Current Price – $0.485
Liquidation Value – $0.54
Upside – 11%+
Expiration Date – Q3 2018
This idea was shared by AV.
Walker Innovation Inc. (WLKR) announced last week that the board would call a meeting of stockholders to approve the liquidation of the company. The press release gives us a starting point to figure out how much cash will be available for distribution. As of June 30, 2018 the company had cash of approximately $22.8 million and 39,526,311 fully diluted shares outstanding. Of that amount, between $1.5 and 2.5 million will be held in a contingency reserve for “known and potential liabilities”. Given that Walker Innovation is basically a box of cash it’s hard to see what could drain this contingency reserve, besides severance benefits to employees, and I think eventually a large part could be paid to current shareholders. The company has 4 full-time employees, and at least their management, is entitled to 12 months of salary when their contract is terminated. The CEO and CFO earn a combined $700 thousand a year, so because of that I have gone for the low-end of this range in my calculations, and with a bit of luck even that will end up being conservative. Their office lease will terminate on it’s own in September.
The company is expected to make the initial liquidation distribution in September, so we will have to model one additional quarter of cash burn. In the first quarter of this year $656 thousand went down the drain, so probably a similar amount will disappear between June 30 and September. Besides that, the liquidation itself will probably also not be cheap. I never understood why these things cost so much money, but to model an additional $1 million disappearing in liquidation expenses is not an unreasonable bet.
Luckily there is also some good news. The press release talks about fully diluted shares, and a large part of those shares are 4,432,997 options. What the weighted average strike price of those options is can’t be determined exactly, but we do know that at the end of the year 4,928,832 options were outstanding with a weighted average strike price of $0.64/share. This average is skewed upwards by a couple of worthless options with a high strike, since 4,516,333 options had a exercise price between $0.00 and $0.50 with a weighted average strike price of $0.39. I think we can conservatively assume that all the worthless options were forfeited and that all the remaining options have a strike roughly at the $0.39/share level. If we add this all up we get the following picture:
As an added bonus, Chairman owns almost half of the company, which should help to minimize any liquidation expenses and Q3 Opex waste.
Another way to look at this situation is that liquidation costs + Q3 OpEx need to reach $5.3m before liquidation distributions would be lower than the current share price. This is equivalent to 25% of the remaining cash balance and its hard to see how Chairman would allow this kind of waste.
I own this, and quite like it. I think there is probably some value to the patent portfolio here given they have had semi-regular six figure settlements coming in. Even on a fire sale basis you’d think that should be worth a few hundred thousand in option value to someone. Not going to move the needle dramatically, but provides a bit of potential “good news” optionality, as opposed to the general rule in liquidations that anything that happens eats away at the margin of safety.
Hi AV. Thanks for the idea. Do you have the calcuation behind how you came up with the 4.4mm option? Also, regarding the contingency reserve, any idea why they state a very high $2.5mm?
Mchaelx: I agree. Don’t expect it too be worth much, but perhaps it can be a pleasant surprise.
Thinley: In the press release they give the number of fully diluted shares, and we know the number of ordinary shares and preferred shares from the latest 10-Q/K. And I’m not sure why they have the big contingency reserve. I think it’s mainly a legal requirement, and secondly, they might have to pay their 4 employees for 12-months after dissolution (if they don’t just pay a lump sum to settle it before dissolution).
Shareholder meeting set for 1st of August.
https://finance.yahoo.com/news/walker-innovation-sets-date-special-130500971.html?.tsrc=rss
I read this as shareholder meeting Sept 5 to stockholders of record Aug 1
Yes, thanks for correction.
Your estimate is almost equal to the higher end of the estimation range ($0.50-$0.53) mentioned in the Plan of Dissolution. It seems that the key here is estimating the amount of contingency reserve needed for liabilities/future claims.
I’m not sure if we have any special insight here. Nonetheless it seems like a free option since the shares are trading around the lower end of the estimation range. Although I am a bit surprised by this part of the Plan of Dissolution, which could in theory not make it a free option anymore:
“Under the DGCL, if the amount of the contingency reserve and other measures calculated to provide for the satisfaction of liabilities and claims are insufficient to satisfy the aggregate amount ultimately found payable in respect of our liabilities and claims against us, each stockholder could be held liable for amounts due to creditors up to the amounts distributed to such stockholder under the Plan of Dissolution”.
I think this statement re further shareholder liabilities is just a required formality, I would not expect this to actually happen. The reserve at $1.5m is worth $0.04/share so if any portion of it is unused, there might be further upside to shareholders.
