Friday, March 30, 2007
MLF Investments Raises Stake in La-Z-Boy (LZB) to 7%
The firm said the aggregate cost of is 3,618,218 shares is approximately $45,076,717 (about $12.46/share - stock currently at $12.72).
In the original filing, MLF Investments said they support the company's management and their plans and programs of focusing on the La-Z-Boy brand, improving manufacturing efficiency and maximizing the potential of its distribution network, the La-Z-Boy Furniture Galleries. The firm also said it is their intention to offer to help the company strategically if such opportunities present themselves.
Thursday, March 29, 2007
Pirate Capital Cuts Stake in Cornell Companies (CRN) to 8.9%
On March 5, 2007, Thomas R. Hudson Jr., the Manager of Pirate Capital, resigned as a member of the Board of Directors of the company.
Nierenberg Losing Patience with Electro Scientific (ESIO), May Nominate its Own Candidates to the Board
Nierenberg said, "In our view, the company continues to depress its return on equity (ROE), by failing to make its excess cash work harder and smarter for its shareholders, and its share price, through ineffective communication with the financial community." Nierenberg continues, "... if ESIO does not publicly commit to tangible and substantial actions to both improve ROE and upgrade the effectiveness of its financial communications, we may conclude that we have no alternative but to consider nominating our own candidates for election to ESIO's board of directors, in opposition to the two incumbent outside directors up for re-election this year, as permitted in May 2007 under ESIO's bylaws."
From the 'Purpose of Transaction' section of the filing:
We are losing patience with ESIO as its share price weakens. In our view, the company continues to depress its return on equity (ROE), by failing to make its excess cash work harder and smarter for its shareholders, and its share price,through ineffective communication with the financial community. We have commented on both of these issues in our prior 13D filings in December 2006 and January 2007 and in conversations with ESIO representatives. From what we can discern today, little seems to be changing. If our perception happens to be wrong, it could be because the process of change at ESIO is slow and invisible,in which case we believe the burden is now fairly on ESIO to prove us wrong with concrete action and persuasive communication.
On January 22 ESIO issued a press release reaffirming its commitment to shareholder value and stating that it was considering various suggestions it had received. Since then, however, the company has announced nothing.
In response to that statement, we amended our Schedule 13D to indicate, among other things, that we were prepared to be patient while the Company evaluated our proposal, a similar proposal from its largest stockholder and other input it obtained. However, we have grown tired of waiting, particularly while ESIO's share price declines. Therefore, if ESIO does not publicly commit to tangible and substantial actions to both improve ROE and upgrade the effectiveness of its financial communications, we may conclude that we have no alternative but to consider nominating our own candidates for election to ESIO's board of directors, in opposition to the two incumbent outside directors up for re-election this year, as permitted in May 2007 under ESIO's bylaws.
When we advocate "tangible and substantial" actions to boost ROE, specifically we are seeking ESIO's commitment to repurchase at least 6,000,000 of its shares as soon as possible and an ongoing commitment to repurchase at least 1,000,000more shares annually from free cash flow, asset monetization, and cash reserves.We believe other ESIO shareholders would share this preference for a largere purchase, rather than the large special dividend, which we had originally suggested.
We view the company's sluggish share price, its unacceptably low ROE, and its ineffectual financial communications as causes for shareholder concern and engagement. The thoughtfulness which ESIO has demonstrated recently in technology, product development, cost reduction, and sales and marketing does not seem to be replicated in the important areas of balance sheet management,financial strategy, and investor communications. Despite our high regard for ESIO's CEO, our respect for members of the company's board, and our enthusiasm for ESIO's technology, products, competitive position, and organic growth prospects, we are frustrated that ESIO has failed to convert these business assets, and the company's obvious financial assets, into higher ROE and a stronger share price by the kinds of actions advocated by its two largest shareholders.
We have been patient, supportive, and constructive for a long time, longer than many other professional investors might have been, out of respect for ESIO's board and management and out of a desire not to cause unnecessary confrontation in the Portland business community in which we live and work. But time is running out and the time for action is now.
Large ASM Intl (ASMI) Holder Fursa Seeks Clearance to Purchase Additional Shares
Wednesday, March 28, 2007
Loeb's ThirdPoint LLC Cuts Stake in Ligand (LGND) to 2%, Books Profits
The firm disclosed that on March 26, 2007, certain of the Funds sold 5,720,000 shares, representing 5.66% of the Common Stock outstanding, and the Management Company on behalf of such Funds entered into an equity swap arrangement whereby such Funds acquired the economic benefits, and assumed the economic risks, of owning the shares of Common Stock sold by such Funds.
