In October, I wrote about Zoran Corporation (ZRAN), a maker of power supplies and digital imaging equipment that was hitting new 52 week lows. ZRAN had a poor earnings history, with profits in just 3 of the last 10 years, and its apparently attractive NCAV was a fiction given that it had agreed to purchase Microtune Inc for $166 million in cash. As such, I did not see a sufficient margin of safety. Unfortunately, as so often happens, Mr. Market has been overly optimistic for the last three months and this optimism led ZRAN to increase by 34% (Outperforming the NASDAQ’s 7.7% increase over the same time). Opportunity lost… ouch!
However, it appears that the bulk of this increase is the result of an activist shareholder, Ramius Value and Opportunity Advisors LLC, which in early December announced that it is seeking to replace six members of ZRAN’s Board. Ramius Partner Managing Director Jeffrey C. Smith stated:
Zoran has dramatically underperformed the Russell 2000, NASDAQ and its Peer Group over almost any measurement period, with its shares losing more than half their value over the past 5 years alone. This substantial underperformance has been largely driven by the Company’s unwavering commitment to fund heavy losses in the unprofitable and structurally challenged DTV and DVD business. The ongoing losses and cash burn from these businesses have resulted in the public market attributing almost no value to Zoran’s operating business.
You can read the full text of Ramius’ letter to ZRAN, which includes in-depth analysis of ZRAN’s missteps and a valuation that concludes the company should be worth approximately 6x more (on a multiple comparison basis). Then, on Friday, Ramius filed with the SEC a powerpoint presentation on ZRAN that complements and significantly expands upon their earlier letter. You can find that powerpoint here. Most interesting is that the powerpoint lists precise actions that Ramius will take to increase the company’s value. Both are worth reading for anyone interested in the company.