Friday, July 06, 2007

Is a Super-Secretive Hedge Fund Targeting Flamel Technologies (FLML) for Activism?

There was talk going around today on Flamel Technologies SA (Nasdaq: FLML), suggesting the company was the target of shareholder activism by a firm named Redwood Asset Management L.P.

We have gotten our hands on a copy of the letter that was floating around (see below).In the letter, Redwood urged the company to hire a banker to explore a possible sale and suggested that GlaxoSmithKline (NYSE: GSK) and a number of other parties would be interested in acquiring Flamel at a significant premium to the current market price.

Here is where it gets strange. There was no 13D, or other filing. No press release. And we can't find out who Redwood Asset Management L.P. is.

Going through the list of FLML holders, Redwood Asset Management L.P. is not listed. There is a firm based in Canada named Redwood Asset Management, whose President/CEO Jonathan Clapham told us that it was not them that sent the letter. Clapham said "if we owned 950,000 shares of a $22 stock I think I would remember."

An SEC search of "Redwood Asset Management" revealed a firm in New York that has just three SEC filing, with the last one being in 2001. Directory assistance did not show a firm named Redwood Asset Management in New York.

It is possible that a hedge fund can be flying under the SEC radar if it manages less than $100 million, which is the requirement by the SEC to file quarterly 13Fs disclosing their positions. A 950,000 share FLML stake, as the letter states is owned, at $22 per share, would be worth about $21 million dollars. This would suggest - if the letter is true and the fund falls below the $100 million threshold - the position would occupy more than 21% of the portfolio - not a diversified portfolio by any means.

There is also a firm named Redwood Asset Management in Norway, but the last SEC filing on the company was 1998 and no other information could be found on this fund.

No one at Flamel, which is based in France, was able to shed light on the situation.

Calls to various funds, including the other fund mentioned in the letter, OSS Capital's (which does own a 23% stake), led nowhere.

Is Redwood Asset Management L.P. a super secretive activist hedge fund or was the letter written by a scamster. It looks like the letter has some valid points regarding Flamel, but some light needs to be shed on the writer.

Shares of Flamel Technologies closed up 3.3% to $22.15 on Thursday.

"July 4th, 2007

Mr. Stephen Willard, CEO
Mr. Elie Vannier, Chairman
Mr. John Vogelstein
Mr. Lodewijk De Vink
Mr. Cornelis Boonstra
Mr. Frederic Lemoine

Dear Mr. Willard and the Board of Directors:Our firm has been a significant shareowner in Flamel Technologies (FLML-NASDAQ) for the past four years. We, along with most other institutional shareholders lost confidence in the previous management team, who constantly promised new licensing agreements as a means of creating shareholder value, and never delivering on this promise. It is against this back drop that we voted our 950,000 shares of Flamel stock in favor of OSS Capital's slate of nominees to replace the previous Board of Directors.

It was represented by the current management team that the major impediment in getting new licensing deals closed was our previous Chief Executive Officer, Mr. Gerard Soula. Once he was replaced, it was stated, a number of deals that were pending would close "shortly". It is now over two years later and still not one new licensing deal has been announced. More importantly, we continue to burn through tens of millions of dollars of shareholders' capital and the stock price is materially lower than it was on January 1, 2004.

The recent FDA approval and subsequent launch of Coreg CR by GlaxoSmithKline should have been a defining event in this company's history. It should have dramatically increased the company's profile with both major pharmaceutical companies and on Wall Street. It seems that neither of these events has occurred. Over the past few months, as I'm sure you are aware, the company has been the subject of a significant number of false rumors. Additionally, the short interest in the stock has grown from approximately one million shares to approximately five million shares currently. The response from our management team and this Board of Directors to these developments has been a deafening silence.

In our twenty five years in the investment business, we have never seen a hostile proxy contest take place where a Board of Directors is replaced by a Board who turns out to be even less shareholder oriented than the Board that they have replaced. It is truly a disgrace that this Board has not permitted formal earnings guidance to be issued by management, as this would address many of the false rumors that currently exist in the marketplace. Additionally, it is an outrage that this company has still not yet figured out a way to repurchase stock in the open market. This is despite the fact that the Board instructed management to do so approximately eight weeks ago.

It is clear that a new direction is required at Flamel. The long suffering shareholders' wishes that the values inherent in this company be "unlocked" have been ignored long enough. The current Board was brought in to create this value and they have failed in this task. Flamel currently trades at approximately 5.5 times 2008 earnings per share (according to the estimate put forth by OSS Capital). Medimmune, Inc. agreed to be acquired by Astrazeneca recently at 39 times its 2008 earnings estimate. Medimmune's Board engaged Goldman Sachs to explore the sale of the company, among other strategic alternatives "because of interest from drugmakers and pressure from shareholders. The combination of buyout interest and unhappy shareholders all forced the Board to pursue this action". We believe that this Board finds itself in a similar situation. We believe that GlaxoSmithKline and a number of other parties would be interested in acquiring Flamel at a significant premium from the current market price.

