Portfolio Company $NEI Acquired at 85.8% Premium to Last Close

The saga of Network Engines (NEI) comes to an end with the agreement today with Unicom Systems to acquire the company for $63.2 m in an all cash deal and take it private. The price offered at $1.45/share is 85.8% above the closing price of NEI yesterday at $0.78/share.

I recommended and purchased Network Engines stock in January this year as it represented a great value at that time. Subsequently, the company lost about 30% of its revenues as EMC pulled away some business from NEI. The stock, responded with large declines over the last few months, so much so that at one point the stock could be purchased at about 50% discount to its Net Current Asset Value.

A classic Benjamin Graham net-net play, I recommended and added to my initial position on its way down. Typically, when a stock becomes so severely undervalued, with respect to its tangible and liquid assets, something good eventually happens. Acquisition is often the most likely result.

A profitable company with no debt, significant cash holdings and the inventory itself worth more than the market valuation. Add to this the fact that the company plays in the security and storage sector, with applications to the cloud computing, and it is no surprise that a suitor will step forward. And so it did.

The buyer got themselves a sweet deal as well, buying up the company for $1.45/share, given that the book value of the company today is around $2.23/share.

My average cost for the stock worked out at around $1.24/share and when my sell order executes, I will likely end up with about 15% gain. For a holding of 5 months, this gain is not too shabby. This will also bring Value Stock Guide’s portfolio return YTD in the high teens, comfortably outpacing S&P500.

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Comments

  1. Investaup says

    @arohan Buying cash rich companies gives you two options. Growth or buy out. Hats off to you sir.

  2. Value Stock Guide says

    Thanks Michael. If I recall correctly you bought some at my recommendation at a much better price then I did :-)

  3. pbanik says

    Outstanding pick @arohan …it’s rare to find a company with a P/E ratio under 2, and a P/BV ratio under 1, but you have managed to do so. I used Morningstar to check the valuation.  
    http://financials.morningstar.com/valuation/price-ratio.html?t=NEI&region=USA&culture=en-US
     
    However, there is something I ran across that might be of concern if you wish to initiate a position in this stock:
    Law Firm Brower Piven Announces Investigation in Connection With the Acquisition of Network Engines, Inc. by UNICOM Systems, Inc.
    http://finance.yahoo.com/news/law-firm-brower-piven-announces-194100346.html

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