Friday, November 30, 2007

More Activists Converge on Brinks

An activist hedge fund manager on Friday stepped up its five-year effort to effect share improvement change at Brinks’ Co. by launching a proxy contest to put four candidates on the Richmond, Va.-based armored car transport company’s board.
Clay Lifflander, portfolio manager at MMI Investments LP of New York, wrote in a Securities and Exchange Commission filing that the hedge fund is seeking to install director candidates because he believes the armored car company lacks industry experience on its board.
“We believe the director slate we’ve nominated is well qualified, with a breadth and depth of business experience to maximize value for all Brink’s stockholders,” Lifflander wrote. “We are not seeking control of the board. We simply believe that the board as currently composed has demonstrated that it lacks the security industry perspective, strategic alternatives acumen and stockholder representation necessary to protect and maximize the value of Brink’s stockholders’ investment.”
MMI Investments, which has an 8.4% Brinks stake, is seeking to nominate John Dyson, the chairman of MCM Capital Management; Peter Michel, former chief executive of Brink's residential security monitoring unit; Robert Strang, the CEO of Investigative Management Group; and Exide Technologies director Carroll Wetzel.
“Our nominees fill major gaps in the experience and skill set of the current directors, particularly as the board has limited direct Wall Street experience and no expertise in the security industry, other than chairman, CEO & president Michael Dan,” he added.
MMI Investments has been engaging Brink’s since 2003 and has lately pushed for a sale of the company. In 2005 the hedge fund began publicly agitating for Brink’s to sell its marginally profitable BAX Global subsidiary, an international heavy freight and logistics operator, which was subsequently sold for roughly $1.1 billion. — Ron Orol

Ron Orol is a Washington-based reporter for The Deal and author of Extreme Value Hedging: How Activist Hedge Fund Managers Are Taking on the World.

Wednesday, November 28, 2007

Activists Take On Multimedia Games

One activist hedge fund manager is following up the efforts of another at Multimedia Games Inc., an electronic casino and lottery game maker.

Late Wednesday, activist fund manager Dolphin Limited Partnership said in a release it sent a letter to Multimedia’s board encouraging it to seek a sale or merger as a way of maximizing profits. Dolphin owns about 900,000 shares of Multimedia, about a 3% stake.

Dolphin’s efforts come after hedge fund manager Emanuel Pearlman began pressing the company to consider share-enhancing changes last year. In October, 2006, Multimedia Games agreed to name Pearlman and another of his allies as directors after the dissident shareholder agreed to cancel a proxy contest intended to nudge the company into a formal auction.-- Ron Orol

Activist investor targets J.P. Morgan, Bear Stearns over subprime

Fallout from the subprime mortgage crisis may lead to a director shuffle at both Bear, Stearns & Co. and J.P. Morgan Chase & Co. At least that’s what activist institutional investor American Federation of State, County and Municipal Employees’ director Richard Ferlauto hopes to achieve with proposals that would seek to eventually elect directors at both these companies.
AFSCME is submitting so-called shareholder access proposals, which is a two-step process for getting a shareholder director candidate listed on corporate proxies. AFSCME, holding a significant stake in a corporation for at least one year, submitted a bylaw proposal seeking to nominate director candidates at the two companies. If the bylaw measure isn't removed and it passes, AFSCME would then be able to nominate a candidate for the company’s board on the company’s proxy card in the following year’s election.
Ferlauto is arguing that shareholders should be able to put a director candidate on corporate boards because management at these companies mismanaged risks associated with subprime mortgages, leading to shareholder losses.
But it looks like Ferlauto isn't going to get his way — at least in the short term. The SEC on Wednesday adopted rules allowing companies to remove such proposals from their proxy statements. These companies are expected to use the agency’s authority to remove the AFSCME measures. In an interview with The Deal, Ferlauto says he will challenge a decision by either of these corporations to remove the proposal. — Ron Orol
Ron Orol is a Washington-based reporter for The Deal and author of Extreme Value Hedging: How Activist Hedge Fund Managers Are Taking on the World.

