Saturday, January 14, 2012

TRID -Trident microsystems Common stock - special situation developing?

Read, understand and consent to the blog's disclaimer here before proceeding to read the article 

Hopefully in the weeks to come I like to understand this chapter 11 filing better. There seems to be possibility of residual equity here. The market cap it is trading at is 27m (0.14$ per share). In the bk filing, assets are listed at 310m and liabilities at 39m  for the 2 entities that filed(note there are many subsidiaries that are out of this). So why the hell did they file for bankruptcy ? First of all, the above doesn't represent the consolidated balance sheet. Per the consolidated balance sheet total current assets-total current liabilities as of 09/30 is around 36m. Deteriorating liquidity situation(they were burning cash by 15-20m/q), worsening business condition(pricing from Taiwanese competition) and probably also to consummate the sale of set top box (see this).  Both the set-top-box and tv businesses have been unprofitable and burning cash. They are looking at sale of set top box and possibly restructuring or even sale of tv(see mgmt incentive plan below). They already have stalking horse bidder on set top box at 55m with sale expected to close in Feb after an auction. They are also in process of reducing the employee count as announced in 8k last year.

Certainly there is more dd required to find the likelihood of any residual equity(see trustgod's spreadsheet which puts residual value on timely liquidation/sale- he has done a great job. ). Interesting that NXP, the company trident acquired/merged has 60% equity ownership  as part of that acquisition.NXP is also a trade creditor(vendor) with 14m due.  The company's legal counsel who is leading the bk matters has around 500k shares. Other than that I don't see much insider ownership.  The new CEO was brought in June last year to restructure. Note that there are only 2 parties: trade creditors(vendors) & equity holders.

I am going to continually use this post to compile all links as I find them on this topic. Looks like on Jan 19th, it may get delisted. It is not clear if it would start trading in pink sheets then(link) guess it will likely trade in pk.

Why is this interesting?
1. Chapter 11 filings and delisting create large mispricing. Many examples in the past. However do note that in bankruptcies where equity holders came out ok, they were not cash flow negative. The chapter 11 filing was due to balance sheet problem (generally debt refinancing issue). This one has been burning cash at least since 2009. However the value here lies if they do a timely liquidation of all business.
2. Liquidation value analysis indicates residual value if sales close timely (A lot also depends on what happens to operating lease & other purchasing obligations-see version 2 with these obligations->Link)
3. No immediate DIP financing needed
3. Only 2 stakeholders in the capital structure: unsecured creditors(here suppliers), shareholders
4. 55m STB sale(closing expected in Feb) and 16m proceeds from TV IP . Just accounting for these 2 transactions alone and timely closing itself seems to suggest some residual equity value higher than what it is trading at?(15 cents) Note that those 2 transactions are almost close to the milestones laid as management goals in the incentive plan. Note the 55m bid is stalking horse bid. So it is a binding sale. Entropic cannot go back.
5. Big open question is what if any is the value of 1800 minus STB patents they have. They have done some IP deals in the past. 
6. Per Bankruptcy law, any incremental recovery after paying for 100% of creditor claims should inure to the benefit of equity holders. Of-course we should see if ad-hoc equity committee is formed here.
7. Note the company is looking at all strategic alternatives to maximize value for the estate.

Disclosure: At this point, I am neither long or short.  Caution: special situation investing involves significant uncertainties, risk due to wide variety of outcomes. If you are interested in discussing TRID, please send me an email to, I'll add you to this group->Link

trustgod's liquidation analysis(working spreadsheet)
imhodydd liquidation analysis (without lease obligations)

trustgod's yahoo analysis 1, part 2  part 3 part 4 part 6 
ihub analysis

chapter 11 filings  voluntary petitions
1st day motions
proposed sale of set-top-box
management incentive plan for sale/liquidation
company's ir preso (09/11)
conference calls (including q3 2011) 

Q3 2011 financial statements 
STB financial statements as of 09/30/11 filed in the court(pg 23,24)
imhodydd's TV balancesheet (Consolidated - STB)
imhodydd's TV income statement (Consolidated -STB)
listing of sec filings 

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