A big fight is under way about the future of Novoste ( NOVT), a medical-device company with declining sales, an evaporating stock price and a fast-shrinking payroll, whose main goal now isn't to reverse its fortunes but to close up shop for good. On March 7, the Norcross, Ga., company will hold a special meeting to ask shareholders to approve its liquidation. But some stakeholders, including the big hedge fund Steel Partners, oppose the plan. Should Steel Partners prevail, it wants investors to boot the Novoste board. This is the same Steel Partners that has teamed up with billionaire investor Carl Icahn to make the recent -- and rebuffed -- $10 billion hostile bid for KT&G, Korea's largest tobacco company. So why is this hedge fund battling over Novoste, which has a market capitalization of $11 million, has never turned a yearly profit and whose stock is off 99% since mid-2000 on a split-adjusted basis? Health care has nothing to do with it. Steel Partners, the largest Novoste shareholder, wants to sell the company's dwindling assets and leave a shell company that could be merged with a private company. A combination of this sort is called a reverse merger, and it's a strategy sometimes used to avoid the complexities and costs of an initial public offering.
Carry It Forward
Liquidation "is not in the best interests of shareholders," the hedge fund says in a recent proxy statement opposing the re-election of the board. Novoste needs directors who have experience in financial restructuring "and implementing strategic alternatives for distressed companies," the proxy says. An April 13 stockholders' meeting has been scheduled in which Steel Partners is nominating six candidates for Novoste's seven-member board. There's another nonmedical reason for the hedge fund's interest. Steel Partners says Novoste has plenty of tax net operating loss carryforwards, which could allow a profit-making merger partner to offset future tax payments. According to documents filed with the Securities and Exchange Commission, Novoste had about $58.5 million in these carryforwards at the end of 2004.