Thursday, February 25, 2010

Update On Convera

I’ve had a few comments about my lack of posts on this blog recently. I’m having a very busy senior year in high school and I feel that with my more limited free time, I have for investing, I’d rather spend it reading and researching than posting more frequently. I feel no need to fill your email with useless posts and I will post once every two or three weeks on what I feel is most important. I think it makes sense to post few but very high quality posts.

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Update on Convera:

I sold CNVR two months ago because I no longer thought the transaction would play out as I originally wrote in my write up. The transaction was likely to take longer than expected and the cash burn was more than I expected in the 10Q filled in December. The 10Q in December also had different language as it relates to the distributions than the proxy statements. The most recent 10Q troubled me because it didn’t mention the two $2M distributions, which account for about $0.07 of value in the liquidation. They were still included in the original plan of liquidation and therefore by reference in latest 10Q. The distributions were likely to be less and stock was still trading at the same price as I bought at, so I sold.

As it turns out, the company distributed 10 cents per share February 8th. Convera is trading for 8 cents right now and in the original proxy, management estimated that the company would pay out an additional 7.4 cents from here. So if you pay 8 cents now you might get 7.4 cents back and some shares in a potentially worthless company. So it’s not near buying range right now.

Companies in liquidation has been an area of the investment world that really interests me. A good example of of a liquidation play is my investment in Footstar. You can read everything I've written on the company here. Footstar worked out really well and with Convera, I just broke even on my investment. I would also say that it’s much less appealing to own liquidation plays after the first few major liquidating dividends. That is when it starts to take a really long time and management has the incentive to sit and collect their salaries.