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Investor wants greater say in Peregrine's operations

Napa Valley millionaire holds 13 percent stake

By Kim Peterson

July 9, 2002

While other investors see big problems with Peregrine Systems, Mark Nelson sees opportunity.

The Napa Valley millionaire has spent more than $25 million on Peregrine shares since May 6, when the San Diego company said it had overstated as much as $100 million in revenue.

His voracious appetite for Peregrine stock bewildered the investment community. Nelson appeared seemingly out of nowhere, and his motives were unclear.

Nelson said he has been following Peregrine for the past year, waiting for the right time to invest. The company is undervalued, and has good software and a good market position, he said. When the stock tanked in May, he jumped at the chance.

Yesterday, Nelson said he has raised his ownership to 13 percent of Peregrine and now wants a seat on the board of directors.

He said he has developed a plan to get Peregrine back on its feet, which sets several goals for the company, such as disclosing its financial situation, focusing on its core business and exploring a spinoff or sale of its Remedy division.

Peregrine responded yesterday with a terse news release that said it will not comment on the specifics of Nelson's proposals, but will hold further discussions with him "under the appropriate circumstances."

Nelson said that he has spoken with two members of Peregrine's board – chief executive Gary Greenfield and chairman John Moores – about joining the group. Both were receptive to the idea, and suggested Nelson meet the other five board members.

Five directors have left the board since early May, including former chief executive Stephen Gardner and former chief financial officer Matthew Gless. Both resigned when news of the accounting problems became public.

Also gone from the board are Rod Dammeyer, who chaired Peregrine's audit committee; Barry Ariko, who was chief executive of a company called Extricity that Peregrine acquired last year; and William Richardson, a former secretary of energy who is running for governor of New Mexico. Richardson is Gardner's brother-in-law.

Nelson said he plans to meet the rest of the board over the next couple of weeks. The board must vote in a new member.

Nelson said he was originally a passive investor in Peregrine, but recently changed his mind in an effort to get investors to focus on the company's business and not on its accounting-related scandals.

Since early May, Peregrine has come under formal investigation by the Securities and Exchange Commission. It has also fired auditor KPMG and faces possible delisting from the Nasdaq stock market for failing to submit financial reports on time. Peregrine is scheduled to appeal its possible delisting in a hearing July 25.

Nelson said he also became more active to protect his investment in Peregrine, the value of which has fallen in recent weeks. He and his wife, Dana Johnson, have bought 22 million shares since May 6 at prices ranging from 87 cents to $1.61. Peregrine shares fell 7 cents yesterday to close at 56 cents.

Self-made millionaire
Nelson, 44, is a soft-spoken father of toddler twins, a vineyard owner and a musician who has a master's degree in English literature. He is a self-made millionaire who, along with his wife, has started a foundation to promote classical music and provide housing for migrant farm workers in Napa Valley.
He had never touched a computer before age 24, when he was fresh out of school and searching for work.

He took a job with a company that was consulting to the pharmaceutical industry, and began using a medical information database called Medline. Searching the database was difficult, and Nelson began learning computer programming and set out to create a better way to search Medline.

He started his own company, called CD Plus, in 1998 out of a one-bedroom apartment near Spanish Harlem in New York. As the business grew, he rented adjacent apartments to hold employees, computers and folding chairs. Workers hopped from one fire escape to another to get around.

Former co-workers said Nelson was not a typical chief executive. He was more of a software guru who would rather talk to employees one-on-one than lead a group.

"Mark is a very shy person," said Debbie Hull, whom Nelson hired in 1990 to take over the day-to-day operations of the company. "Talking to the outside world is painful to him."

Hull played a big role in taking the company public in 1994 because Nelson hated persuading investors to buy into CD Plus. He preferred to be the strategic visionary who looked at the company's big picture – its place in the software industry and where it should be.

Nelson renamed the company Ovid Technologies in 1995, partly to show that the company had moved beyond the CD-ROM format. The company's namesake is a Roman poet whose most famous work, "Metamorphosis," celebrates change.

