Will activist investors bring about a change in the make-up of the board of directors of network intelligence and security solutions company Allot (TASE: ALLT; Nasdaq: ALLT)? From a filing by the largest shareholder in the company with the US Securities and Exchange Commission (SEC), it emerges that discussions are taking place between the company and its investors on changes in the board, at the request of one of the investors.
The largest shareholder in Allot is New York-based investment management company Lynrock Lake, which became a shareholder in 2018 and now holds a 21.8% stake, worth $67.6 million. According to the filing, a meeting took place between Lynrock Lake founder and chief investment officer Cynthia Paul and an Allot director to discuss the composition of the board and creation of value for shareholders, and the discussions are expected to continue.
Allot, which is headed by CEO Erez Antebi and whose board chairperson is Yigal Jacoby, who co-founded Allot in 1996, provides telecommunications companies with solutions for network and analysis and security as a service (SECaaS). The company is traded on Nasdaq and the Tel Aviv Stock Exchange at a market cap of $310 million, after a 47% decline in its share price over the past year. The share price is 58% below the peak it reached in June 2021.
A year ago, Outerbridge Capital Management, also of New York, bought shares in Allot at prices ranging between $14 and $19 per share, as well as options. The current share price is $8.39. The firm, which now holds 7.8% of the company, said at the time that it was undervalued.
In a further report a few months ago, Outerbridge expressed satisfaction at Allot’s efforts in cybersecurity, and said that Allot was addressing a substantial market. Towards the end of last year, in another report, Outerbridge said that despite the fall in the share price, it was encouraged by the rate at which Allot was winning new contracts, and added that the company was significantly undervalued and that it therefore planned to hold discussions with the management and the board, among other things on the composition of the board and on boosting value creation for shareholders.
Last month, Outerbridge reported that meetings had taken place with the management and board of Allot, and that following them it had sent a letter to the board saying that it supported the CEO and management team, but that it was concerned at actions taken by the company, among them raising capital that diluted existing shareholders (a $40 million private placement with Lynrock Lake in February this year) , and at the company’s inability to give value to shareholders in previous years.
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The letter states that the firm believes that Allot’s stock is dramatically undervalued, and that the SECaaS business alone is worth a share price of $10-15, while Allot’s traditional business (DPI – deep packet inspection) is worth another $10-15. In other words, the share price ought to be $20-35. The firm believes that the fact that the share price is substantially lower indicates a lack of confidence in the company’s board of directors. It therefore proposes the appointment of a director to represent the shareholders. As mentioned, according to Lynrock Lake’s filing, discussions on the matter are taking place.
No comment was received from Allot.
Published by Globes, Israel business news – en.globes.co.il – on March 31, 2022.
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