It all started with an article on Value Investor Club that has been described as one of the longest and most controversial ideas posted on the popular online forum for stock market junkies.
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In 2014, user “EBML” wrote a 23-page article saying of Senomyx, a San Diego-based maker of food and beverage flavorings, “I can honestly say that in my sixteen years of doing this professionally, I’m not sure if I’ve ever come across a more compelling risk/return opportunity.” The comments ran for 89 further pages.
Since then, Senomyx’s shares have fallen 88%, from $8.10 to below $1.20. Investors who hoped for biotech-like returns from the company’s development pipeline claim that the company has been chronically mismanaged and want change. While the company’s financial position has improved a little recently and it is promising great things for its natural sweetener siratose, Senomyx has not turned a profit in 14 years as a public company.
This week, Matthew Turk, the third-largest shareholder outside management and a first-time activist, issued a public letter calling for the head of Chairman Kent Snyder, the appointment of a shareholder representative to the board, and a comprehensive sale process.
Turk manages his own money and has become increasingly frustrated by the company’s lack of commercial partnerships. He believes the company could be worth between $133 million and $265 million (its current market capitalization is less than $60 million) and believes the board is backsliding on a sale of the company, which he asked to be formally included in a strategic review Senomyx announced in March.
When I spoke to Turk by phone this week, he said he took no pleasure in becoming an activist and would be happy if someone else were to join the board in his place, saying, “It doesn’t have to be me, just someone to make sure all the cookies aren’t eaten out of the cookie jar.
“The end is either a sale of the company or shareholder representation on the board,” Turk adds. “I’m prepared to do everything in my power to stop this madness.”
Another point of concern for shareholders is that CEO John Poyhonen, a former chief operating officer and chief financial officer of Senomyx before taking the top job, owns more stock in dollar terms of Heron Therapeutics, where he is a director ($3.3 million), than in Senomyx ($2.5 million). Poyhonen did not respond to a request for comment, while calls to Senomyx’s head office and investor relations teams went unanswered.
Mathematically, change looks inevitable. Snyder, who served as Senomyx’s CEO through its initial public offering until 2014, received 10.2 million votes at the annual meeting this past May; 11.1 million votes were withheld.
That meeting was uncontested. When a group owning just 300 shares (purchased in the four months leading up to the annual meeting) ran a bizarre proxy fight in 2017, its slate received around 30% of the votes cast. Activist Insight understands that Senomyx’s largest shareholder, the value investor Senvest, did not cast a ballot in that fight. Its 13% stake alone would almost certainly swing the vote, even though insiders also own about 13%.
But if management is under pressure, it also has plenty of time to finish the strategic review since it could take shareholders as long as a year, until the 2019 annual meeting, to overhaul the board. Although shareholders representing 20% of the stock can call a special meeting, according to the company’s bylaws the board can determine the time frame. Action by written consent is precluded.
In the meantime, things could get a lot more bitter.
Article by Activist Insight
Read on Valuewalk