On March 1, 2007, two of the Third Point Designees, Daniel S. Loeb and Brigette Roberts, M.D., resigned from the Board. Jeffrey R. Perry, also a Third Point Designee, continues as a director of the Company.
Loeb sold the 5,720,000 shares at $10.54. In the original 13D filing, Loeb disclosed spending about $54.3 million for the first 7 million shares he owned (cost basis about $7.75 per share). The firm disclosed about an $8 per share cost basis for its remaining 2 million shares.
Tuesday, March 27, 2007
Shamrock Activist Value Fund Raises Stake in ProQuest (PQE) to 7.95%
Large Bisys (BSG) Holder Okumus Wants a Board Seat
A Copy of the Letter:
To the Board of the BISYS Group:
Okumus Capital LLC currently beneficially owns approximately 10.4% of the outstanding shares of The BISYS Group (the "Company"). I am the President of Okumus Capital and I would like to join the Board of Directors of the Company.
While I have the utmost confidence in the ability and intentions of the current Board and Management, I believe that my perspective as a financial professional and representative of a significant shareholder on the Board would provide theBoard with practical insight and guidance in considering the Company's strategic alternatives.
I have attached information on my background in the investment management field. I strongly feel that my experience in identifying undervalued assets, along with my knowledge of financial engineering and capital allocation can make an immediate positive impact to the Board during this critical period.
I look forward to a response shortly.
Ahmet H. Okumus
Okumus Capital LLC
Monday, March 26, 2007
Octavian Management Discloses 5% Stake in Midwest Air Group (MEH), Would Support Higher Offer from AirTran (AAI)
In the letter Octavian Management said, "Octavian does not currently believe that the AirTran proposal reflects the full value of Midwest. We do believe, however, that under the right terms a combination of the two companies makes enormous strategic sense, may bring material synergies, and would significantly de-risk the enterprise for its shareholders, employees, and customers." The also said, "In the event AirTran were to materially increase its offer for Midwest Airlines to a level more reflective of the company’s value, we would strongly encourage and expect the board and management team of Midwest to abide by their fiduciary duties and immediately enter into good faith negotiations to effectuate a transaction."
A Copy of the Letter:
It was very nice seeing you when you were in New York. As you are aware, investment funds managed by Octavian currently own in excess of five percent of the shares outstanding of Midwest Air Group Inc. (“Midwest”) and we note the current offer from AirTran Holdings, Inc. (“AirTran”) to combine the two companies. As we expressed to you, Octavian believes that the management team of Midwest, under your leadership, has done an extraordinary job of steering the airline through a time of unprecedented difficulty in the industry while maintaining the highest standards of service to its customers. The many awards received by Midwest and its unusually high brand loyalty are a testament to its world-class product, its outstanding corporate culture and its commitment to excellence.
Octavian does not currently believe that the AirTran proposal reflects the full value of Midwest. We do believe, however, that under the right terms a combination of the two companies makes enormous strategic sense, may bring material synergies, and would significantly de-risk the enterprise for its shareholders, employees, and customers. Octavian believes that a combined Midwest-AirTran could offer a remarkable opportunity to combine the management teams of two of the best run airlines in the country, achieve significant efficiencies, and stimulate more traffic and business in Milwaukee and other core markets. Importantly, as part of a larger company, Midwest would be less susceptible to and better able to deal with the very real threat of new competitive entrants into Milwaukee and would have the benefit of much greater stability in a volatile industry.
In the event AirTran were to materially increase its offer for Midwest Airlines to a level more reflective of the company’s value, we would strongly encourage and expect the board and management team of Midwest to abide by their fiduciary duties and immediately enter into good faith negotiations to effectuate a transaction. We believe that many other shareholders would share that expectation. In the event of a combination, we would also strongly encourage the AirTran board and management to adopt best practices for the combined Midwest-AirTran, including incorporating many of the unique features of Midwest’s product, services and brand that have been developed over the last two decades. We also believe that AirTran would be well served by taking advantage of the unusually strong insight of Midwest’s team by inviting you and other members of the Midwest board and management onto the combined board of directors.
Thank you again and I look forward to speaking with you soon.
Chief Executive Officer
EDGAR (EDGR) Holder Regan Partners To Drop Plans for a Proxy Fight
BlueLine Capital Books Some Profits in Sonic Innovations (SNCI)
Investor Group Offers to Acquire Riviera Holdings (RIV) for $27/Share
In an amended 13D filing on Riviera Holdings (AMEX: RIV), an investing group led by Paul Kanavos, Robert Sillerman, Brett Torino and Barry Sternlicht sent a letter to the company proposing to acquire the company for $27 per share.
