Monday, November 1, 2010

The New Dissident Proxy for ITEX.


My favorite quips that were responding to the statements seen here:

On January 22, 2009, consistent with Rahul Pagidipati’s philosophy of investing in undervalued securities, Mr. Pagidipati contacted the Board of Directors of ITEX to gauge their interest in exploring a variety of strategic alternatives. Mr. Pagidipati believed his background and education could assist the Company. Mr. Pagidipati added that he would like to set up a conference call to discuss any potential future possibilities. Mr. Pagidipati received no response from his email.

On June 18, 2010, Mr. White emailed Mr. Parsad stating “Thank you for sending the agenda. We do not enter into discussions with shareholders about confidential topics” and recommending to us to communicate with the Company’s communications director, Alan Zimmelman. Mr. Parsad responded to Mr. White’s email with the following: “We were extending our hand to the board. We were hoping that if we could agree on some key components of our common vision for ITEX, we would have been agreeable to supporting current management without seeking any board representation. It seems as though you guys are resistant to that idea. I’ll cancel the conference call, and we’ll continue on our current form of contact, either by letter or through Alan. We’ll leave it to the board to decide what type of relationship they want with their largest shareholder group.”

Also, something that you all may find of interest is the specific plan that is presented. Most notably, returning $5 million to shareholders over the course of the first year... $5 million over a year? Wow. That is ~30% of what ITEX can be bought for, in whole right now.

· Return over $5 million in cash to shareholders during calendar 2011 starting with a $1.00 per share special dividend

· List ITEX’s stock on the NASDAQ Capital Market

· Hire a full-time CFO to improve ITEX’s accounting practices

· Expand ITEX’s Board of Directors to five members

· End an ineffective acquisition strategy – organic growth will be the focus

· Refocus the company on franchise-related initiatives

· Actively recruit entrepreneurs with the proper fit to join ITEX’s franchises brokers

Check out for more info.

Overall, this has been a pretty interesting contest. With so much time before the meeting, this may well get to be the muddiest of all the elections we see this year! Naturally, I am pretty sympathetic to the cause of the activists, and hope they win. Additionally, it will be interesting to see what happens to the share price in the next 3 months.

Disclosure: None. This is not advice. Always do your own research before doing anything that I talk, write, or even think about.


simonj said...

Hi Jeff,
I came across your comments via seekingalpha. I am considering an investment in ITEX [as I look for small companies with a moat]

As someone who seems to have intimate knowledge of this company, I hope you don't mind me asking a few questions.

1. Do you think, if implemented, the activists could run Itex well?

2. If the proxy battle is successful, do you think Stephen White will leave? If he stayed, would he be open to their different strategy?

3. Would you own Itex regardless of the result of the proxy battle?

4. How...exactly...would the activist enhance member growth when the current management have not managed to do so? I don't understand what they bring to the table.

My email is Or just reply here.

Thank you very much.

Anonymous said...

What are the chances of the dissident shareholders being successful?

What leads to your skepticism as to Stephen Whites attempts to turn Itex into more than a barter business? Surely it takes more than a few years doesn't it?