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Holly LaFon
Holly LaFon
Articles (7532) 

George Soros Takes Stake in Software Company with Activist Shareholder

March 20, 2015 | About:

Legendary investor George Soros (Trades, Portfolio) took a stake in Exa Corp (NASDAQ:EXA) on March 9, GuruFocus Real Time Picks reported Thursday.

Soros’ filing reveals that he purchased 1,266,666 shares, or 9.15%, of the company. Exa shares closed the day of the transaction at $10.10 per share, down from a historic high reached in February 2014 of $15.75. Year to date, the share price has fallen 14% to close at $10.45 per share on Thursday.

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Exa Corp offers simulation software and services to the automotive industry, and has recently branched out into other markets such as aerospace, oil and gas production and engineering. It has a market cap of $142.5 million and went public in 2012.

Exa became an activist investment target for Discover Group in September, when the fund sent a letter urging it to seek a buyer, suggesting Ansys (NASDAQ:ANSS), Autodesk (NASDAQ:ADSK), Dassault Systemes (XPAR:DSY), PTC (NASDAQ:PTC), Siemens PLM Software as potential acquirers. Discovery also stated in the letter that it believed the market had “significantly undervalued” the company, adding, “This is a common phenomenon with micro-cap companies, where their small float, limited trading volume, and general lack of research coverage lead to low institutional investor interest -- and thus chronic undervaluation.

The fund calculated its estimate of value as much higher:

“Discovery’s detailed valuation analysis, as summarized below, shows that Exa’s takeover value in the M&A market is estimated at $16.00 to $20.00 per share, or approximately $220 to $280 million on an enterprise value basis,” the letter said. “This is significantly higher than the recent publicly traded closing price on September 19, 2014 of $11.28 per share, or approximately $144 million on an enterprise value basis.”

Discovery also disclosed a 7% stake in the company in a Dec. 16 SEC filing and said that it would propose at the annual meeting that the company discontinue use of a classified board. “Discovery Equity Partners states that it feels strongly that the Company must continue to improve its corporate governance and that it believes a large deficiency in the Company’s corporate governance is the continued existence of a classified board,” the letter stated.

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Exa announced results for its fiscal fourth quarter ended Jan. 31, 2015, on March 19, with a revenue increase of 11% year-over-year to $16.9 million, within its target range. It also reported a GAAP net loss of $1.1 million, compared to GAAP net income of $0.1 million in the same period a year ago.

Exa also has a P/B ratio of 7.4 and P/S ratio of 2.35, which is near a one-year low.

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