WLKR liquidation approved by shareholders:
https://www.sec.gov/Archives/edgar/data/1294649/000143774918016599/wlkr20180905_8k.htm
Note the contingency reserve has been increased, and the initial distribution will be slightly lower and in the range of $0.47 to $0.50 per share:
Subsequent to the date of mailing of the Proxy Statement, we received notice that the Internal Revenue Service (the “IRS”) had opened an audit regarding our tax year ended December 31, 2016. While we believe our tax return for that year is correct and reflects all amounts owed to the IRS – which we paid on a timely basis – there is a risk that the IRS will disagree in this regard and may raise issues in respect of other tax years. We are in the process of initial engagement with the IRS and are consulting with our advisors regarding the issues that could arise in the course of the audit, but due to the usual manner in which these reviews proceed, do not expect to have any substantive discussions or any visibility regarding potential liabilities that may result from this matter prior to the date of the Special Meeting. As a result, on August 16, 2018 our Board of Directors approved an amendment to our Plan of Complete Liquidation and Dissolution increasing the maximum amount of the Contingency Reserve contemplated by Section 7(b) to satisfy (among other things) potential tax liabilities and related professional expenses from $2.5 million to $3.5 million. As a result of this modification, all references in the Proxy Statement to an estimate of the aggregate amount of cash distributions to stockholders being in the range of $0.50 to $0.53 per share are unchanged (as we expect that no such tax obligations will result from the IRS audit), but we are noting for the benefit of all stockholders that we currently expect that the initial distribution will be slightly lower and in the range of $0.47 to $0.50 per share to fund this increase in the Contingency Reserve.
Initial distribution set at $0.48/share:
https://www.businesswire.com/news/home/20180914005417/en/Walker-Innovation-Announces-Dissolution-Date-Initial-Liquidating
Further distribution of up to $0.05/share will come at a later stage when contingency reserve is released.
From the 12/31/18 10K just filed, it says this on page 2:
“Subject to uncertainties inherent in the winding up of its business, Walker Innovation may make one or more additional liquidating distributions, as the Company’s required contingency reserves may be released over time.”
This would suggest there still is a Contingency Reserve, but it does not show on 12/31/18 balance sheet? Anyone know why? Nothing we can do about it now, I am just curious. thx
The 3.5M in cash that you see on the balance sheet is the contingency reserve
Looks good though. Best case $0.10 in a future distribution?
I would be very surprised if shareholders end up getting $0.1/share.
In the money options were settled at around $0.51 (using AV’s average strike price of $0.39), so I am guessing that additional distribution of up to $0.03 is more likely.
$0.03 is in line with the company’s initial estimates and I’d bet on that as well. Still, there’s a big discrepancy between the company’s estimates and the residual value shown on the balance sheet. I’d say that makes a surprise to the upside slightly more likely.
Bit of a pointless discussion though 🙂 . We’ll see what happens.
Anyone still waiting for this?
I still have an escrow CUSIP in my account for this. Could not find anything online from the escrow agent. Does anyone have an update?
I got this prompt update today to my inquiry re final distribution at the Walker website:
We are assessing that now. Please check back in September. As our public filings indicated, although we have longer if needed, we anticipated a three year wind up period that began in September 2018.
Jonathan Siegel
CEO
Walker Innovation Inc.
(a company in liquidation and dissolution)
Thanks for the update
Thanks for the update……do you have a feel if the final payout, (if there is one) will be material or not? thanks
From an email conversation about half a year ago:
“I can tell you that we originally allocated $3.5 million to be placed into the liquidation fund. We have brought additional funds in and we are frugal with expenditures.”
If anything I’d say this could end up being a nice surprise. Then again, who knows what they spent.
I reached out to the company about the timing of the final distribution and Jonathan replied as follows: “Please wait until the end of the month, at which point I expect you will have your answer.”
Sounds like they are on schedule. We are now almost exactly 3 years past the date when they filed for dissolution.
Do these shares still trade?
$0.0797 per share https://www.businesswire.com/news/home/20210928005826/en/Walker-Innovation-Confirms-Payment-Date-of-Final-Liquidating-Distribution
If anybody has already received the distribution in their account, please let us know…….
I still haven’t received a distribution in IB. Anyone contacted them already?
I received the money in IB two days ago. Not sure if it was related to my request through a ticker, but as soon as I asked for an update, one day later I got the money.
Paid 10/21
Was this the final distribution?
For my benefit, was WHT collected on this distribution?
What is the tax treatment of that liquidation distribution for non-US resident? Is it classified as income and subjected to WHT?
Nope. Or at least, not yet.
check out the RENREN post and associated commentary – why is this one different?