Archive for January, 2007

Sharper Image: Nerd CEOs Destroy Shareholder Value

Who would have thought that a chain of stores that sells overpriced esoteric technocrap (all of which include some sort of ionization feature to reduce odors) and whom I associate mentally with lifesize Boba Fett statues would be run by a complete and total nerd? WATFO? points to this SEC filing made by the Sharper Image (NYSE: SHRP) which lists that former CEO negotiated to buy from the company some of his former office decorations as part of his severance, including C3PO a C3PO sculpture and a Superman statue.

Sculptures: I would like to purchase two sculptures that decorate my former office or that the Company retails. The Company will sell me the 3CPO sculpture that was in my former office for $7,500 (which is 50% of its retail price of $15,000) and a Superman for $2,500 (which is 50% of its retail price of $5,000), for a total of $10,000, which I already have paid to the Company. I will pay the Company the cost of shipping Superman to me, within 30 days after this Agreement becomes effective. I may take the 3CPO model from the Company’s office (or have it picked up at my own expense), and the Company will ship a Superman to me.

Perks come with the territory of being CEO, but would shareholders really approve of perks if they knew that they were the kind that further nerded up their company? Nerds come in all stripes, and while some nerds add value (finance nerds like me and also those red/purple nerds which create beautiful synergy in my mouth), nerds of the 40 year old virgin ilk (cipher nerds) pull it straight off the table.

Here is a chart which scientifically demonstrates the effects of a cipher nerd on the stock price of a publicly traded company. The start of the chart is approximately the point in time just before the realization that the CEO was a cipher nerd. The rest of the chart demonstrates how the market prices such a fact.

Recommendation: Given that the Sharper Image is trading at nearly a 50% discount to it’s nerd-free valuation of $20, it looks like a buy at $9.41. The market has been slow to recognize that the taint of the nerd has been lifted and we expect the battered stock to rise up to its nerd-free valuation as the market corrects itself. Additionally, there is an activist shareholder opportunity in finding companies whose CEOs watch Battlestar Galactica or keep a twenty-sided die on their desks and then taking action to affect regime change, thus realizing significant appreciation of shareholder value.

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