Violin Memory Inc. (VMEM), the maker of flash storage that has lost half its value since a September initial public offering, should seek to sell itself to a strategic buyer, said activist shareholder Clinton Group Inc.
The Santa Clara, California-based company, which this week fired Chief Executive Officer Don Basile and appointed board Chairman Howard A. Bain III as interim CEO, shouldn’t waste months recruiting a new chief to remain a standalone entity, Clinton said in a letter to the company’s board of directors dated today. A copy of the letter, signed by senior portfolio manager Joseph A. De Perio, was obtained by Bloomberg News.
“With multiple logical buyers, the company should be able to create demand tension and a competitive auction, extracting a good deal for current shareholders,” De Perio wrote. “Despite rough waters since the IPO, you have an opportunity to right the ship today.”
De Perio claims in the letter that Clinton Group’s funds own a “meaningful stake” in Violin Memory, without elaborating. He also alleges that Violin Memory’s management spurned multiple offers to buy the company in their pursuit of an IPO.
Violin Memory rose 14 percent to $4 at the close in New York. The stock has declined 56 percent from its IPO price of $9 a share.
“Violin Memory welcomes the perspective of its shareholders and values their input,” the company said in an e-mailed response to questions. “The Violin Memory Board and management are focused on creating value for our shareholders.”
In a separate statement today, the company said it “remains on track to launch additional, major product offerings in early 2014” and a strong product road map. It added that it had $134 million in cash and investments plus $58 million in credit lines as of the end of October, and expects to be profitable in 2015. Violin Memory also reiterated that the board has hired an executive search firm to find a permanent replacement for CEO.
“Violin Memory remains focused on its fundamental strategy to drive growth and serve its customers,” said Bain in the statement. “I see many opportunities ahead and look forward to engaging with the Company’s customers, team members and shareholders in the coming weeks.”
The company went public three months ago even with quarterly losses that exceeded revenue and as the company dealt with the departure of its biggest reseller -- Hewlett Packard Co. (HPQ) -- which opted to focus on its own competitive product. The stock plunged 22 percent in its trading debut and lost almost half its remaining value on Nov. 22, after Violin Memory provided a sales forecast that trailed analysts’ estimates.
Basile had been CEO since 2009 and was responsible for pushing the company into the flash array market, developing faster, more expensive storage products. Bain, who served as chief financial officer for several public companies, joined Violin Memory’s board in October 2012 and became chairman in August.
JPMorgan Chase & Co. (JPM) led the IPO with help from Deutsche Bank AG, Bank of America Corp. and Barclays Plc.
At least seven lawsuits have been filed against Violin Memory on behalf of shareholders, claiming the company and underwriters violated securities law. In the most recent quarter, Violin Memory blamed a slowdown in government spending, due to the shutdown in October, for canceled or deferred contracts.
Glancy Binkow & Goldberg LLP, a Los Angeles-based law firm, said on Dec. 6 that Violin Memory “failed to disclose that, prior to the IPO, the company’s sales and revenues were being negatively impacted” by the uncertainty surrounding a potential shutdown.
In its statement today, Violin Memory said it “intends to vigorously defend itself against these claims” in all of the suits and that it has hired law firm Orrick, Herrington & Sutcliffe LLP.
“While much work remains ahead, I am confident that we have the right strategy, assets and financial resources to achieve success,” Bain said in the statement.