(By Balachander) Xyratex Ltd. (NASDAQ: XRTX) shares jumped in Monday trading after activist firm Baker Street reported a stake in the company and urged the data storage provider to review all strategic alternatives.
Baker Street, which disclosed a 23 percent stake in Xyratex, said the company is significantly undervalued by the market due to excessive R&D spending and flawed strategic strategy.
The firm has urged the board of Xyratex to immediately add three highly-qualified independent candidates to the board.
Over the past one-, three-, and five-year periods, Xyratex's stock has fallen by roughly 36 percent, 25 percent, and 50 percent, respectively, after adjusting for dividends, Baker Street noted.
The company's decision to sink $60 million (over $2 per share) a year into non-core R&D investments rather than maximize the value of the Company's profitable core business is fraught with tremendous risk for shareholders, the firm noted.
Baker Street said Xyratex is currently trading at an adjusted enterprise value of only $137 million, representing only 2.2x the EBITDA produced by its market leading core business segments.
"We believe that a thorough review of strategic options and value-maximizing opportunities should be promptly undertaken to weigh against the company spending even more of the shareholders' capital on speculative R&D research," Baker Street said. "This review should be led by a reconfigured Board which includes significant shareholder representation."
Baker Street concluded that it hopes to work constructively with the Board and management to explore ways to unlock significant shareholder value.
The stock, which has been trading in the 52-week range of $6.96 to $17.96, jumped 10.63 percent to trade at $9.26 on Monday.