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Tuesday, July 26, 2005

Vector pounces on Avid's (AVID) weakness to take away Pinnacle (PCLE)

Interesting article in regarding a bid by Vector Capital and Tennenbaum Capital Partners for Pinnacle's "main business line". Vector offered $200MM for the Liquid editing product line, which they claims values the company at approximately $423MM. Since Avid's big fall recently, their offer has declined in value to about $335MM. However, the value of Vector's offer is dependent upon the value of Pinnacle's remaining Broadcast and Professional division. Vector puts this at $120MM, but it's not clear that free-standing Broadcast division would do well in a market that is dominated by Avid and Apple. Now, there is a rage among small public companies to core down and focus products, strategy and operations. And one could argue that this could rejuvenate Pinnacle, but those types of restructurings can be difficult.
Regardless of the issues with Vector's bid, it's interesting that the board has denied the offer, urging shareholder's to vote for Avid's offer even though it's potentially 26% less. I hope the shareholders are sophisticated enough to...wait, nevermind, hoping that "shareholders are sophisticated enough" is never a winning strategy. Unfortunately, board of directors are still creatures of comfort, and Avid's bid is comfortable - a bid from financial concerns that involve splitting the company are not comfortable for Boards of Directors. Even if they're a much better deal for the shareholders.
I get sick when I see BoDs destroy shareholder value like this. Granted, I don't know how deep the caveats on Vector's bid are, but for an extra 26%, I think Pinnacle's BoD has a fiduciary duty to find out. I wonder about Patti's motivations here. Maybe Pinnacle's professional division is in disarray and she knows that building a stand-alone company around it would be worth a lot less than $120MM. Maybe she's tired of being the Chairperson and CEO of a company that has lost the competitive battle in the consumer/prosumer DVD editing market to Sonic, Adobe and Apple. Maybe she's scared that Vector will buy this line of business and turn it around, illustrating her underperformance as a CEO. Regardless, I'd be pissed if I was a PCLE shareholder right now.


At 1:38 PM, Anonymous Anonymous said...

I work for Pinnacle. Yes Professional and Broadcast is in serious disarray and Avid will have it's hands full.

Patti was hired to take this company down to the barebones to make this transaction. It began as early as April last year shortly after she was hired. They knew what they wanted to do and it wasn't about putting the company back together, it was about making it "sellable".

At this point, while yes the shareholders, including the ones in my own family deserve better, I don't think it would be in the employees best interests. There are many of us here who still believe in our products even though we have the biggest boneheads around for an executive staff.

Right now, we can only hope that the vote will go thru, and every VP upward will be gotten rid of in short order. I do believe Avid has their act together and know they will have their hands full turning it around into something valuable. But they aren't going to do it well until they get rid of every songle one off the legacy mgmt staff.

Hopefully, the shareholders will recoup somewhat on their new Avid shares in due time.

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