The group said the merger agreement has substantially the same terms as the April 5, 2006 merger agreement.
A Copy of the Letter
Dear Members of the Board:
We are pleased to advise you that the private investment group that owns RivAcquisition Holdings Inc. proposes to acquire all of the issued and outstanding stock of Riviera Holdings Corporation at a price of $27.00 per share in cash.Subject to the conditions described below, we are prepared to immediately enter into a merger agreement with Riviera on substantially the same terms as the April 5, 2006 merger agreement between our acquisition vehicles and Riviera. We believe that our proposal has the support of other large stockholders, whom we understand have contacted you directly to confirm the same. We are also prepared to quickly provide to the Board commitments for the necessary financing to complete the proposed transaction.
Our proposal represents a significant premium to Riviera's recent trading price.It also represents an even greater premium to the share price of $12.66 on February 14, 2005, the day before Riviera announced that it had hired Jefferies & Co. to explore strategic alternatives, as well as to the share price of $13.42immediately following Riviera's announcement on November 8, 2005 that it had terminated its strategic process. Our offer also represents a multiple of 13.5times 2006 EBITDA. Accordingly, our investment group believes that our offer is in the best interest of Riviera's stockholders, and we hope that the Board will see fit to accept it.
Our investment group is led by Paul C. Kanavos and Robert Sillerman, the managing members of New York-based Flag Luxury Properties, LLC, 30-year LasVegas-based real estate developer Brett Torino and Barry Sternlicht, Chairman and CEO of Starwood Capital Group.
Our proposal is conditional upon the Board (1) amending Riviera's bylaws to provide that control share acquisition and business combination provisions of the Nevada corporate statute do not apply to further acquisitions of shares by our investment group and (2) waiving the application of the voting restrictions contained in Riviera's articles of incorporation regarding "substantial stockholders" with respect to our investment group. We will also require Riviera's cooperation in order to update our due diligence review of the company, which we last conducted in connection with the April 5, 2006 merger agreement, and which we believe can be completed expeditiously.
The conditions to closing the proposed transaction would be substantially the same as were contained in the April 5, 2006 merger agreement. These conditions include obtaining all necessary approvals from the gaming authorities in Nevada and Colorado. In order to ensure rapid completion of the merger, we are currently examining structuring alternatives that might minimize the need for gaming approval prior to closing. The principals of our investment group have already filed gaming license applications in both Nevada and Colorado, with the exception of Robert Sillerman, who will be filing the same shortly. The conditions to closing will not restrict Riviera's ability to refinance its outstanding secured notes, provided that the refinancing is made on market terms and without prepayment penalty, defeasance or premium, nor do we otherwise intend to restrict Riviera's ability to conduct its business in the ordinary course while the merger is pending. Our investment group is prepared to assist Riviera in refinancing its outstanding secured notes, and intends to redeem or otherwise repay all of Riviera's such notes or any successor notes or other indebtedness upon completion of the merger. We are also prepared to honor the salary continuation packages currently in place that have been negotiated with management as well as the change-of-control provisions in all currently outstanding stock option awards.
Our investment group believes that time is of the essence and requests that a meeting or a conference call be scheduled as soon as possible with representatives of the Board in order to discuss our proposal and set a timetable for swift execution of a merger agreement. Please respond to us by5:00 p.m. PST on March 30, 2007. If we do not receive a response by such time,we will have to assume that the Board does not wish to discuss our proposal any further.
We look forward to working together with the Board to arrive at a transaction that will substantially benefit Riviera and its stockholders.
Very truly yours,Paul C. Kanavos
Thursday, March 22, 2007
Will Be Out Today and Tomorrow
I hope you are enjoying the site.
Wednesday, March 21, 2007
Loeb's Third Point LLC Raises Stake in PDL BioPharma (PDLI), Wants Four Board Seats, Retain Consulting Firm
Loeb also disclosed a new letter to the company's CEO, requesting four candidates be added to the Company's Board of Directors. Loeb also stated that he had been in discussions with a prominent consulting firm and that he would like the Board to retain that firm to review corporate and research and development spending. Loeb demanded, in the transmission, a definitive response from the CEO and the PDLI board, by the close of business on Thursday, March 22nd, as to whether they have agreed to add the four to the Board.
Chapman Capital Demands Embarcadero Technologies (EMBT) Director Haroian Resign
Chapman Demands Independent Audit of eSpeed (ESPD) - Cantor Fitzgerald Agreement
Chapman Capital also reiterated its demand that the value of eSpeed's Class A shares be maximized via conversion of all Class B common shares into Class A common stock, followed by the full scale auction of the Company.
