Seeking Alpha
Tech, growth, portfolio strategy, investment advisor
Profile| Send Message|
( followers)  

I've been following Vringo (NASDAQ:VRNG) for almost a year now, and have written several articles about it as well (Why Vringo Is A Strong Buy and Inside Vringo's Stock trading Plan).

Last Friday, I read an article by Briefing.com which stated that Mark Cuban, the billionaire owner of the Dallas Mavericks, reduced his stake in Vringo. However, another report claimed that Cuban actually increased his position in Vringo from 1.03 million shares to 1.13 million shares. So how can this be, and what can we learn from Mark Cuban's stake in Vringo?

First, I want to clarify that Mark Cuban did indeed increase his position in Vringo. We know this because of the filings that Cuban disclosed with the Securities and Exchange Commission [SEC]. In this article, I hope to give clarification as to what is going on. Hopefully this helps anyone who is confused or is sitting on the fence debating about starting a position in Vringo.

Mark Cuban's First Stake In Vringo

In a filing with the SEC On April 16, 2012, Mark Cuban disclosed an ownership of 1.03 million common shares, representing a 7.4% stake in Vringo. Because of these figures it is important to note that Vringo at this time had around 15 million shares.

Vringo Completes Merger With Innovate/Protect

Then on July 19, 2012, Vringo completed its merger with Innovate/Protect. Vringo at this time issued 16,972,977 shares in exchange for all shares of Innovate/Protect, along with preferred convertible into another 21,026,637 shares, and a warrant covering another 15,959,838 shares. So basically the merger between the companies added to the number of shares outstanding.

Vringo Issues Secondary Offering (Round 1)

In August of 2012, Vringo issued a secondary offering of 9.6 million shares @ $3.25 for a total of $31.2 million dollars. One of the purposes of the offering was to raise cash to pay $22 million for the 500 patents and patent applications worldwide that Vringo bought from Nokia.

Vringo Issues Secondary Offering (Round 2)

Then in October of 2012, Vringo issued another secondary offering of 10.3 million shares @ $4.35 for a total of $45 million dollars. One of the purposes of the offering was to raise cash for the trial against Google (NASDAQ:GOOG).

Heading into the trial against Google, Vringo had around $10 million in cash. Vringo knew that Google would drag out the trial (which we can all see now) and so they needed to raise more cash in order to show Google that they could fight to the end. The secondary offering showed Google that they would not be able to drag out the trail in hopes Vringo would run out of cash. Vringo was locked and loaded.

So between the two secondary offerings at $3.25 & $4.35 Vringo raised some much needed cash (over $75 million). However, because of this, they also diluted their shares by issuing those 20 million shares.

Now remember that all of these events that I have mentioned have taken place after Mark Cuban took a 7.4% stake in Vringo back in April, 2012.

Mark Cuban Raises His Position In Vringo

According to the latest SEC filings by Mark Cuban, he has indeed raised his position in Vringo from 1.03 million shares to 1.13 million shares.

The real question becomes why would he do this? After all Mark Cuban has been very outspoken against "patent trolls," as the value of the company is based more on its potential success suing over its patent portfolio rather than its business activities.

Still, Cuban took a 7.4% stake in Vringo last April. Rather than a sign of support for Vringo's activities, the position was thought by many to be more of a hedge against the practice of patent trolling. Now that Cuban is raising his stakes, perhaps he sees more to the story now and likes what Vringo is doing.

Mark Cuban's History of Picking Stocks

Mark Cuban made a fortune (billions) with his investments. So I decided to look up some of the stocks that Cuban has owned lately to see what his track record entails.

Reading International Inc. (NASDAQ:RDI) Shares of RDI were trading in the $4 range at the time of Cuban's filing. Shares traded around the $5 mark soon afterwards.

Rentrak Corp. (NASDAQ:RENT): Shares of RENT were trading in the $13-$14 range, before Cuban revealed that he owned 0.97 million shares. RENT shares trended higher soon afterwards to around $19 a share.

Carmike Cinemas Inc. (NASDAQ:CKEC): Shares of CKEC traded in the low $2 range at the time of Cuban's initial filing. CKEC traded in the $7 range shortly afterwards.

Lions Gate Entertainment (NYSE:LGF): Shares of LGF were trading in the $6.00 range at the time of Cuban's initial investment. LGF traded in the $7.00 range shortly after.

Conclusion

As you can see, Mark Cuban has a pretty good track record. After all, he is a billionaire for a reason. Although investors may benefit by riding his coat-tails it is not highly recommendable. You should always do your proper diligence first. However, having a billionaire with a good track record on your side should help keep you comforted at night. I consider this to be a good thing for longs with Cuban raising his position in Vringo. Why else would a billionaire raise his position in the company? To lose money? No, to make money of course.

Because of Vringo's secondary offerings and its merger with Innovate/Protect, the number of shares outstanding has dramatically increased since Mark Cuban took his first stake in Vringo. So even-though Cuban's stake percentage in the company is now "lower" than it previously was, this is because of the increase of the number of shares outstanding. Cuban has actually been adding to his position since he first bought shares of Vringo last April. So that is why Cuban's stake percentage is lower while the number of shares he owns has increased.

(click to enlarge)

From a technical standpoint, Vringo is trading very tightly for a speculative stock on lower volume when compared to the 10 day running average. I find it interesting as well that Vringo's recent closing price ($3.19) is lower then both the secondary offerings that institutional funds bought at $3.25 and $4.35. I believe Vringo is currently undervalued at these levels, especially considering that the jury did in fact find Google guilty in its findings. I feel the $3.75 - $4.50 range is the proper worth of Vringo leading up to the end of all the post trial motions. However Vringo looks pinned at $3.20 for the time being until post trial motions are finalized.

Source: Mark Cuban Raises His Position In Vringo. Should You?