Astrotech Corp (ASTC) (~$24MM market cap) is an odd little microcap that IPO'd in 1995 as an aerospace company dubbed SPACEHUB, however, when the U.S. wound down the manned space program the company sold most of their operations to Lockheed and pivoted to "mass spectrometry technology" (don't ask me what this means) in the mid-2000s. Astrotech has struggled to find a use case for their technology, they're currently pursuing testing for explosives in travel settings, cannibas industry applications and viral/COVID testing, all while generating minimal revenue in the past half decade. The one thing they have sold plenty of is stock, during the mania of 2020-2021, Astrotech sold $79.4MM in equity in a series of capital raises. As of 3/31, they only have $44.1MM of cash remaining and no debt, making it a net-net, albeit a low quality cash burning one. If there was any doubt of management's lack of capital allocation skills, Astrotech announced a new ATM equity program earlier this month despite shares trading at an extreme discount to net cash.
Earlier this week, BML Investment Partners (good firm to watch, often involved in a lot of these broken biotechs and other net nets) re-entered the picture by amending their 13D to include an offer to buy the shares they don't own (currently own 13.1%) for $17.25/share. In the exhibit, they included a brief letter below:
The CEO, Thomas Pickens III, owns 8.3% of the company (management has a whole owns 9.7%), he pays himself handsomely, some $1.2MM in 2022 which included a $450k salary and $375k cash bonus, added together that's just under the $869k in revenue the company did during the same timeframe. So at first glance, I didn't like BML's chances of convincing the board to take their offer.
But an interesting thing happened yesterday afternoon, a day after receiving BML's offer, the company did indeed cancel their ATM program, which is a stipulation of the deal. Why do that if they weren't serious about evaluating the offer? Especially since the shares spiked up, making it more attractive to execute the ATM if that's the path they wanted to take. That action alone is worth a small position for me. BML did put a strangely tight timeframe on a response, but hopefully the company has already met that threshold by cancelling the ATM and acknowledging the offer in an 8-K. From my memory, I don't remember BML buying a company outright, but they are experienced in liquidation scenarios and have likely helped companies execute them behind the scenes. This doesn't seem like a stretch for them and there's no financing condition.
Shares currently trade for $14 or roughly a 20% discount to the offer price.
Disclosure: I own shares of ASTC
Maybe-interesting situation in High Arctic Energy. Looking to return ~70% of their current market cap in cash in September or soon thereafter, spin out Papua New Guinea assets that have, if memory serves, a depreciated book value approximating current market cap and some historical earnings, and keep the remainco as a decently-capitalized Canadian company with minor operating businesses. If you trust management (better than many, but still), after cash return (excluding tax leakage--tax free for Canadian holders but not sure about US) you'll be paying ~40 cents for ~1.55 in NAV. Caveats: 2 maybe-subscale businesses, one a private Papua New Guinea corporation (!) with potential currency controls, might not even be worth the very little you're paying for them, alleged NAV notwithstanding.
ReplyDeleteNot sure there's really an incentive to sell from the CEO, a $1mm/year salary would be economically advantageous for him. I guess technically this would be a board decision though.
ReplyDeleteActually, will need to see if there are any CoC provisions in his employment agreement. Might change the equation.
DeleteTermination after a Change in Control
DeleteA termination after a Change in Control is similar to the severance provisions described above, except that the base salary payable to Mr. Pickens is increased to one and one-half times, rather than one times his base salary and annualized average bonuses if his employment is terminated within 12 months following a Change in Control. A Change in Control for this purpose is defined to mean (i) the acquisition by any person or entity of the beneficial ownership of securities representing 50% or more of the outstanding securities of the Company having the right under ordinary circumstances to vote at an election of the Board of the Company; (ii) the date on which the majority of the members of the Board of the Company consists of persons other than directors nominated by a majority of the directors on the Board at the time of their election; and (iii) the consummation of certain types of transactions, including mergers and the sale or other disposition of all, or substantially all, of the Company’s assets.