Tuesday, November 27, 2007

ValueAct cultures a larger stake in MDS

Activist investor ValueAct Capital Management LLC continues to hike its presence in MDS Inc., a Mississauga, Ontario, life sciences company. On Tuesday the fund reported in a Securities and Exchange Commission filing that it owned a 16.8% MDS stake and reiterated that it will continue to “evaluate alternatives” and “monitor” the company’s operations, liquidity requirements and business prospects.
The activist fund also indicated that it may discuss its thoughts on the company’s operations with others. “Consistent with its investment research methods and evaluation criteria, [ValueAct] may discuss such matters with management or directors of [MDS], other shareholders, industry analysts, existing or potential strategic partners or competitors, investment and financing professionals, sources of credit and other investors,” ValueAct wrote in its filing.
ValueAct in May doubled its MDS stake to 6.6%. Since then it has continued to hike its investment. The California-based activist fund’s efforts come after investors in 2006 pressured MDS to make board changes. MDS is completing a corporate restructuring that may include divestment of a major lab diagnostic unit. ValueAct has agitated for changes at a number of companies, with a specialization in the life sciences sector, and at times seeks to acquire businesses. — Ron Orol

Monday, November 26, 2007

Battle Continues at Sparton

Electronic manufacturing services company Sparton Corp. continues to face opposition from shareholders led by activist investor Lawndale Capital Management LLC.
Evidence of investor dissent at the company’s Oct. 24 annual meeting was disclosed in the company’s most recent quarterly statement on Nov. 9. According to a Sparton Securities and Exchange Commission report, roughly 30% of participating shareholders voted to oppose the re-election of three incumbent director candidates Sparton had up for election — not enough to block their election to the board.
Activist investor Andrew Shapiro, director of Lawndale in Mill Valley, Calif., noted that the near-30% opposition represents close to a majority of noninsider shares (roughly 40% of Sparton’s shares are held by “insiders,” primarily Sparton’s management and the heirs of John Smith, who, together with his younger brother, obtained control of the company in a proxy contest roughly 60 years ago). The noninsider investors voted “withhold” on the election of management-backed director nominees, David P. Molfenter, W. Peter Slusser and Bradley O. Smith, according to Sparton’s quarterly report.
“Lawndale considers this vote, comprising close to a majority of all the noninsider shares, to be a very strong mandate for change. We will continue to press change at Sparton and are evaluating our options,” Shapiro wrote in a filing on Monday.
The result follows Shapiro’s decision last month to take his insurgency at Sparton up a notch by publicly reporting to the SEC that he planned to oppose the re-election of the three incumbent candidates. At the time, Shapiro hiked his stake in the Jackson, Mich.-based company to 9.8%.
Shapiro had been complaining that the company has misallocated capital. “To date the series of ventures has culminated in the destruction of shareholder value best illustrated by Sparton’s stock depreciating 61% over the past decade through September 2007,” Shapiro wrote in a letter to Sparton’s board on Oct. 11. Shapiro also lashed out at Sparton chief executive David W. Hockenbrocht. “The truth is that fiscal 2007 was not an isolated event, it was just worse than usual. Clearly Mr. Hockenbrocht and this board are out of touch. Shareholders have suffered long enough.”
The activist investor also accused the company of maintaining an imprudent and large allocation of Sparton employee pension plan’s assets in Sparton’s own stock. “The allocation at June 30, 2007, of 44% of the pension plan’s equity holdings to Sparton’s own stock, so as to entrench insiders who are simultaneously liquidating their personal holdings, has eviscerated the employees’ retirement plan and we believe is a direct violation of Mr. Hockenbrocht’s fiduciary duties to the pension plan’s beneficiaries as well as to the company’s other constituencies," Shapiro wrote. — Ron Orol

Ron Orol is a Washington-based reporter for The Deal and author of Extreme Value Hedging: How Activist Hedge Fund Managers Are Taking on the World.

