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Insider Score LogoFrom InsiderScore: A defunct technology company has taken a more than 5% stake in struggling automotive marketing services firm Autobytel (ABTL). In a Form 13D filing made yesterday, Liberate Technologies disclosed that it now holds approximately 3.719M shares of ABTL, or an 8.9% stake in the company. Liberate has acquired its entire stake in ABTL with open market buys commencing on June 6th, including 458K shares at $3.10 from July 3rd through July 7th. The firm's cost basis on its investment is about $3.03 per share. In its Form 13 filing, Liberate said it believes that ABTL shares are "undervalued," and the outfit said it may engage ABTL's management in discussions.

Liberate Technologies was once a publicly traded, software maker for the digital cable industry. The company was hit by accounting problems in 2002, which resulted in two former officers being charged with fraud by the SEC (both settled) and one of those former executives being indicted by the Department of Justice (the case is apparently still pending). In January 2005, Liberate sold its North American assets for $82M to a joint venture controlled by Comcast (CMCSA) and Cox Communications. Three months later, the company sold its non-North American assets to SeaChange International (SEAC) for $23.5M.

In November of last year, Liberate announced a 1-for-250,000 reverse stock split, followed by a 250,000-for-1 forward split. The move was designed to eliminate shareholders who held less than 250K shares, who received 20 cents per share in cash for their stock, so that Liberate could cease to qualify as a reporting company under SEC rules.

Since Liberate ceased operating activities, the company has been quiet. The filing disclosing the ABTL holding lists four executives at the company, including President Phil Vachon. All four were executives at Liberate before the company ceased to exist as an operating entity. Vachon was an executive at Oracle (ORCL) before joining Liberate. Liberate's shares trade on the Pink Sheets under the symbol "LBTE" and were last quoted at 6 cents.

Based on Liberate's final proxy statement filed with the SEC in November 2005, the company's largest shareholders were Coghill Capital Management, company Chairman David Lockwood, Glenview Capital Management, OZ (Och-Ziff) Management and Highfields Capital Management. Lockwood, Vachon, Wood and two other Liberate executives were expected to hold 19.8% of Liberate's common stock following the reverse/forward split. Coghill Capital, meanwhile, held a 9.85% stake in ABTL at the end of the first quarter, making the firm the company's largest shareholder.

Shares of ABTL fell to $2.81 on June 6th, the stock's lowest price in three years, and down more than -50% from an August 2005, 52-week high of $5.99. The low came about a month after a poor first-quarter earnings report, which saw the company post a loss of -$8.5M, or -20 cents per share, on revenue of $29.1M. A year earlier, the company had posted a loss of -$2.8M, or -7 cents per share, on revenue of $33.3M.

Over the past two years, ABTL has dealt with a long, costly, and frustrating accounting restatement, and a management shuffle that saw the company bring in a new chief executive officer ostensibly to sell the company. In March, ABTL decided to take itself off the market, and it named James Riesenbach, a former executive at Time Warner's (TWX) AOL unit, as its new CEO. Last month, the company said it would cut 10% of its workforce.

"My mandate is to invigorate the Company's legacy of providing best-in-class online automotive resources to consumers while providing innovative high-value media and marketing services for the auto industry," said Riesenbach. "[The workforce reduction is] the first of a number of initiatives that I believe will position the Company for long-term revenue growth and a return to profitability, as well as to reclaim our position as the leading innovator of the Automotive Internet."

Analysts at Merriman Curhan were receptive to the job cuts, but said that ATBL still faces a transition that will take several quarters. The firm said the workforce reduction would result in a $3M to $4M reduction in annual operating expenses, but will result in a -$275K to -$300K restructuring charge in the second quarter. Merriman also reigned in its EBITDA loss estimates for 2006 and 2007 following ABTL's announcement.

Source: Defunct Tech Company Buys 5% of Autobytel (ABTL)