Another Large eSpeed (ESPD) Holder Calls for a Sale or Other Measures to Increase Shareholder Value
In a 13D filing after the close on eSpeed Inc. (Nasdaq: ESPD), WC Capital disclosed a 6.4% stake (1.92 million shares) in the company. The firm also disclosed a letter send to ESPD Chiarman, Howard W. Lutnick.
In the letter the firm said the shares are currently very undervalued. The firm also requested the board review certain options. 1: Sale of the Company, 2. Convert Class B shares to Class A, 3. Return of Capital to Shareholders (one-time dividend, share repurchases ), 4. Initiate Procedures and Structures Increasing eSpeed Autonomy.
Commenting on eSpeed's valuation the firm said, "Our analysis has led us to believe that the range of the company's theoretical valuation could be considerably higher than the current share price which could result in a value 28% to 70% greater ($12 to $16 per share) than the current valuation of $9.40 per share."
NOTE: eSpeed is also an activist target of Chapman Capital. Link to ESPD/Chapman reports.
A Copy of the Letter:
Dear Mr. Lutnick:
Thank you for the recent opportunities to discuss eSpeed's current business strategy and longer term opportunities.
As long-term shareholders of eSpeed we have performed our own analysis of the value of the company and have concluded that the shares are currently very undervalued. Specifically, we believe that the current valuation does not accurately reflect: 1) the company's strong cash positions of $187 million ($3.72 per share) as of December 31, 2006; 2) the company's strong duopoly position in the electronic trading of debt securities and related instruments; 3) the potential cash flow from the "core" trading business, which has been and continues to be masked by the large continuing investments in unprofitable new business initiative, and 4) the intellectual property inherent in the company's proprietary trading technology.
While our tone and sentiments may differ from those of other shareholders, we do nonetheless agree with several issues they have raised. Given the company's dramatic undervaluation relative to other "exchanges", we believe that steps to ensure a fair return for eSpeed shareholders are appropriate. Specifically, we request that the Board of Directors reviews the following options (many of which we have inquired about on past conference calls):
1) Sale of the Company: We believe the value of eSpeed's existing core business and assets could be significantly higher than the current enterprise value of the company which is approximately $475 million, based on the recent trading of $9.40 per share. We request that management actively engage industry and/or "financial" buyers (i.e. private equity) to ascertain values at which a transaction for all outstanding eSpeed's shares may be feasible.
2) Convert Class B shares to Class A: As allowed by Delaware law, we believe that in the "post-Enron" era of corporate governance, the company should convert the "super voting" Class B shares to Class A shares. This would allow an equitable "one share, one vote" structure and also give Class A shareholders the opportunity to have a greater say in important corporate matters. At the same time, it would allow Cantor Fitzgerald to maintain a dominant position in matters requiring shareholder voting.
3) Return of Capital to Shareholders: Given the significant liquid resources (cash and equivalents) of the Company, which were $187 million on December 31, 2006, we request the Board of Directors strongly consider options for returning capital to equity shareholders. We believe that a special one-time dividend of a meaningful size, a "Dutch" tender for the Company's shares or an aggressive "open market" share repurchase would enhance the value of the shares for all remaining shareholders. While the Company is authorized to repurchase shares in the open market, the Company has not done so to a meaningful degree.
4) Initiate Procedures and Structures Increasing eSpeed Autonomy: Given the complex three-way relationship between Cantor Fitzgerald, BGC and the company, we believe that segregating various business practices and initiating independent controls would protect the company's shareholders and potentially enhance returns. Specifically, with the pending public offering of BGC shares, we believe that the two public entities should have different accountants and independent Board Members. This will lessen the likelihood that one party is treated inequitably and that appropriate allocation of resources and expenses occurs.
We believe eSpeed is a valuable business enterprise that is significantly undervalued based on its current equity valuation. Our analysis has led us to believe that the range of the company's theoretical valuation could be considerably higher than the current share price which could result in a value 28% to 70% greater ($12 to $16 per share) than the current valuation of $9.40 per share. This analysis is based on reasonable multiples of revenues and/or cash flows and the significant cash position of the company. We request that the Board of Directors aggressively and expediously explore all options that could result in this type of outcome for the benefit of all eSpeed shareholders.
Thank you for your attention to this matter.
Aaron H. Braun
Manager of WC Capital Management LLC (also known as Willow Creek)