Singer in his 13D filing today expresses that the sale is a necessary one for the struggling company, which is the smallest player in an industry that has undergone considerable consolidation (say that five times fast) over the past few years. GSI Technology’s revenue has consistently declined over the past five years, dipping to just $53.5 million in fiscal year 2015, which ended on March 31. That represents a more than 45% decline from fiscal year 2011 and shares have followed suit, declining by 11% over the past five years even when factoring in the 10% spike in shares over the past two days, which will dissipate should the offer go unaccepted again. One of the lone bright spots for the company during fiscal year 2015 was its improved gross margins, which came in at 47% compared to 44.6% one year ago, which Chairman and Chief Executive Officer Lee-Lean Shu attributed to higher-margin products. Nonetheless, GSI reported a net loss of $5 million or $0.20 per diluted share for the year.
The current offer from GigOptix offers a similar premium on the company’s stock at the time the offer was announced as the initial offer did, 26%, versus what would have been a 32% premium the first time the offer was made. It also leaves 17% remaining upside from the current share price. However, while the involvement of Vertex Capital Advisors is clearly giving hope to investors as evidenced by its second spike this morning, given the previous actions of the board and the upper hand it would have in the event of a proxy fight, with management having a 20% ownership position, it’s hard to see Vertex Capital Advisors and Eric Singer as having enough leverage in this situation to fully flex their muscles. As such, despite the upside potential, investors should approach this developing situation with caution.