Tuesday, March 20, 2007
Note to Management: Don't Swear At Robert Chapman
Sandell Asset Management Intends to Nominate 3 To InfoSpace (INSP) Board
Sandell's said the notification follows a letter to the company earlier this week expressing concern over the lack of capital return to shareholders from InfoSpace's large cash balance and complacency over cost controls. Specifically, Sandell asked the Company to immediately return $300 million of cash in the form of a $200 million Dutch tender offer at a premium to the current share price and a $100 million special dividend. Sandell also asked the Company to cut an additional $15 million of costs to improve the profitability of its remaining operations after the restructuring of its mobile division. Further, Sandell has suggested that the Company engage a financial advisor to evaluate the potential sale of the Company in whole or in part.Sandell Asset Management recently disclosed an 8.8% stake in InfoSpace.
InfoSpace commented on the announcement by Sandell Asset Management and said it will present recommendations regarding its nominees for directors in the Company's definitive proxy statement, which will be filed with the SEC and mailed to all shareholders eligible to vote at its 2007 annual shareholders meeting.
Blum Capital Accumulates 6.6% Stake in Websense (WBSN)
In a pretty standard disclosure, Blum Capital said it may engage in communications with one or more shareholders of the Issuer, one or more officers of the Issuer and/or one or more members of the board of directors of the Issuer and/or one or more representatives of the Issuer regarding the Issuer, including but not limited to its operations.
SAC Capital Boosts Stake in WCI to 9.5%, May Engage in Discussions with Management
In the filing, SAC said, "The Reporting Persons have reviewed public information regarding the potential proxy contest and unsolicited tender offer by Icahn Partners LP and others, and regarding the Issuer’s process of reviewing financial, strategic and operational alternatives (including a potential sale of the Issuer). The Reporting Persons intend to review their investment in the Issuer on a continuing basis and may engage in discussions with management, the Board of Directors, other shareholders of the Issuer and other relevant parties concerning these matters and potentially concerning other matters with respect to the Reporting Persons’ investment in the Common Stock, including, without limitation, the business, operations, governance, management, strategy and future plans of the Issuer."
WCI Communities is currently reviewing strategic options and Carl Ichan recently announced an unsolicited tender offer to acquire any and all of WCI's outstanding common stock for $22.00 per share.
Monday, March 19, 2007
Usual Suspects Not Seen For BEA System (BEAS) Activism
Barington Capital Discloses 5.2% Stake in Lancaster Colony (LANC), Request Divestitures and $300M Buyback
UPDATE: Constellation Software Said Raised Offer for Manatron (MANA) Rejected, Lowers Stake
Activist Updates: ABN AMRO (ABN) and Take-Two Interactive (TTWO)
Take-Two Interactive Software, Inc. (NASDAQ: TTWO) is higher after the company said it postponed its annual meeting, saying it needs additional time to review the proposed actions of an activist shareholder group and also to evaluate alternative courses of actions that could potentially be presented to the shareholders, including a possible sale of the Company. Recently, the shareholder group of SAC Capital, OppenheimerFunds, D. E. Shaw and Tudor Investment said they will vote to elect six members to the board of directors and vote to reduce the size of the Board from nine to six.
Tennenbaum Capital Liquidates Large Jo-Ann Stores (JAS) Stake
MMI Investments Raises Stake in Unisys (UIS) to 7.1%
Friday, March 16, 2007
Large TLC Vision (TLCV) Holder Glenhill Advisors Concerned About Underperformance
In the letter the firm said, "We are concerned that TLC Vision is currently underperforming in a variety of respects and that if it continues on its current course, TLC Vision’s business and financial prospects may be significantly negatively impacted, and the availability of any viable strategic alternatives may be significantly limited, as a result."
Glenhill said, "Although we have no intention at this time to take any particular action ... we are exploring all of our options."
A Copy of the Letter:
Dear Mr. Vamvakas:
As you are aware, Glenhill Advisors, LLC and certain of its affiliates beneficially own, in the aggregate, approximately 13.9% of the outstanding common stock of TLC Vision Corporation.
As we do with each of our portfolio companies, we are carefully monitoring the business, operations and financial performance of TLC Vision. We are concerned that TLC Vision is currently underperforming in a variety of respects and that if it continues on its current course, TLC Vision’s business and financial prospects may be significantly negatively impacted, and the availability of any viable strategic alternatives may be significantly limited, as a result.