Monday, November 5, 2007

Ramius Strikes Back

The battle for the future of Luby’s Inc. intensified Monday after activist hedge fund managers Ramius Capital Group LLC sent a missive to the cafeteria operator's investors pointing out their concerns about the Houston company’s governance.
The activist investor group launched a proxy contest on Oct. 17 to nominate four director candidates to Luby’s 10-person board at the company’s annual meeting scheduled for Jan. 15.
Luby’s, an operator of 130 cafeteria-style restaurants in Texas, on Oct. 31 launched its own campaign, hoping to maintain control of the company's destiny, and the support of its institutional investor base.
The activists on Monday took issue with the company’s granting Christopher Pappas, Luby’s president, and Harris Pappas, his brother, an exemption from Luby’s poison pill, allowing them to own up to 28% of the company’s shares, instead of the 15% allowed for each other shareholder.
While the Pappas brothers argue that increasing their personal financial stake in the company demonstrates their commitment to making sure the company’s share price improves, Ramius is concerned that the greater ownership will mean more votes for management-backed directors (and less for them) at the contentious meeting.
According to Luby’s Oct. 31 proxy statement, the two Pappas brothers invested an additional $11.2 million in Luby’s as a result of exercising stock options granted in 2001, increasing their ownership stake to 24% from 17% of shares outstanding. “No one has more at stake in Luby’s than Chris and Harris Pappas, and your board is extremely pleased with the company’s progress under their leadership and with their continued commitment to Luby’s,” the filing reported. Luby’s also plans to invest more in existing restaurants, expand a culinary contract service business and build between 45 and 50 new stores, based on a new prototype, over the next five years.
Ramius also raised a red flag at Luby’s classified board structure, prohibiting dissident shareholders for taking control of the board. “For six out of the past seven years, Luby’s proxy has included a non-binding shareholder proposal to declassify the Board. Each year, management recommended against the proposal. For five out of those six years the shareholders voted in favor of declassifying the Board. In each instance, the Board chose to ignore the shareholders’ choice and followed management’s recommendation instead,” the Ramius release wrote. — Ron Orol

Saturday, November 3, 2007

Active Investor seeks Steven Madden Sale?

Activist investor Clinton Group Inc. expanded its campaign at Steven Madden Inc. on Friday, praising the shoe retailer for setting up a strategic review committee but hinting that perhaps a sale to a strategic or financial buyer might be in the best interest of the company.
According to a Securities and Exchange Commission filing, Clinton Group sent a letter to Steven Madden chairman and CEO Jamieson A. Karson on Friday outlining a number of ideas for improving shareholder value. The activist investor hiked its stake to 6.1% from 5.1% and reiterated that a leveraged stock repurchase would “improve the efficiency of [Steven Madden’s] capital structure and create immediate accretion for shareholders.”
But Clinton Group also said it wasn’t “wedded” to any one particular approach for improving shareholder value. Another strategy, it wrote, could be to auction of the business.
“We would support a sale of the company if the acquisition price reflected Steve Madden’s promising, long-term business prospects. We believe that a sale at the right price could be the sensible culmination of years of hard work that has made Steve Madden the strong operating franchise and best-in-class brand it is today. We think there are potentially multiple buyers who would be interested in the company. Steve Madden may be a logical target for a strategic buyer interested in diversifying its footwear portfolio, or a financial buyer who could steward growth in a flexible, private context,” Clinton Group wrote in its letter.
But the Clinton Group went to extra lengths to explain that their effort at Steven Madden was not a hostile campaign. According to the fund’s letter, Clinton Group looks forward to “working constructively” with the board and strategic review committee.
The Clinton Group campaign follows up on another activist insurgency that was initiated by James Mitarotonda and his Barington Capital Group LP in New York. Barington launched a public campaign to “maximize value of shareholders” in 2004, but has since cashed out.

S.A.C. may seek another bidder for EDO

Activist investor S.A.C. Capital Management LLC has decided to try to stir things up at EDO Corp., a supplier of defense electronic systems that agreed in September to be purchased by ITT Corp. for $1.5 billion.
According to a Securities and Exchange Commission filing on Thursday evening, activist fund manager S.A.C. Capital Management, which has a 6.1% EDO stake, reported that it believes the price being offered for the defense systems company may not be enough. Apparently, a slowing deal market coupled with the credit crunch hasn’t led S.A.C. to quietly accept the EDO-ITT deal: “While [S.A.C.] are continuing to review [EDO’s] preliminary proxy statement and are considering the proposed merger transaction in light of the information contained in the [company’s] preliminary proxy statement, [S.A.C.] believe that the merger consideration might be inadequate,” S.A.C. wrote in the filing.
EDO has a $1.2 billion stock market capitalization. According to S.A.C.’s filing, the activist fund’s managers will continue evaluating their investment and they may, “engage in discussions with certain persons, including, without limitation, management or representatives, [EDO’s] board of directors, other shareholders … and other relevant parties, concerning matters with respect to [S.A.C.’s] investment in the common stock, including, without limitation, the terms of the proposed transaction."
According to the filing, S.A.C. also says it may write and respond to letters from EDO’s board or management. In other words, this is just the beginning of the activist’s disruptive efforts.
Despite S.A.C.’s endeavors, EDO and ITT reported that they expect the deal to close sometime early next year. — Ron Orol