Shareholder Activist David Callan Pushes For Sale of Identiv, Inc; Issues Letter To Board Of Directors
February 25, 2015
Identiv Board of Directors
39300 Civic Center Drive, Suite 160
Fremont, CA 94538
As you are aware, I am currently a large shareholder of Identiv, Inc (“Identiv” or the “Company”) (Nasdaq: INVE). I began my accumulation of shares and call options almost a year ago, and have amassed a substantial position (although not currently at the required reporting level). My approach to each investment is to actively engage and work closely with management and the Board of Directors in a constructive manner to identify and execute on opportunities to unlock value for the benefit of all shareholders. I am writing this Board now for the fourth time to express my intentions (which will be discussed below), and to express my disappointment in the Board's refusal to communicate with me to discuss my significant concerns with the company's strategic direction.
As you are all well aware, you have elected to spend shareholder money on legal fees and treat me as an enemy rather than speak with an owner of your company who’s only interest is what the Board’s should be. I find this outrageous and offensive that I am spending money on legal fees both personally and as a shareholder of the company. I have discovered this to be a pattern as many other vocal and concerned owners of the company I have spoken with have also been ignored. Need I remind you this is still a public company owned by the shareholders?
I have supported this Company in its efforts to turn the business around, as evidenced by the Seeking Alpha article released on June 24, 2014. In addition I have offered in writing on numerous occasions detailed suggestions on how to better create brand awareness, how to promote the various aspects of the business, and have gone so far as to offer up personal high level referrals for companies that exceed $20 billion market caps that have a need and demand for Identiv type products. All of these have gone without response. Rather, you would apparently prefer to take an adversarial stance when one of my action items is not in line with your own. I had hoped following my three previous private letters to this board that you would communicate and that prompt action to maximize shareholder value would commence.
Unfortunately, given the lack of progress and the importance to act with urgency, I have no choice but to share my thoughts publicly at this time. I feel a responsibility to other shareholders to express my growing concern and implore this board to act on our behalf as, "willful neglect", will not be acceptable. I fear that little may be accomplished without direct and active shareholder involvement and a rejection of the status quo at Identiv.
I invested in this Company because I believed in the turn around it was executing and in the leadership of Jason Hart. That chapter in the company history is over and I congratulate you on the success and hard work it took to accomplish this. Unfortunately, as I have pointed out numerous times, the market resists giving value to Identiv's successful turnaround and current high growth and expanding profile. This disconnect has only been further exaggerated because the company has not issued a single material press release capable of moving the stock since Mr. Hart became CEO on September 3rd of 2013. You have answered this quandary by stating that due to the inherent nature of the business, you cannot disclose customer relations. Mr. Hart however on the last conference call back in early November said this would change going forward and that two meaningful releases would be forthcoming (we have yet to see it). I find this suspect attempt to promote the future of our business as evidence of how constrained and how desperate the company is to disseminate information.
Why is it that only on conference calls or investor presentations are owners made aware that we conduct business with impressive companies such as Disney, Verizon, Cisco, NXP Semi, Nintendo and many others to just name a few? Waving around Disney toys and speaking about our connection with a YouTube Verizon video during a presentation or on a lightly monitored conference call will not translate to shareholder growth. Unfortunately our failure to communicate to the markets in order to be properly recognized and valued is only one of our constraints.
We have reached a point where the turn around is complete and it is time to focus on where the Company goes from here. We are fortunate to be in one of the most in demand sectors in the World as evidenced by the IBD Computer Software-Security industry group ranking number 4 out of 197 groups. Sadly, while the industry group and the overall general markets are at a record high, our stock has not participated in this incredible rise over the past six months. In fact, we are down substantially. All this when the Company has promised over 20 percent revenue growth in the current year.
In order to handle the growth and opportunities that are coming our way, it will require intense capital and time. Essentially shareholders are now being asked to endure more corporate losses (with no guarantee of profitability in the foreseeable future) while the company yet again builds a new sales force (after just completing all the diversification and tearing down of the previous infrastructure) and spends the necessary money for capital expenditures to support an attempt to compete in this evolving space. Factoring in the time value of money and execution risk, this Board of Directors needs to mitigate risk for its shareholders. The lack of meaningful insider purchases is further evidence that you yourselves don't have the necessary level of confidence.
I believe it is imperative that management and the Board of Directors thoroughly evaluate all strategic alternatives prior to embarking on a major company build out initiative to ensure the highest value to shareholders. Given the magnitude of synergies available, strategic buyers could integrate the Identiv products/brands/technology to significantly expand their presence Internationally at a much faster pace and take advantage of leverage of scale and better name recognition. Identiv as a stand-alone will have to "manage" the growth with limited resources and quite possibly miss out on many present and future opportunities. We are simply too small to effectively handle all sales leads currently being presented. Identiv employees will be better positioned for both Corporate growth and personal success in the hands of a larger entity that already operates without the capital and infrastructure restraints.