Therefore, we intend to continue to review carefully our investment in TLC Vision and in the near term may seek to engage in discussions with TLC Vision’s management and Board of Directors with respect to TLC Vision’s business, operations, financial condition and prospects, and the potential to increase shareholder value through improved operations and strategies, which may include potential strategic alternatives. Although we have no intention at this time to take any particular action, in the course of monitoring our investment we are exploring all of our options, including with respect to corporate governance and management and Board composition. In connection with the foregoing, we may also seek to engage in discussions with other stockholders of TLC Vision and other relevant parties concerning the business, operations, strategy and future plans of TLC Vision.Sincerely,
Glenn J. Krevlin
RLR Capital Raises Hypercom (HYC) Stake to 5.1%, Wants Repurchase, Curtail of Acquisition Plans and Possible Sale
The firm also disclosed a letter to the company urging the company to repurchase up to 18 million of its outstanding Shares, curtail acquisition plans until improvements are seen in the core business and, if operational improvements fail to show progress in 2007, commence a review of strategic alternatives, including a possible sale.
A Copy of the Letter:
Dear Messrs. Diethelm and Keiper:
RLR Capital Partners and RLR Focus Fund, L.P., are shareholders of Hypercom Corporation, owning 2,709,745 shares, which approximates 5.1% of shares outstanding. We became owners of Hypercom during 2006.
RLR established its initial position in Hypercom because we felt the company's prospects were not being adequately valued by the markets. We were attracted by your meaningful market share of POS products, your new product pipeline, the strong macro trends in the industry, your promising relationship with both Symbol Technologies and Motorola, the energy of new members of your senior management team, the opportunity for meaningful gross profit and operating margin improvements and your share repurchase history. The dialogue that we have had with senior management, both at the company's headquarters in Phoenix and in numerous phone conversations, as well as our own industry research, have increased our conviction that there is significant value resident in Hypercom. Further, we believe that the strategy that management was pursuing in late 2006,of focused product-oriented top-line expansion, cost cutting through manufacturing and operational efficiencies, and the use of cash for share repurchases, was the correct plan for unlocking that value.
We are now troubled, however, by management's new strategy, as detailed on Hypercom's March 7th, 2007 earnings call. Specifically, management talked about the company's intention to use its cash position, plus cash generated from the monetization of low-return assets such as the company's headquarters building and land in Phoenix, to grow through acquisition in the terminal services market. Further, you stated that, "while tempting", the company would not use cash to repurchase shares.
We believe that such an open-ended acquisition strategy is the wrong use of cash for the company today. Rather than burden your shareholders with the execution and integration risks attendant with acquiring potential growth outside of the company's core competencies, we believe that there is no better investment that the company could make right now than repurchasing its own shares. Indeed, with shares currently trading at 4.5xEV/EBITDA (2007E), a significant discount to comparable industry multiples (detailed below), your shares represent the most attractive investment opportunity in the electronic payment terminal industry. What better opportunities could there be? We urge you and the other members of the Board of Directors to have the company pursue an immediate repurchase of one-third of its outstanding shares. Such a transaction could be financed entirely by the cash and short-term investments on the company's balance sheet(using approximately $61 million of the $81.4 million as of December 31, 2006,and leaving $20 million for working capital purposes) and the after-tax proceeds from the sale of the building and land in Phoenix (approximately $25 million, which could immediately be accessed by borrowing against the value of the real estate). With this $86 million, you could repurchase nearly 18 million shares, out of approximately 53 million outstanding, based on the average closing price since the March 7th call.
In addition to the use of cash required for such an acquisition strategy, we are also concerned about the use of management's time and focus, when there is still so much work to do improving the core business. The company has made important strides in taking costs out of the business, both in the cost of goods sold and in operating expenses. But management must continue to focus on product development, certification and sales in order to grow revenue and truly demonstrate the operating leverage in the company's business model. Further, while Hypercom's operating margins should approach or exceed 10% this year, after several years of low-to-mid single digit margins, these margins still significantly trail the industry. While scale advantages may explain why competitor VeriFone Holdings, Inc. has margins exceeding 20%, Lipman Electronic Engineering (see more below) also had operating margins approaching 20% on a very similar revenue base to Hypercom's, prior to Lipman's acquisition by VeriFone. The company's efforts in the sales and margin areas are too important to have management's attention diverted away from them. To put this opportunity into perspective, based on our projected 2008 revenue for Hypercom of at least$340 million, each incremental 100 basis points of margin improvement yields approximately $0.10 of incremental EBITDA/share, giving effect for the reduced share count from the buyback described above. Using a range of EBITDA multiples of 8-12 times (described further below), each incremental $0.10 of EBITDA/shareis worth $0.80-1.20/share in valuation, which is significant given your current share price. If Hypercom can achieve margins similar to those of Lipman when it was acquired (i.e., 20% in 2008 vs. projected 10% in 2007), then the incremental1000 basis points of margin improvement would yield an additional $1.00/share of EBITDA, which would be worth $8.00-12.00/share, or $280-420 million in total.You would be hard-pressed to make a case that you could achieve similar value creation using the $86 million described above for an acquisition strategy that is fraught with risk and management distraction, particularly when the two levers needed to create significant value, share repurchases and continued margin improvement, are largely under your control.
