Grizzlies owner Robert Pera has a big decision coming up.
Last November, minority owners Steve Kaplan and Daniel Straus activated their buy/sell clause in their ownership agreement. This means that Pera has to make the decision whether to buy out the pair of minority owners to keep control of the team or sell his shares at the new set price and leave the ownership group. This decision will have a major impact on the future of this Memphis franchise and which direction it goes.
As a result, it’s become important to follow the finances of Robert Pera over the last few months, as they may hint at him leaning one way or the other. For Pera, it’s all based on the technology company he founded, Ubiquiti Networks. The success or failures of this company will impact his ownership option with the Grizzlies.
That is what we are keeping an eye on currently. First, back in September, the research company Citron published a negative report about Ubiquiti after questioning their cash flow and other red flags they found. Robert Pera quickly took offense to this report, firing back on Twitter against Andrew Left, the managing editor at Citron. After faltering a bit, the stock recovered nicely. It’s risen 50% over the last 12 months and has recovered since Pera “debunked” the report.
That is, until Tuesday.
Now, it looks like Citron may have been on to something about fishy dealings within Ubiquiti Networks. Tuesday, shares of Ubiquiti fell 25% in pre-market trading after the company disclosed that the SEC had issued it subpoenas. According to an article from MarketWatch, Ubiquiti said the SEC wanted, “documents and information relating to a range of topics including metrics relating to the Ubiquiti Community, accounting practices, financial information, auditors, international trade practices, and relationships with distributors and various other third parties.” It was all questions surrounding the company’s finances and structure.
With all these questions surrounding Pera, Ubiquiti Networks, the SEC, and the ownership of the Grizzlies, GBB’s Mark King reached out to Jeremy Owens, the tech editor and San Francisco Bureau Chief for MarketWatch. He helped walk us through everything surrounding these SEC subpoenas, and brought our attention to the biggest question surrounding the buyout decision: “Can he pay the buyout?”
Here’s what Owens had to say-
“Pera’s wealth is tied up with Ubiquiti stock at the moment, and he has promised that he will not sell shares. He owns about three quarters of the stock in this company, and if he does sell shares, he will have to go through a lot. The only other way to get access to capital to pay off the other minority owners is to borrow against those shares.”
This is why Tuesday’s decline in stock could play such a crucial part in the buyout decision. Pera may not have the liquid capital to buy out the minority owners. Now, after the decline, it will be even more difficult to get enough money by borrowing against those shares since they hold a lower price per share.
Owens did say that Pera had sold one million shares back in August when the stock price was at $61.25, which resulted in him getting “only” 61.25 million dollars. Pera did not really comment on why he needed to do this, but did mention how hard it was to sell back shares to the company. However, that total from the sale is nowhere close to the liquid capital he would need to buy out these minority owners.
Robert Pera’s net worth has always been hard to pinpoint. As he owns a little over 70% of the shares in Ubiquiti, his value definitely took a hit after the SEC subpoenas. “Before the decline, Ubiquiti’s stake was worth about 4 billion dollars, so now it is probably about 3 billion since the company lost about a quarter of its value,” Owens explained.
And, this is what ties it all together. The SEC filings resulted in a sharp decline in the company’s overall stock which decreases Pera’s net wealth. Because of this, and without the company increasing in value, the money simply is not there to make a big-time purchase such as buying out minority owners.
The SEC investigation looms large for Pera because it will remain a cloud of doubt over the company until the matter is resolved. Questions about his accounting methods and control of the finances will need to be answered before it all wraps up. It could take months for this to run its course, depending on the complexity of the findings, but it will most definitely hurt Ubiquiti and, more importantly, Pera’s bottom line until it concludes.
With no one knowing the exact date a decision needs to be made by, it will be important to keep an eye on what Robert Pera is up to over the next month or two. Owens emphasized that “The big threshold for him is to own more than 50% of the company. He has said he wants to keep the voting stake.”
So, will he sell his 70% stake down to a 51% stake to have enough capital to buy out Straus and Kaplan? Even at a lower share price, this may be one of the only ways he could make a move to keep ownership of the Grizzlies. It’s all a game of wait-and-see, but we all hope answers come sooner rather than later.
Thanks again to Jeremy Owens (@jowens510) from MarketWatch for taking the time to help us try and figure this all out.