Identiv in its entire history has never had a year of profitability and 2015 will be no exception (and this after the success of "cleaning house " in 2013/2014). The Company, based on its own projections, is telling the investment community and its shareholders that we are understaffed and lack the necessary infrastructure required to manage growth moving forward. The market is also, by it's own valuation of the company, today telling us we have reached a tenuous juncture. The recent attrition rate of our Institutional holdings should also speak in volumes to this Board.
According to the most recent filing, ten positions were closed out to the tune of 930,000 shares, which is close to half the secondary offering. I find that rate to be alarming (and so should you), especially after being told by the company that the new investors were "strong and invested for the long run". I would like to reiterate that I am a committed long- term shareholder whose priority is to work with the Company (not against it) in doing what is best for shareholders. At the same time I will remind the members of the Board of their respective fiduciary responsibilities to maximize value for all shareholders. My own extensive due diligence on Identiv suggests that there is a significant gap between the trading value of Identiv stock and the intrinsic value of its business. This gross disparity can easily be reversed.
The Company is projecting growth of over 20% this coming year, and yet Identiv has an extremely low price to sales of 1.4 trailing and an Enterprise Value/Revenue of 1.2. This compares to its peers that have an average price to sales of 7.1 and an Enterprise Value/Revenue of 6.8. Identiv also has a total accumulated deficit of $332.5 million, which adds an attractive and highly valuable asset to an acquirer for future tax loss carry forward purposes. I have repeatedly expressed a strong desire for the Board to immediately retain an investment bank to fully explore all strategic alternatives to maximize shareholder value. I believe that it is incumbent upon the Company's Board of Directors in accordance with its fiduciary duties, to explore all opportunities to close this significant gap and unlock shareholder value. Without this initiative I have little confidence that Identiv will appreciate to fair value in a timely manner. I continue to believe there is strategic interest in the company and that a substantial percentage of the Company's shareholders support this view.
Based on my significant experience investing in undervalued public and private companies, I believe that Identiv could be worth between $22 and $27 per share to a third party acquirer, implying a premium of around 120% (assuming the midpoint of my valuation range). CEO Jason Hart has publicly stated the company is worth $400M, so my estimate is conservative by his methodology, but closer in line with the Cowen & Company target of $24, and the Northland Capital target of $21. Mr. Hart has expressed to myself and other shareholders that he would rather be "acquired" versus "sold". He has the perception that actively exploring the sale of a company would not yield the same premium as an unsolicited offer. I find the point mute to argue as the strategy can never apply to Identiv due to the fact that the vast majority of the business is not known to outsiders. Once again, it all comes back to the inherent restraints that have been placed on this company to disclose the nature of our business and who we conduct that business with. Why would anybody acquire us when they are not even familiar with the company? As an owner of this company (and a large one) I myself have limited knowledge as to what extent our business platform operates and extends to. Maybe we do in fact have business relations with Apple and Google? There simply is no transparency. This is part of the reason why the stock is so undervalued, and why nobody will actively seek to acquire us (plain, simple, and factual).
We need to hire an investment bank and through non-disclosure agreements inform potential acquirers on every aspect of what it is we do, and with whom we do it. There is obviously a reason why Mr. Hart feels our Company is worth so much more, but cannot tell the public. Use the non-disclosures to explain the patent worth, explain the patent pending worth, explain the market trends, explain Identiv labs, explain who the clients are, explain who the future clients are, show them the prospective sales opportunities and estimated values, explain everything. I genuinely believe after a meeting like that, the investment bankers will run out the door with ten plus names of rock solid companies that would want to buy Identiv.
Let the professional bankers generate that initial frenzy of demand and urgency with the top prospects, then spread it out to all the private equity groups as well. I would rather have several offers for the company and a potential bidding war versus one unsolicited offer that may or may not ever come. I see little to no downside. In fact, it might even lead to potential new sales opportunities through enlightenment during the due diligence process. I intend to start communicating with potential buyers to further garner interest in the Company. As such, I would strongly encourage interested strategic buyers and private equity firms to send indications of interest to the company. This would put additional pressure on the Board to act expeditiously.
In light of the current robust M&A environment and friendly credit markets, I am urging the Board to immediately retain a nationally recognized investment bank and establish a special committee of independent directors with its own legal and financial advisors to conduct the strategic alternatives review to maximize shareholder value, including the sale of the company. Shareholders would expect the company's directors and officers to follow proper corporate governance practices. I believe the vast majority of the Company's shareholders would support this course of action, especially given the opportunity to monetize the Company at a very attractive valuation, but in order to do so the Board must act with urgency. Credit markets may never be this good again. I also believe that Identiv management has sufficient depth and breadth to continue to operate the Company's existing business in the near term without a material adverse impact. Though a sale may be an emotionally difficult decision, it is not an admission of failure, it is simply a rational and analytical decision designed to maximize value and minimize the risk for the owners and the employees of the business.
I look forward to working constructively with the board and intend to monitor closely the developments at the company. I must, however, reserve my right to take whatever actions in the future I believe may be required to protect the best interests of shareholders.
Cc: Joel Bernstein, Esq.
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