on one hand, tell public investors that a company is worth $17 per share and, on the other, advise the company's board
only a short time later that $6 is a fair price for the company?" (Not unless it has a really solid Chinese wall.) Lazard
representatives did not return phone calls on Friday.
Rather than do the deal for Intel's highflying stock, it was done for cash -- a taxable event for investors. Shiva's
management, however, besides getting jobs and bonuses, received Intel stock in exchange for what were worthless
Shiva options.
The only way Shiva could possibly have been valued so low, Jensen figures, is if its business had fallen off a cliff. And in the
face of competition from the likes of Cisco (CSCO:Nasdaq) and Lucent (LU:NYSE), that very well may have been the case.
In Shiva's world, fortunes can reverse overnight. In fact, fourth-quarter losses were wider than expected. However, Jensen
also notes that in its latest proxy Shiva disclosed it had received a takeover bid a year ago from Nortel (NT:NYSE) for 9 5/8,
but that it passed on the offer because it thought the price was too low. (The greed factor, no?)
In the end, will Shiva boost the price? Don't hold your breath. Most of the stock is probably in the hands of arbs, and they'll
take what they can get. On Friday Shiva closed at 5 7/8, unchanged.
Shiva officials couldn't be reached.
Short Positions
Bebe banter: An item here Friday pointed to a new disclosure in the latest 10-Q from Bebe Stores (BEBE:Nasdaq).
That prompted Morgan Keegan analyst Rick Snyder to grouse that the warning, regarding a possible slowdown in
comp store sales, has been in every Bebe financial document that he has read.
Right he is, but one very important difference: The original warning said the comp store sales growth rate "is not
sustainable" in the "risk factor" section of prior filings, as well as the most recent Q. This warning, which was worded
differently, was elevated to the Management Discussion and Analysis section of the latest 10-Q. So, not only do you
have a change of wording (always noteworthy) but you have it elevated higher in the report as part of the discussion of
operations. (Sound the sirens.)
Full disclosure and accountability: I hadn't seen the original warning in prior Q's because as I looked back I stopped
looking after the MD&A, which is where it appears in the current Q. (Now you see it, now you don't.) However, had I
noticed it, the placement change would've (in my opinion) made Friday's item that much stronger.
Speaking of updates -- another Medtronic minute: Last week's item on Arterial Vascular Engineering selling
itself to Medtronic (MDT:NYSE) when the selling was good really left out the punchline. If I could do it over again
(which, hey, I am) I would have said that the proof that they sold when the selling was good was that according to the
merger agreement, filed with the SEC, there was no "material adverse event" clause that would've let Medtronic walk
away if biz suddenly fell off a cliff after the deal was signed. Such clauses are fairly common, and when they're not there
they often suggest that the sellers were in the driver's seat.
Yee-haw!: Thanks to Del Tinsley, of the Wyoming Livestock Roundup and viewer of CNBC's Today's Business, for
sending along a copy of his pub. My faves include "Barbed Wire," a column by Doug Cooper. ("I bought a book the
other day that was titled, "Pecked to Death by Ducks." OK, it's a travel book, but the guy has a sense of humor.) And
the headline: "Can you sleep during Lambing?" No, I say, especially if you're the lamb!
Can't help but love Tinsley for allowing subtle humor (or what I perceive to be subtle humor) to mix in with what
otherwise could be just another a deadly dull (and no doubt profitable to Tinsley) trade pub.
Coffee break: By the way, I finally received my coffeemaker from Shopping.com (IBUY:Nasdaq). And as a way to
make up for the screw up, they also sent a Krupps bean grinder (which I don't need) and a plastic Krupps
cocoa-and-ice-cream- toppings shaker (oh, yeah!). To be fair, once we got things straightened out, they couldn't have
been finer. (But the question is, were they in Carolina?)
Herb Greenberg writes daily for TheStreet.com. In keeping with the editorial policy of TSC, he does not own or short individual stocks. He
also does not invest in hedge funds or any other private investment partnerships. He welcomes your feedback at herb@thestreet.com.
Greenberg writes a monthly column for Fortune and provides daily commentary for CNBC.
As originally published this story contained an error. Please see Corrections and Clarifications.
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