The Cashless Buyback Plus(tm)¹ - Cash for Undervalued Corporations: Beating the Stock-Plus-Warrants Model - Needham / QuickLogic 2009 Financing Case Study

Abstract

A stock-plus-warrants financing makes perfect sense for an overvalued company in need of cash. Otherwise, better funding alternatives can be devised. This paper describes what Needham & Co. did for QuickLogic (QUIK) as placement agent in a November 2009 stock-plus-warrants deal and considers what might have been done instead.

Stock-plus-warrant deals have two stages. In the QuickLogic case, Needham in Stage 1 raises cash for QuickLogic selling shares at more than a 36.0% discount to the market. Stage 2 may not be completed for 5.5 years. If/when that happens, shares in Stage 2 will be sold at a discount to QuickLogic’s future price, and, cumulatively, the entire placement will be at a 17.6% discount to QuickLogic’s price at the deal’s inception.

Suppose Needham did what QuickLogic wanted, did it fast and did it well. The mystery is, why would any firm want done to them what it was that Needham did? The capital raised was small, the discount steep.

A Cashless Buyback Plus™ could have positioned QuickLogic for far superior results. Just like a stock-plus-warrants deal, it is a two stage transaction. Stage 1 for both a Cashless Buyback Plus™ and a stock-plus-warrants issuance provides an up front discount on a small securities placement. There the similarity ends. Compared to a stock-plus-warrants transaction, a Cashless Buyback Plus™ would have afforded QuickLogic an opportunity to raise far more capital sooner at a higher price (a premium to QuickLogic’s future price).

Why might QuickLogic not have seriously considered a Cashless Buyback Plus™ as an alternative to a stock-plus-warrants sale? Arguably, because a Cashless Buyback Plus™, though akin to dozens of major, completed transactions, is different. QuickLogic might have found more comfort in paying high to do what others have done before than in securing a major benefit at the cost of trying something new.

Keywords: Cashless Buyback, Cash xPRT, Needham, QuickLogic, warrant financing

JEL Classification: G24, G30, G32, L21, G35