OCZ Technology Group (OCZ) announced its intent to file for bankruptcy. That means the company is done. Finito. Finished. The common stock is worth $0 and will slowly but surely trend towards that number. Don't buy the stock.
However, a number of you may frequent stock market message boards, and you may see messages that look like these:
(click to enlarge)
Now, I know that most people reading this article would not dream of taking advice from anonymous Yahoo Message Board pumpers, but you would be surprised at just how often newbies - particularly those that just got burned on the trade - will be drawn to these promises of a "bidding war" over a bankrupt company whose assets are in Hercules Technology Growth Capital's (HTGC) control.
Common Shareholders Wiped Out
Don't be fooled by the pumpers. There will likely be no "bidding war", and if there is, the odds that the common shareholders will actually see a dime of any proceeds is exceptionally low. Why is that? Well, when a company files for bankruptcy, the "food chain" for any funds recovered during the liquidation/sale process is the following:
- Government
- Financial Institutions
- Other Creditors (think suppliers)
- Preferred shareholders
- Common stockholders
Depending on how much Toshiba is willing to pony up for the assets, a few pennies may trickle down to the common shareholders. But, really, the common shareholders are just going to be wiped out.
Why Were The Speculators Playing For?
Buyout, buyout, buyout - everybody was playing for a buyout. Now, admittedly, I do think that if Ralph Schmitt had sold the company and/or patents immediately, OCZ's shareholders would be in better shape than they are today, but it's hard to believe that he didn't try. Despite pumping up the company's prospects on various earnings calls and claiming that he didn't want to sell the company because it was "worth more" than the market price (~$2/share at the time) at various conferences, it's clear that nobody wanted to touch this thing.
After all, what did OCZ really have? A controller? Big deal. Marvell (MRVL) and LSI (LSI) sell great controllers to the SSD vendors that don't have in-house controllers and all of the major NAND players had their own controllers already. Further, if the IP were valuable, why would anybody pay a premium for it when they could just wait until OCZ went bankrupt (which has been obvious for months) and then pick the corpse during the asset sale?
Well, Toshiba did just that. Toshiba wins. OCZ speculators lost.
Conclusion
Speculation is great, but when it's clear that a company is going to run out of money within 6 months, and when it's even clearer that the company's business isn't viable, why put your hard earned money there? It's unfortunate that this had to be OCZ's fate, and it's even worse that many of the message board pumpers desperate to unload their nearly worthless positions onto unsuspecting retail investors, but dont' fall for it. Really.
OCZ is dead. Move on.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)
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