Lastly, if the company is not able to achieve its targets of mid-teens sales growth and low double digit operating margins in 2007, we believe the Board should conduct a review of strategic alternatives for the company, including a possible sale. There is a history of successful acquisitions in your industry,both by large equipment manufacturers and private equity firms, and a brief look at industry valuations will show why this tack could unlock value for Hypercom.In April 2006, VeriFone Holdings, Inc. entered into a definitive agreement to acquire Lipman Electronic Engineering for approximately $793 million; that deal closed on November 1, 2006. This transaction combined the #2 and #3 players in the electronic payment terminal industry, by market share and revenue, to create a new #1 player, VeriFone. When Lipman was acquired, it had approximately $270million in revenue, and was acquired for approximately 12 times current year(2006) EBITDA and 10 times forward year (2007) EBITDA. In 2007, Hypercom should generate more than $280 million in revenue, or slightly more than Lipman had when it was acquired, and should be able to generate $35 million in EBITDA, as the operating leverage inherent in the company's business model becomes more evident in the second half of 2007. Further, in 2008, we believe that Hypercom could generate at least $340 million in revenue and $45 million in EBITDA. Basedon the Lipman acquisition multiples, and using the lower Hypercom share count of35 million, Hypercom would have a value of $420-450 million, or approximately$12-13 per share. In addition to these values, of course, would be the incremental free cash flow that the company will generate in 2007 and 2008,which could be $30 million, or nearly another $1.00 per share of value.(Further, Lipman was purchased for three times current year revenue; such a multiple would imply a value of $24 per share for Hypercom!). The current #2 player in the industry, Ingenico, trades at over 10times 2007 EBITDA and over 8 times 2008 EBITDA. At these lower multiples,Hypercom would be worth at least $350 million, or $10 per share (again before the free cash flow benefit). These values are significantly in excess of the current share price. Further, we believe that there are over $20 million of costs that an acquirer could take out of Hypercom's cost structure, which at a comparable multiple to those described above, would alone be worth your entire current enterprise value. Surely the value of nearly $300 million of revenue and the intellectual property surrounding the next generation of products in development are additive to this value.
Let's summarize our suggestions:
1. Immediately commence a buyback or tender offer for up to 18 million shares.
2. Curtail your acquisition plans until improvements are seen in the core business.
3. Should operational improvements fail to show progress in 2007, commence a review of strategic alternatives including a possible sale of the company.
It is our intention to continue to discuss our ideas with management and hope to expand our dialogue to include the board as well. We also intend to speak to other shareholders and build a strong consensus of opinion in support of our value creating ideas.
Very truly yours,
Robert L. Rosen
Barington Suggests Spin-Off or Sale of Griffon (GFF) Telephonics Subsidiary and Buyback
In the letter the firm said, "We believe that Griffon's current stock price does not reflect the intrinsic value of the Company's operating divisions. In particular, it is our belief that the market has been undervaluing the Company's Telephonics subsidiary as well as what we view to be Griffon's core businesses - Garage Doors and Specialty Plastic Films."
Barington said, "we believe that the Company's Telephonics subsidiary should be valued at 9-12 times its Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA), or approximately $400 - $550 million." Barington suggested a initial public offering, a tax-free spin-off or an outright sale ofthe subsidiary.
Barington also encouraged the Company to incur additional indebtedness and use the proceeds to repurchase stock, saying the company is under leveraged. The company said with debt and excess cash they could repurchase 15-20% of the Company's outstanding shares.
Barington also recommended cost reduction initiatives, divestiture of installation services and improved corporate governance.
A Copy of the Letter:
Dear Mr. Blau:
As you know, Barington Companies Equity Partners, L.P. and certain of its affiliates currently own over 5% of the outstanding common stock of Griffon Corporation.
