Monday, April 4, 2011

Activists Hope to Mirror Success of Barington

In an earlier post, we highlighted five activist campaigns underway this proxy season. The score is now 1-0 in favor of the dissidents: Shareholders of Ameron International (AMN)--which had its annual meeting on March 30, 2011--overwhelmingly voted for the election of activist investor James Mitarotonda, CEO of Barington (preliminary votes indicate 72% of votes cast were in support of the sole dissident nominee). Read the MarketWatch story.

On March 11 Ramius withdrew their nomination to elect three individuals to Immersion Corp. (IMMR) following a March 9 announcement by the Company that they have agreed to add two new Directors from activist investor Dialectic Capital to the board.  Elsewhere, Ramius' proxy contests at Zoran Corporation (ZRAN) is about two months away from the annual meeting, and other formal proxy solicitations have begun heating up at EMS Technologies (ELMG) and Mentor Graphics (MENT). Below is a summary of the latest relevant developments.

EMS Technologies (ELMG); Annual Meeting: May 12, 2011
Annually elected 10 member board
Activist Investor: MMI Investments (7.8% beneficial ownership)

Activist Concerns:
- business is overly complex and too small for the public market
- company has not been taking advantage of thriving M&A environment
- dead hand provision to poison pill (the provision was removed on 1/4/11)
- lackluster stock performance
- current board lacks genuine corporate credentials
- wasteful $150 million worth of acquisitions

Major Developments:
- MMI and ELMG begin formal proxy solicitation and name nominees.
- ELMG amends Executive Protection Agreements and EAICP that provide golden parachute compensation for executives whose employment is involuntarily terminated (other than for disability or death) or voluntarily terminated due to certain adverse employment actions within two years after a Board-approved change-in-control. The plan provides a "lump-sum payment of the present value of two years' salary", benefits, and target awards.
- MMI nominates 4 individuals to the board.
- ELMG announces on 2/2/11 that they have retained BofA Merrill Lynch to serve as a financial advisor for exploring strategic alternatives.
- ELMG removes dead hand provision to poison pill on 1/4/11.
- MMI pushes ELMG to sell the entire company.

ELMG's depiction of its stock performance:

MMI's depiction of target's stock performance:

For a complimentary copy of Hedge Fund Solutions' in-depth research on the activist situation at ELMG contact

Ameron International Corporation (AMN); Annual Meeting: Completed for 2011.
Staggered 7 member board

Activist Investor: Barington Capital (1.3% beneficial ownership)

Activist Concerns:
- pay-for-performance disconnect and excessive executive compensation
- low insider stock ownership
- excessive anti-takeover defenses
- underperforming peers and market for the last 1-, 2-, and 3-year periods

Major Development:
- Shareholders voted overwhelming in favor of the election of activist nominee James Mitarotonda. Company nominee David Davenport is not re-elected, but CEO James Marlen is re-elected.
- Barington nominates 1 individual to board.

Mentor Graphics (MENT); Annual Meeting: May 12, 2011
Annually elected 8 member board
Activist Investor: Carl Icahn (14.7% beneficial
Activist Investor: Casablanca Capital (5.48% beneficial ownership)

Activist Concerns:
- lack of cost containment
- poor corporate governance decisions (eg. moving annual meeting of shareholders)
- operational inefficiencies

Major Developments:
- Icahn names nominees.
- Icahn calls the debt issuance "cynical", "an absurd offering", "poisonous", and "ask[s] that [MENT] immediately make public all of the terms of the deal so that shareholders can evaluate what [the company] has done". Tells the board that its "shareholders are not irrelevant and will not be fooled. There was no need to issue convertible securities and there were clear alternatives".
- MENT issues convertible notes.
- MENT rejects Icahn's takeover offer and debt financing.
- Icahn offers to lend MENT $220 million on a 6.25% senior unsecured basis.
- Icahn and Drapkin (Casablanca) reiterate that the company should seek a sale and that Cadence Design Systems is an ideal acquirer.
- Casablanca rescinds its nomination and states intent to vote in favor of Icahn's slate.
- Icahn makes hostile $17 per share offer.
- Casablanca nominates 3 individuals to Board.
- Icahn nominates 3 individuals to Board.

Drapkin: "If Carl gets his three seats on the board, I think that will start a process from which the company will have no choice but not to back away... because then they know that the next meeting is coming up and if they haven't done something dramatic then they will lose control over the board... In a free market, we have the right to go in and make our voices heard. The Chairman of the company owns virtually nothing. He pays himself a lot of money, but he owns virtually nothing. He has been there forever... The company just doesn't do anything".