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Forward Industries Inc. fires its bank, hires another one better able to spend your cash

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Oct 30, 2009
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Forward Industries Inc (FORD, Financial) has fired its investment and engaged another. It looks like FORD is intent on spending the cash on its balance sheet, which is a shame. Rather than make an acquisition, they should focus on the work on their desk and pay a big dividend. There’s a half chance that the bank could suggest a sale of the company, but that seems unlikely. I can’t believe there are no activists out there willing to take on this company. It’s 40% off its 52-week high. It’s net cash. There are no big holders. Management’s not doing a bad job, but an acquisition is a ridiculous idea. This is an instance of a management trying to plow a dollar back into the business and turn it into fifty cents. I could use that dollar more profitably. Then again, I’d probably just spend it on pennywhistles and moonpies.

We started following FORD (see our post archive here) because it was trading at a discount to its net cash and liquidation values, although there was no obvious catalyst. Management appeared to be considering a “strategic transaction” of some kind, which might have included an “acquisition or some other combination.” Trinad Management had an activist position in the stock, but had been selling at the time we opened the position and only one stockholder owned more than 5% of the stock. The stock is up 36.8% since we opened the position to close yesterday at $1.97, giving the company a market capitalization of $13.4M. Following our review of the most recent 10Q, we’ve estimate the liquidation value to $19.5M or $2.47 per share.

Here’s a link to the announcement (it’s just a marketing announcement by the bank so I’m not going to repost it).

FORD is trading at a substantial discount to its liquidation and net cash values. The risk to this position is management spraying the cash away on an acquisition. A far better use of the company’s cash is a buyback, special dividend or return of capital. Another concern is Trinad Management exiting its activist position in the stock. Those concerns aside, I’m going to maintain the position because it still looks cheap at a discount to net cash.

[Full Disclosure: We have a holding in FORD. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]


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