Michael Forbes, an analyst w/ First Albany calculates that SFE is currently selling at 1.01 times the value of their publicly held companies plus cash on hand, and he estimates that if you added in the privately held portfolio, SFE is trading at 60% of NAV. While I find that calculation somewhat iffy, certainly it seems that SFE is not wildly overpriced here. Of course, several things need to be pointed out. Low as the value of their publicly held companies is, it can get substantially lower - a lot of them are real dogs, and some may not even survive. I would say that probably it would be safer to say that SFE is selling at 2 times their actual value (taking into account possible bankruptcies etc.) - and you have to be careful with the "cash on hand", as a lot of that will have to be used operationally (indeed they may have to draw on their credit line of $300 mln.). And there is just no real way of evaluating their private portfolio worth - which is moot at this point anyhow, since there is no IPO environment here to monetize that. Thus, effectively, if you consider that it is possible for SFE to trade some 25% below NAV, I would say that by THAT standard, SFE gets real cheap around $3 or so. Obviously, I don't think it is likely that SFE will hit that number, but its something to keep in mind as at least a point along a valuation metric - given how hard it is to do a fair value calculation on SFE.
There is also more background on M.'s force sale of stock. Regardless of what others argue, I think that Pete has been exemplary in the way he's attempted to shield common investors in SFE from the consequences of his forced sales. And here's a guy who has not been cashing in by selling SFE stock all these years. He was trying to make some money for himself in other tech stocks instead of monetizing his SFE shares. So, his timing was bad, maybe even an error in judgement. But you've got to appreciate that he was doing all this while trying not to sell any SFE stock. I for one salute him for his dedication to shareholder value in this respect. As to the choices he makes and how he runs the BUSINESS of SFE (the CATP debacle etc.), that's a different kettle of fish, and we can argue over that. Certainly, I would not dismiss the man easily, or judge him only on a few select decisions. He did build SFE, and has a track record. Having said that, the current health of SFE business is a big issue. But all this has NOTHING to do with his unfortunate margin call situation, IMHO. Let us be fair.
I personally will try to do some more DD on SFE, since I don't like a lot of what has been happening with the business, and the general feeling of disarray, but at this time I'm not going to sell out the rest of my recent purchase at 7 3/8 (as always though, I do have a mental stop). I'll continue trading SFE, and we'll see where the stock is in January.
Here's the article:
public.wsj.com 
"Dec 06,2000
Margin Calls Claim Another Tech Veteran
By William M. Bulkeley
Staff Reporter of The Wall Street Journal
Warren V. "Pete" Musser, the chairman and founder of Internet incubator Safeguard Scientifics Corp., was forced to sell most of his company stock to meet margin calls, as the high-tech stock decline continues to roil executive ranks.
Safeguard, based in Wayne, Pa., announced that Mr. Musser has sold 7.5 million shares in privately negotiated transactions, starting in October. Mr. Musser held 9.17 million shares, or 8.5% of Safeguard's shares outstanding, last April, according to the company's proxy statement. He hasn't filed to sell any other shares since then.
Mr. Musser didn't return calls seeking comment. If he sold the shares at the October low of $13, he would have realized at least $97.5 million. At Safeguard's peak value of $99 a share last March 20, Mr. Musser's total stake in the company was worth $908 million, and the shares he later sold were worth $743 million.
A number of executives have recently cited margin calls -- a lender's demand for more collateral to back loans originally secured with stock -- as a reason they have been forced to sell shares. Among the margin casualties of the tech-stock downdraft are Bernard Ebbers, president of long-distance carrier WorldCom Inc., and PSINet Inc. Chief Executive William Schrader.
As Mr. Musser's dilemma shows, the margin calls are also a risk for the company whose executives get them. Safeguard, which successfully backed such companies as Novell Inc. and Internet Capital Group Inc., said it loaned Mr. Musser $10 million and guaranteed a loan for another $35 million to meet the margin calls.
Safeguard's president, Harry Wallaesa, said that Safeguard got involved in order to "maintain an orderly trading market" in Safeguard stock. Without the Safeguard loan and loan guarantee, the margin call would have resulted in a large amount of stock being suddenly dumped on the market. With the credit, Mr. Musser was given some breathing room to arrange the negotiated, private sales, slowing any effect on the overall market.
Mr. Wallaesa said the $10 million loan had been fully repaid. He said the $35 million loan guarantee is fully secured by Mr. Musser's interests in real estate and securities.
It isn't clear how much of the proceeds of Mr. Musser's sales were applied to margin calls. However, people familiar with the situation say that Mr. Musser recently bought a $3.2 million farm nearby in Chester County, Pa., one possible reason he could have been borrowing on his Safeguard holdings.
Safeguard has fallen some 90% in the technology downdraft and was at $8.81, up $1.25, in 4 p.m. New York Stock Exchange composite trading Tuesday.
Mr. Musser, who is 73 years old, started making money for Safeguard with investments in start-ups back in the 1980's. Last year Safeguard's market value exploded, thanks to its success in the initial-public-offering market with Internet Capital, another incubator. But Internet Capital has plummeted since March, and so has Safeguard.
In a statement released by Safeguard, Mr. Musser said he had never previously sold Safeguard stock and "wouldn't be a seller today except for my personal financial situation."
Mr. Wallaesa added, "He's a wonderful man. It's tragic he's in this position."
Robert Gabele, who follows insider trading for First Call/Thomson Financial, said Mr. Musser is unusual among longtime top executives, because he hasn't sold off his holdings to diversify. "It's more common to see some selling in persons of advanced age," he said.
Robert McCord, a Pennsylvania venture capitalist and friend of Mr. Musser, says Mr. Musser is revered in the area because of his philanthropy and role in building a venture-capital community. "He just doesn't have the proper risk aversion when it comes to diversification. He's one of the founders of venture financing, but you realize, this guy just doesn't like to sell stock."
It isn't clear how much Mr. Musser had borrowed in margin loans or what he had done with the proceeds.
Mr. Musser also has personal stakes in a number of Safeguard's portfolio of companies it has taken public, many of which have also plunged into single-digit prices. For instance, according to Securities and Exchange Commission filings, he owns 413,040 shares of Internet Capital, where he is a director. He owns 443,283 shares of CompuCom Systems Inc., a Dallas computer-services company, of which he is chairman. He owns 445,566 shares of Cambridge Technology Partners Inc. a computer consultant of which he is chairman.
Safeguard's stock, which many investors view as kind of a mutual fund of start-up technology companies, has plunged this year with the Internet market. Michael Forbes, an analyst with First Albany Corp., says Safeguard is currently selling at just 1.01 times the value of the publicly traded companies in its portfolio plus its cash on hand. He estimates that after including the closely held companies in its portfolio, Safeguard is selling at just 60% of its net asset value.
Write to William M. Bulkeley at bill.bulkeley@wsj.com"
Morgan |
