MathStar's Moves Don't Add Up

| About: Sajan, Inc. (SAJA)

by Brenon Daly

After about a decade in business as a fables semiconductor vendor, MathStar hasn’t been doing much of anything for the past year. We mean that literally. The Pink Sheets-listed company has no ongoing business, no products and, as of Wednesday, no chief executive. However, MathStar nonetheless finds itself the target of several buyout offers. And now, in a fittingly bizarre development, the unwilling seller has turned into a would-be buyer. In a rather curious move, MathStar announced a nonbinding offer Wednesday for a language-translation company called Sajan. (Minneapolis-based investment bank Craig-Hallum Capital Group is advising MathStar on the proposed transaction.)

Even in the murky world of Pink Sheets-listed firms, MathStar’s move stands out as opaque. CEO Douglas Pihl, who also founded the vendor, apparently thought as much. As MathStar announced its play for Sajan, Pihl blasted the proposed acquisition – and then backed that up by resigning his position. Pihl noted in his resignation letter that the planned deal would result in about 50% dilution of existing MathStar shareholders.

The proposed purchase of Sajan also didn’t sit too well with the firm’s largest shareholder, Tiberius Capital, which has been trying to buy MathStar outright for the past month. The Chicago-based fund is currently offering $1.25 for each share of MathStar, or about $11.5m in total. MathStar’s board has repeatedly rejected the bids from Tiberius, just as it shot down the overtures from privately held PureChoice late last year. MathStar announced in May that it would explore strategic alternatives.

Tiberius claims MathStar disclosed the Sajan purchase to create a ‘cloud of hope’ that it could smartly obtain an operating business that would create more value than the proposed sale to Tiberius. (On the other hand, a more cynical assessment of MathStar’s planned transaction would call it a ’scorched earth’ defense, since the deal would burn up half of the company’s cash.) Whatever the case, the clock is ticking on Tiberius’ bid, which is essentially the only thing that is propping up the penny stock. Tiberius says its tender offer for MathStar expires next Monday.

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