Also if the offer is accepted, CEO gets $2.4m for his shares. CEO needs to run this company 2~3 years to make that amount and I doubt the company can survive 2~3years without further financing.. CEO could entertain the idea of selling
DeleteWonder if BDL would ever consider just negotiating a rollover with the CEO and buy all other outstanding stock of the Company.
ReplyDeleteThis is T. Boone Pickens' son. I would assume he doesn't need the salary, but it's unclear after poking around on the internet and seeing some fraud cases that were settled with a former CFO. The Company has been a nice piggy bank for him. He was CoB of a Company called Xplore that was sold to a legit company for $90 million. The board is obviously not independent, most of them have ties to Xplore or other Pickens ventures. I guess it comes down two things. Potential liability if they don't accept the deal (over my head)? Pickens' ability to understand time value of money and that they lucked out with a stock mania that allowed them to keep this going. The recent announcement of Pickens' assumption of the CTO role looks like a good way to justify a salary increase, so he may think this scheme can just keep going. Any sense of BML's success rate on getting these types of schemes to liquidate?
ReplyDeleteI feel a bit silly that I didn't realize it T. Boone Pickens' son. That is an interesting fact and clearly doesn't need the piggy bank. But still hard to handicap.
DeleteThe "deadline" to reply to the offer is 5PM EST today. Assuming they do reply, anyone have any idea when the typical shareholder be expected to know? I assume there's a possibility that a discussion might be going underway even if we don't get anything by Monday?
ReplyDeleteOffer is rejected. Funny that they state over and over again that it undervalues the company, but they were ready to issue shares at much lower prices.
ReplyDeletehttps://www.sec.gov/Archives/edgar/data/1001907/000143774923019047/ex_540115.htm
Stockholders will not know till ASTC either files a 8-K/does a press release. They do not seem to have enough runway to survive for more than a couple years given their current burn rate unless they pursue additional financing. If I was Pickens, I'd seriously consider the offer but then again he doesn't seem like the brightest in the shed.
ReplyDeleteThese typically work out over a large enough sample size. Thanks for all of the recent ideas. Does BML have any legal alternatives, and, if they do, would it be worth their time?
ReplyDeleteAnd I think TB3 actually does need the money. Combination of spending habits, his dad’s 5 marriages, a giving pledge, etc.
ASTC's auditor quit with a dubious explanation. Not a good news.
ReplyDeletehttps://seekingalpha.com/filing/7757693
How is it dubious? The accounting firm is embroiled in an FTX auditing suit... may be trying to reduce exposure/liability? Also seems like there was a large exodus after the FTX mishap (https://www.coindesk.com/tech/2023/03/01/former-accounting-team-of-ftx-us-auditor-armanino-sets-up-shop-as-the-network-firm/)
DeleteOh! Thanks for the color.
DeleteHi @MDC - I enjoy your content, thanks for putting it out there. Has your thesis for ASTC remained the same since this post? Do you think BML is exiting or will try again? Thanks again!
ReplyDeleteWell the thesis failed pretty quickly, so no, they didn't take BML's offer. I exited a bit after that for a small loss. Hard to know where it goes from here, an odd company that doesn't appear to be shareholder focused. But I still like/respect BML, they might have a trick up their sleeve to make something happen.
DeleteI think that it is too early to conclude that BML is done. Volume and price are too low for them to sell and walk away. I am still expecting them to push for a sale or liquidation. Added quite a bit on weakness. Let's see what happens.
ReplyDeleteInterestingly, it looks like BML has maintained their position according to their most recent 13f
ReplyDeleteUnless the books are cooked and the CEO is a crook that will run this company to ground for his personal benefit, how does this stock price make any sense? Recent offer to buy for over $17 got rejected as too low where as the stock is trading at $8. I am scratching my head.
ReplyDeleteThe CEO is T. Boone Picken's son? Interesting.
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