Costa Brava seeks answers from MedQuist

Activist investor Costa Brava Partnership III LP sent a missive to Medquist Inc. director Clement Revetti Jr. on Monday, arguing that board members have serious conflicts related to the sale of the medical billing company. The Costa Brava letter comes after Royal Philips Electronics NV on Nov. 2 said it would sell its 70% stake in MedQuist. On July 6, the Netherlands consumer electronics giant announced the Mount Laurel, N.J.-based unit was a noncore asset.
According to a regulatory filing on Monday, Costa Brava sent a letter to Revetti expressing concerns about the replacement of three independent MedQuist directors, arguing that the replacement of these individuals is a "violation of the governance agreement" that governs the relationship between Philips and MedQuist.
"The process by which Philips and its functionaries are forcing the sale of the entirety of MedQuist is illegitimate, as it is being directed by a conflicted and incomplete board," Costa Brava senior vice president Andrew Siegel said in the letter.
It comes after Costa Brava in November sought to inspect the medical billing company's shareholder list, books and other records for the past seven years. "Accordingly, this letter shall serve as a formal request on behalf of Costa Brava to inspect and copy the company's list of all shareholders and the books and records of accounts and minutes of all proceedings of shareholders, board and executive committees from January of 2000 until the present," the November letter stated. "We demand that such an inspection take place on or before Friday, Nov. 9."
MedQuist's troubles began in late 2003 when a whistleblower charged it engaged in improper billing. It was delisted from Nasdaq in June 2004 after failing to meet reporting requirements. MedQuist has hired Bear, Stearns & Co. to advise it on strategic alternatives.
Costa Brava reported having a 5.2% stake in the billing company. MedQuist, which has a $381 million stock market capitalization, provides medical transcription technology and services in the U.S. It also offers digital dictation, speech recognition, electronic signature, and medical coding technology and services. - Ron Orol
See schedule 13D filing from SEC EdgarSee TheDeal.com: MedQuist recruits Bear StearnsSee TheDeal.com: Philips bids high to buy 60% of MedQuist
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.