We are calling on this Board to immediately fulfill the task for which they were installed over two years ago, namely, to maximize the value for the benefit of all of Flamel's shareholders. An investment bank should be retained at once to explore all strategic alternatives and to maximize values immediately. These advisors should explore both the outright sale of the company and the monetization of the Coreg CR royalty stream, with the balance of the pipeline spun-off to existing shareholders in a new equity security.

Should these actions not be taken in a timely manner, we will consider all alternatives available to us.

Redwood Asset Management L.P."

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Blogger MJAB said...

Very interesting article. Can you reveal some additional details of how you got a hold of the letter?

6:14 AM  
Blogger Lon said...

A sell-side analyst sent us the letter.

6:28 AM  
Blogger Bill Luby said...

Fascinating story. Thanks for flagging this one. It certainly will be interesting to see how this plays out.

8:14 AM  
Anonymous tk said...

Web search shows that there is a Redwood Asset Management LP @ 1038 Lake Avenue in Greenwich CT; same address as Braverman Asset Management.

9:51 AM  
Blogger Lon said...

Thanks for the lead TK. I just tried to find a listing in Redwood or Braverman in CT and got nothing.

I also forgot to mention in the article there is a firm named REDWOOD CAPITAL MANAGEMENT, LLC in NJ. I called them yesterday and it is not the correct firm.

If anyone has more info please share.

FLML shares are on the rise again today up 5%

10:12 AM  
Anonymous tk said...

Try Could be old.

Found this PDF brochure on Strook website (search "Redwood"):

10:36 AM  
Blogger Lon said...

On the > That appears to be the same fund as the the SEC list. A 2001 13G filing also mentions Steve Braverman, but that is the last filing. And no company by that name operates at the former address:

SUITE 3900

I tried to call Stroock & Stroock but got nowhere so far. But this may be a good lead to follow.

11:01 AM  
Blogger Lon said...

Talked to marketing department at Stroock & Stroock lawfirm. They would not say if Redwood Asset Management, L.P. (Steven Braverman) was a current client. The also would not give me the partners name that does/did handle the firm.

But this is interesting from the law firm's brochure where Redwood is listed. "In addition to regulatory compliance work, our services include assistance in structuring securities and other investment products, such as real estate investment trusts, seeking to avoid registration under the Investment Company Act of 1940."

Does anyone know more about this? Can a firm be running more than $100M and avoid filing quarterly with the SEC?

11:26 AM  
Anonymous Anonymous said...

There's a REDWOODS GLOBAL ASSET MANAGEMENT, LLC in california. Search here for redwood

12:50 AM  
Anonymous Anonymous said...

I think it's Braverman. A CITADEL SECURITY SOFTWARE INC filing (05/13/2004)at the SEC lists Redwood Asset Management, L.P. as a shareholder. A footnote says "Steven
Braverman has sole voting and investment power with respect to all such shares."

The 2003 filing for Derma Sciences 10K says "Redwood Asset Management can be reached at: Ovre Ullorn Terrasse 32, 0358 Oslo, Norway." Redwood held 16% of the company at the time.

Not sure if the two are related, but if Braverman runs it out of Norway, doesn't he avoid many SEC requirements?

1:21 AM  
Blogger JoeyScoops said...

Uh, shouldn't we just look at the transcript from the last Flamel conference call?

OPERATOR: Your next question comes from Steven Braverman with Redwood Asset Management

11:34 AM  
Blogger Lon said...

Nice find Joey. Q4 conf call. I didn't see a question from Braverman for Q1.

But regardless, this proves the guy is real and is active in the stock. I have confidence now that the letter is accurate.

Q4 call Steven Braverman with Redwood Asset Management asked:

"Q - Steven Braverman: Great. Congratulations on the launch or the non-launch. Many of my questions have been answered already. I just have a real quick one for you Steve. One of your shareholders gave an interview on Barrons a couple of weeks ago and I understand, you don't give forward guidance. But you gave earnings estimates of approximately $4 a share in 2008 and $6 in 2009. Do you have any comments on these numbers?"

1:06 PM  
Anonymous tk said...

fyi...Flamel Technologies SA Third Point discloses increased passive stake to 9.2%

1:57 PM  
Anonymous Anonymous said...

The Redwood Asset Mgmt search I did for that NY address turned up the name Jay Spellman. He's a partner in apparently a not-so-secret heavy duty hedge fund called Kramer Spellman.

KS partner Orin Kramer is a BIG contributor to the DNC and has served in both the Carter and Clinton administrations. Also served in the Brendan Byrne administration in NJ.

Kramer Spellman is currently located in Englewood, NJ. Hope that helps.


5:11 AM  

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