The company capitalized on the Internet and developed ways to do online searches of various text databases. Its products were used by universities, hospitals, pharmaceutical firms and government agencies.

Nelson sold Ovid to a Dutch publishing company called Wolters Kluwer in 1998 for $200 million in cash. Nelson personally got about $100 million from the deal.

He and his wife, whom he met at Ovid, bought a vacation home in Napa Valley that eventually became their main residence. They are starting a vineyard near the property, and plan to make red wine. He has become a stonemason, and breaks up large rocks from the vineyard to build walls and decorate his home.

Nelson's friends say he never does anything halfway. He decided to learn the piano when he was in his late 30s, and practiced up to three or four hours a day. The same determination helped him learn computer programming.

"He'll start focusing on something and work on it until he gets it how he wants it," said Jeff Hoerle, a painter in upstate New York who worked with Nelson at Ovid.

He invests with the same zeal, and said he keeps track of every major software company.

"If it's a software company with more than $200 million in revenue, it's on my radar screen," Nelson said. He has a pattern, which some might consider risky, of buying shares in companies that are suffering.

He bought a large stake in Network Associates at the end of 2000. Back then, the company reported revenue that was way below expectations. The stock price was once above $60, but had dropped to $4. Top executives resigned and shareholders filed numerous lawsuits.

A year later, the stock price had bounced back to nearly $30. Nelson said he usually buys less than 5 percent of a company when he invests – anything more may require regulatory filing – but Peregrine was ripe for a greater investment.

Nelson usually invests in technology stocks, and looks past the moment-to-moment fluctuations that make some investors panic, said his wife, Dana Johnson.

"He doesn't want to go invest in the steel industry because he doesn't understand how that works," she said. "He keeps up with the software industry and understands the big trends and pictures."

Nelson said Peregrine leads the market in some aspects of its business, and has customers who have made huge financial investments in Peregrine's software and want to see the company thrive.

Peregrine's technology is first-rate, Nelson said, and the company has no competition on some levels. Another company can't rise up overnight and steal Peregrine's business, he said.

"That's where I see the intrinsic value of the company," he said. "You can't just go out tomorrow and say, 'Let's build a new Peregrine.' You can't go to Peregrine customers and say, 'Make the switch.' "

Peregrine's market capitalization is less than $110 million. The company has many assets, and the board needs to take steps to boost the company's value, he said.

"This certainly is going to be a very trying time for them, but they'll get through it," he said of Peregrine.

Kim Peterson: (619) 293-2022;

Copyright 2002 Union-Tribune Publishing Co.


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No. of Recommendations: 0
I certainly agree with this guy on the technology, their "moat" and the desire of their customers for them to stay in business. Something to watch here though is that a big investor like this can come in with cash and force the value of the stock to zero sucking up all the valuation for himself. Even if you are a believer, this is a very, very risky stock.

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Thanks for the post.

I tried to check out Peregrine's latest balance sheet, but could not get to their website ( Is the website down? This is a bad sign.
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There website is up, but you might as well go directly to the financial source,
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a big investor like this can come in with cash and force the value of the stock to zero sucking up all the valuation for himself.

Can you explain this?

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Thank you for the info. Accroding to the last report on the Edgar site, PRGN has $180 mil in cash in Dec 31, 2001. That's considerably more than market value. Is most of that cash gone? Or is a peregrine stock a 50cent price on a dollar bill?
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Yes, the cash is gone. If you read the 8-K filings since the last financial statement you will see that they have needed to secure short-term financing from a rather high-risk source, namely Foothill Capital. Reading this document will show that the EBITDA requirements which are steep. In the press and PRGN's last conference call it was apparent that the full value of this loan was completely drawn down for letters of credit, etc.
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"a big investor like this can come in with cash and force the value of the stock to zero sucking up all the valuation for himself.

Can you explain this?


There are themes, fugues and variations on this but basically the investor puts in his money and stock is issued to him so that he now owns, say, 90% of the business. The public common then takes a 90% hit to the downside. XO Communications and Wyndom are historical examples if you want to look a little deeper into it.

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