Description

Short and sweet. IWOV, Interwoven, Inc, provides enterprise content management software. After bouncing off its October lows of $1.34 to reach a 52 week high of $3.44, the company announced they are buying iManage (IMAN) for cash and stock. The stock has been hammered back down to the $2 level.

I think this represents a buying opportunity. It has been reported that there were several large institutional holders of IMAN that are using the merger as their liquidity event to exit the stock. They have no interest in, or ability to, short IWOV instead. This overhang of IMAN stock has, via the arbs and the 2:1 ratio, translated into overwhelming selling of IWOV. I am told the bulk of this selling is likely now over. This has presented us with the opportunity to buy what will be arguably a better stock at $2, when it was just trading $3.

The cash portion of the IMAN consideration is self-financed. Afterward, IWOV will have $1.15 in net cash. I am told the company will be cash flow positive, so you’re buying the business for 85cts. (Assuming a $2 price.) The stock has some decent name longs in it too. David Rocker, of Rocker Ptrs, owns a ton. Additionally, latest results do not include the recent MediaBin acquisition, which should aid results in the future.

The IMAN merger will make IWOV a more attractive takeover target as it helps IWOV to provide the end-to-end solution that many customers are looking for. I am hearing that Larry Ellison is looking for content managers and may be looking at Vignette and IWOV.

All in all, thanks to the sellers of IMAN, the arbs have provided us with an opportunity to buy, at $2, what will be a better company than the one that was just trading for $3.

Catalyst

1) Likely cessation of the IMAN-induced arb selling
2) Market recognition of the more valuable enterprise post-merger.
3) Possible takeover candidate.