Jove Partners Thinks Buyout Will Cure Matrixx Initiatives

Matrixx Initiatives (MTXX) believes that its Zicam line of homeopathic cold remedies will relieve your cold symptoms. Jove Partners believes that it knows how to solve Matrixx’s own ailments: a sale of the company to a strategic investor.

Jove filed a 13D last Thursday, disclosing a 5.1% ownership stake and declaring that

The Reporting Persons appreciate the job that management has done and is doing to build the Zicam brand. However, they believe that the value created to date has not been appropriately recognized by the market and will not be fully realizable as long as Zicam remains a stand-alone brand. In particular, the Reporting Persons believe that the Issuer’s profit margins have been depressed and should normalize over the next several years. The Reporting Persons believe that this normalization could be meaningfully enhanced if the Issuer were acquired by a strategic investor.

Matrixx fell far short of estimates for 2006, blaming a late cold season. Jove’s thesis, that Zicam would be a more profitable product as part of a larger company rings true. The difficulty of competing for pharmacy shelf space with behemoths like Johnson & Johnson (JNJ), which recently expanded its girth with its purchase of Pfizer’s (PFE) consumer products division, is great. Improvements in distribution and manufacturing from being part of a larger company could be substantial as well.

One potential concern are claims that Zicam has caused users to lose their sense of smell. The company has already settled several lawsuits, but it is unclear what potential future exposure might be. This would clearly be a concern of a potential buyer.

I previously commented on Jove when they filed a 13D on Lifetime Brands (LCUT) and some background information on them can be found in that post.

Jove’s filing led to a 12% jump in Matrixx’s shares on Thursday as investors seemed to believe that the company is now likely to be acquired above the current price. With no debt, and a market cap minus cash of less than two times sales, Matrixx may indeed be a good fit for buyer who can grow sales and margins.

Disclosure: I hold no postion in MTXX