By Alex Gavrish, Etalon Investment Research; author of “Wall Street Back To Basics

Tibco Software

Praesidium Investment Management communicates with Tibco’s board

Praesidium Investment Management disclosed that on May 20th, 2014, it sent a letter to company’s board of directors. In the letter the firm outlined its views about Tibco Software Inc. (NASDAQ:TIBX) and outlined the steps which company should take in order to enhance shareholder’s value. According to the latest SEC filing, as of March 31st, 2014, Praesidium held 5.3 million shares, currently valued at $109 million dollars. The holding represents 3.2% percent of Tibco’s shares outstanding. Most of the shares were acquired by investor during first 6 months of 2013. The weighted average price of company’s stock during this period equaled $21.26 per share, and it is safe to assume this is an approximate cost of the position. Praesidium is known for it investments in the software sector. The firm owns stakes at other software companies, among them Accenture Plc (NYSE:ACN), Open Text Corporation (NASDAQ:OTEX), Progress Software Corporation (NASDAQ:PRGS), Informatica Corporation (NASDAQ:INFA) and Oracle Corporation (NYSE:ORCL).

According to Praesidium, Tibco Software Inc. (NASDAQ:TIBX) has a unique collection of valuable assets and industry leading technology, with products in some of the fastest-growing areas of software, such as data discovery, analytics, and complex event processing. However, the company is currently falling far short of its significant potential, resulting ina material disconnect between the high strategic value of Tibco’s technology and the price of Tibco’s stock in the public market. Praesidium stated that it believes there is a substantial opportunity to unlock value at Tibco and it looks forward to a constructive dialogue with the board on ways to achieve this.

Convertible debt and cash holding

Tibco Software Inc. (NASDAQ:TIBX) has convertible debt outstanding with $600 million principal amount. This debt is convertible at a price of $50.57 per share. As the conversion price is significantly above the current market price, the issue of dilution is of no immediate concern to investors. Company also has $760 million in cash and equivalents, based on the most recent quarterly report. This amount currently represents 23% of company’s market capitalization. Company repurchased $36 million worth of shares during first quarter of FY 2014 and had spend $182 million dollars annually on average during a three year period between 2011 and 2013.

Tibco Software’s aluation summary

Tibco Software Inc. (NASDAQ:TIBX)’s market capitalization was $3.4 billion and enterprise value equaled $3.2 billion as of June 11th, 2014. Company is valued at a P/E multiple of x40 (x19 based on Non-GAAP basis) and EV/EBITDA multiple of x14.6 (FY 2013). During FY 2013, company generated $206 million in cash flow from operations. Reasonable valuation, attractive growth prospects, involvement of a large shareholder and large cash holding might provide an interesting entry point for long-term investor.