Violin Memory's stock is nearly worthless as activist investors push the company to sell itself
The stock is now just a penny stock, trading at about 70 cents, and activist investors late last week told management in a public letter: either find a buyer for the company pronto or they plan to install three board members of their own at the company's annual to make such a sale happen.
In the letter, they say:
To be explicitly clear, the Clinton Group and Imation believe that Violin Memory should be sold to a strategic buyer well in advance of the 2016 Annual Meeting. ... In the unlikely event that the Company's sale process is ongoing at the time of the 2016 Annual Meeting, our nominees pledge to complete the execution of the process in connection with ensuring that the Company's stockholders realize the full value of their investments.
It's unclear exactly when the annual meeting will occur. Last year it was held in June.
Violin Memory is one of those warning tales that taking a company public isn't always a wise idea.
That ill-fated choice to go public was immediately apparent on the IPO day in the fall of 2013. The stock was priced at $9, opened at under $8, and dropped from there. A few months later, Violin shook up its management, firing the CEO that took it public, and much of the rest of the top management team left soon afterward.
About a year ago, it installed a new CEO, Kevin DeNuccio, who had been running an investment firm and is probably best known as the CEO who sold a company called Redback Networks to Ericsson for $2.1 billion in 2006. At that point, Violin was trading at under $4 a share.
Today, at less than 75 cents a share, Violin's market cap is just under $70 million.
Violin Memory could be interesting to some buyer because it has some unique technology. It offers a flash memory storage technology to enterprises that works particularly well with large, expense storage devices known as network attached storage.
But at $70 billion it may be too steep because there's also a ton of competition in the market for flash storage. Before going public, it had a big partnership with HP, but HP ended it to focus on selling its own 3Par storage.
The company has reportedly been in tallks to sell to HP, Samsung Electronics, EMC, IBM and Seagate Technology since 2014, reported Bloomberg, but all of those talks fell through and most of those players have gone on to make other flash investments.
In the meantime, Violin is casting a long shadow on Pure Storage, another hot flash storage company that had a disappointing IPO late last year. Pure began trading below its $17 opening price and is currently trading below $14.
Violin did just hire a new a new North American sales director, in the hopes of improving its prospects to make something happen.
In the meantime, management says it doesn't need an activist investor breathing down its neck, or replacing its board members. The board is already "pursing strategic alternatives," CEO Kevin DeNuccio said in an emailed statement. Here's the full statement.
Violin's management team and board collectively own six percent of the company and are aligned with our shareholders in our desire to create value for the company. We are focused on improving our execution and completing our product transition to the Flash Storage Platform, while also pursuing strategic alternatives to accelerate our opportunity. Our BOD [board of directors] currently consist of 6 current or former CEO/COO's and senior executives from storage industry legacy leaders from IBM, NetApp, and 3Par, which provide critical leadership to create value for all of our stakeholders.