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Arcadia Advises Accelrys to Return 'Excess' Cash to Shareholders


Arcadia Capital Advisors, an Accelrys shareholder, told the company this week that it should invest its cash in a share buyback or special dividends for its shareholders rather than in making additional acquisitions.

In a letter to Accelrys' board of directors, Richard Rofe, Arcadia's managing director, noted that the company stated in its latest earnings call that it has $160 million in cash and short-term investments — "an amount that is by all accounts excessive for a company expected to generate cash on forecasted annual revenues of more than $160 million."

Excluding short-term investments, Accelrys held cash, cash equivalents, marketable securities, and restricted cash of $92.9 million as of June 30.

Arcadia, which was a Symyx Technologies shareholder prior to that company's merger with Accelrys in July, urged the combined entity to "eliminate the temptation of this potential distraction [of pursuing acquisitions]" and advised the board to "demonstrate its commitment to this merger of equals by returning excess cash to the shareholders."

The all-stock merger with Accelrys valued Symyx at approximately $5.19 per share (BI 07/02/2010). Prior to the merger, however, Symyx had spurned several attempts from Certara, the parent firm of Tripos International and Pharsight, to acquire the company for up to $6.75 per share (BI 06/25/2010).

In May, Rofe urged Symyx to consider offers from other bidders and said the Accelrys offer was not in the best interests of shareholders (BI 5/28/2010).

In his letter this week, Rofe noted that Accelrys and Symx shareholders “should be rewarded for having been deprived of the near-term value and certainty of the Certara offer,” and pointed out that a “fair value comparison” based on the recent stock performance of Accelrys shares indicates that Certara’s offer would be equivalent to $7.37 per share in Accelrys shares, which are currently trading at $6.87.

Rofe noted that Accelrys management indicated in its last earnings call that it is looking to pursue acquisitions. Indeed, during the call, CEO Max Carnecchia said that the company plans to use its cash to “aggressively" identify targets "that will help us accelerate our product and services roadmaps into white space where we determine it's more prudent to acquire capabilities, customers, [and] domain expertise as opposed to trying to develop it organically.” (BI 8/6/2010)

However, Rofe said, "the impression we were given by the board prior to the merger was that the company would use Symyx’s cash to return value to shareholders in the form of a dividend or share buyback."

He added that Arcadia "encourage[s] the board and management to consider this direction above all other alternatives."