We believe that Griffon's current stock price does not reflect the intrinsic value of the Company's operating divisions. In particular, it is our belief that the market has been undervaluing the Company's Telephonics subsidiary as well as what we view to be Griffon's core businesses - Garage Doors and Specialty Plastic Films.
As I am sure you are aware, Griffon's shares have been range-bound during the Company's last three calendar years (trading between approximately $18.50 and$28.50 per share) despite the strong performance of the stock market during this time period. For example, while the Russell 2000 Index increased 44.5% from January 1, 2004 through the close of trading on Wednesday, March 14, 2007, Griffon's stock price rose by only 18.2%(1).
As we disclosed in our Schedule 13D filing made last month, we are interested in discussing with you a number of measures that we believe will improve shareholder value for the benefit of all Griffon stockholders. We have therefore been disappointed that you have not returned our telephone calls to you seeking to schedule a mutually convenient time to discuss these measures in detail, which we have summarized for you below.
Unlock the Value of Telephonics
Based upon our analysis of publicly traded defense electronics companies as well as recent M&A activity in the industry, we believe that the Company's Telephonics subsidiary should be valued at 9-12 times its Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA), or approximately $400 -$550 million. Unfortunately, the market has not given the Company full credit for the value of this business, currently valuing Griffon as a whole at anEV/EBITDA multiple of approximately 7.0x.
According to public statements by Griffon's management team, it appears that the Company recognizes this disconnect. For example, during the Company's August 3,2006 earnings call, management responded to a question about Telephonics by saying:
"... are we getting full value for it from a public perspective? Probably not."
It is our hope that you will take action to address the "conglomerate discount"that is impacting this business. It is our recommendation that the Company pursue an initial public offering, a tax-free spin-off or an outright sale of the subsidiary so that the Company and its stockholders can more fully realize the value of Telephonics.
Increase Share Repurchases
While the Company has a history of repurchasing its common stock, in light of the current trading range of the Company's shares, we believe that now is the time for the Company to be aggressively repurchasing its stock.
We encourage the Company to incur additional indebtedness and use the proceeds to repurchase stock, similar to the $50 million repurchase of shares that the Company consummated in July 2003 in connection with the issuance of $130 million of 4% Contingent Convertible Subordinated Notes due 2023. With a Net Debt/Trailing Twelve Months EBITDA multiple of approximately 1.4x, we believe that the Company is under leveraged. This is even more pronounced if one believes that the 4% EBIT margin realized in Specialty Plastic Films in Fiscal 2006 can improve and that the Garage Door segment can return to historical levels of growth and profitability.
If the Company increases its leverage to what we view to be a more reasonable level (a Net Debt/TTM EBITDA multiple of approximately 2.5x), we believe that it could raise approximately $110 million in new indebtedness. It is our belief that such debt, along with approximately $20 million of excess cash, would be sufficient to repurchase 15-20% of the Company's outstanding shares. Our analysis indicates that such a buyback (at a meaningful premium to the Company's recent stock price) would be accretive to the Company's earnings per share.
Pursue Cost Reduction Initiatives
While we applaud the reduction of the Specialty Plastic Films' workforce in Fiscal 2006 that is expected to result in approximately $5 million of annual cost savings, we believe that further reductions in the Company's cost structure are necessary. Given that Garage Doors has recently experienced pressure on both revenues and earnings, we believe that the Company should particularly focus on reducing expenses in this business.
Divest Installation Services
While Griffon's main operating divisions are primarily composed of higher market share, higher margin businesses, the Company's Installation Services business is an exception, with lower margins and market share than those enjoyed by most of the Company's other operating divisions. Furthermore, as the performance of this business is tied to new residential construction, it is exposed to the volatility of the housing markets. Given that this segment represents only 8.8%of Griffon's 2006 Operating Income (before unallocated amounts), we believe that the Installation Services Business should be divested.
Improve Corporate Governance
It is our belief that the Company needs to improve its corporate governance in a number of areas, including by declassifying the Company's Board of Directors and separating the Chairman and CEO positions. It is our recommendation that the Company seriously consider these and other initiatives to improve its record in this area.
Barington has a long track record of successfully working with the management teams and boards of directors of publicly traded companies to develop plans to create or improve shareholder value. As a stockholder in the Company since April2005, we strongly believe in the long-term value of Griffon's core businesses and hope that we can work together to improve the Company's profitability and share price performance. To that end, we reiterate our desire to meet with you and your management team, as well as independent members of the Company's Board of Directors, to discuss our suggestions in further detail.
We look forward to hearing from you.
