When you think of Imation, you probably think of data storage. That’s pretty reasonable considering that’s been the company’s main focus since its inception. The company, however, recently surprised everyone by developing its own investment adviser subsidiary, a venture into which it invested $20 million via an offshore investment fund. The company, which is controlled by investors, chose a fund that, in turn, is controlled by its activist investor.
The company outlined its plans and reasoning for this bold move, at least in part, via an 8-K filing with the Securities Exchange Commission. The company explained that its management was supportive of a registered investment adviser subsidiary and that the goal of the new division was to earn revenue by offering various investment products and advice services to other institutional investors.
And, while this might seem like a risky but potentially smart move for Imation, it’s important to keep in mind where the company currently stands. Recently, it announced that it is selling off non-core assets, which is typically the sign of a company in trouble. It also has a rapidly declining share price and, if things don’t turn around for the company soon, it could be taken off the New York Stock Exchange List. It seems pretty obvious that this new move to establish an investment advisory service is likely a last-ditch effort from a failing company, which doesn’t exactly bode well.
Imation itself, of course, isn’t exactly phrasing things quite that way. The company has simply stated that, early last year, its Board of Directors approved its idea to invest as much as 25% of the company’s cash flow in investment funds. The goal of all of this, as Imation has stated publicly, is to create risk-adjusted return rates and keep liquidity established.
While these plans have obviously been in the works for quite some time, it wasn’t until February 8th of this year that Imation actually entered into its subscription agreement. Under the terms of the agreement, the company can invest up to $20 million of its cash flow into the Clinton Lighthouse Equity Strategies Fund, which is controlled by the Clinton Group. It’s also important to mention that Joseph De Perio, the chairman of Imation, is currently employed as senior portfolio manager with the Clinton Group.
While a lot of things are shocking about this new development, perhaps what is most shocking is that this company, which is capitalized at far below $25 million, somehow has around $80 million to invest.
And of course there’s the whole issue of De Perio’s connection with the matter. Imation, officially, has said that its Board of Directors did approve the investment but had De Perio abstain from the vote, a move that seems more than a little fishy to most.
Of course, only time will tell how all of this will play out, but, for now, let’s just say that Imation’s recent decisions have definitely captured the attention of many.