James A. Mitarotonda
Thursday, March 15, 2007
Clinton Group Expresses Disappointment with Lenox (LNX), Wants to Help With Turnaround
The firm urged the company to consult shareholders on, modification of the engagement of Carl Marks Advisory Group; offers of employment for senior management positions; capital structure and financing issues; and strategic transactions.
The firm said it would welcome an opportunity to help facilitate the company's turnaround and exploration of strategic ideas by providing three director candidates for shareholder consideration.
A Copy of the Letter:
We have the utmost respect for the Carl Marks Advisory Group and are comfortable that they will address the short-term issues facing Lenox Group Inc.(the "Company") in a timely matter. Overall, as reflected in the decline in your stock price as well as the apparent turnover of your ownership base ,shareholders are clearly disappointed with both previous management and the board's performance in guiding the Company.
We would hope that material changes will be forthcoming at the Company. However, we urge that the decision on such changes not be made by the Board in a vacuum without first consulting with the Company's owners - its shareholders -at least with respect to the following matters:
* Extension, termination or change in scope regarding the engagement or agreement with Carl Marks;
* Offers of employment for senior management positions;
* Any capital structure and/or financing related issues; and
* Any strategic transaction(s) potentially being contemplated.
To the extent such information sharing requires a non-disclosure agreement, we, as the Company's second largest shareholder, would be willing to entertain reasonable confidentiality restrictions.
Additionally, we do not expect and would be opposed to any negative changes in corporate governance, including the renewal of the soon to expire poison pill.
Your annual meeting date has not yet been announced. We would welcome an opportunity to help facilitate the Company's turnaround and exploration of strategic ideas as a significant voice on the board of directors. We believe that your shareholders should be represented by directors who have a meaningfuleconomic interest in the Company. We are unaware of existing board members' plans regarding the upcoming meeting, but to the extent certain members are contemplating stepping down, we would welcome the opportunity to provide three director candidates for shareholder consideration.
Please feel free to contact me at (212) XXX-XXXX regarding the above-mentioned matters at your convenience.
CLINTON GROUP INC.
Conrad L. Bringsjord
Peltz Makes Quick Work of Cadbury Schweppes (CSG)
Wednesday, March 14, 2007
Chapman Capital Demands Sale of eSpeed (ESPD)
Glenhill Advisors Wants Tekelec (TKLC) To Embark on an Aggressive Share Repurchase Program
Sandell Asset Management Backs Icahn on WCI
Crescendo's Ajdler Calls Board Moves at Topps (TOPP) "A New Low in Corporate Governance"
Ajdler concluded, "I strongly urge the Company to reconstitute the Ad Hoc Committee, to disband the Executive Committee and to make corrective disclosure. Topps continues to ignore the will of its shareholders and continues to be run as a private club. This must stop."
Image from BBC
Sun Capital Boosts Stake in Pier 1 Imports (PIR) to 5.1%
Metro One Telecom (INFO) Holder Strategic Turnaround Equity Wants Seat on Board, Pursuit of Strategic Alternatives
In the letter the firm said, "Last week we read the 13D filing by Everest Special Situations Fund, LP and their demands to the Company’s board of directors and chairman. STEP agrees and concurs with many of the views expressed by Everest and agrees that changes need to be made within the Company in order to maximize shareholder value, including an executive experienced in corporate restructurings." The firm also said, "Furthermore, we would like a representative chosen by STEP elected to the board of directors as soon as practicable."
A Copy of the Letter:
Dear Members of the Board:
As you may know, Strategic Turnaround Equity Partners, LP (Cayman) ("STEP") is one of the largest shareholders in Metro One Telecommunications, Inc. ("Metro One” or the "Company"). STEP currently owns over 9% of the Company’s outstanding common shares.
Over the past year STEP has been supportive of the Company’s management and its efforts to lower the Company’s operating cost structure and respond to the loss of significant contracts. However, STEP believes that the Company’s board of directors and management now need to be more responsive to these challenges and develop an efficient and effective plan to realize the Company’s growth potential over the next year.
Last week we read the 13D filing by Everest Special Situations Fund, LP (“Everest”) and their demands to the Company’s board of directors and chairman. STEP agrees and concurs with many of the views expressed by Everest and agrees that changes need to be made within the Company in order to maximize shareholder value, including an executive experienced in corporate restructurings.
Furthermore, we would like a representative chosen by STEP elected to the board of directors as soon as practicable. We strongly believe that the board has an obligation to promptly honor this request since we are one of the Company’s largest shareholders and our experience as investors in turnaround situations can benefit the Company and its shareholders.
We are available to meet or speak with the Company’s board of directors and management at their earliest convenience.