CATALYST EQUITY RESEARCH REPORT Weekly Research Highlighting Activist Investments

Transcription

1 Weekly Research Highlighting Activist Investments Subscribe to receive this FREE Report ed weekly.

2 HIGHLIGHTING ACTIVIST INVESTMENTS Week Ending January 4, 2013 SYMBOL COMPANY INVESTOR CEDC Central European Distribution Corp. Roust Trading GCOM Globecomm Systems JMB Capital ORRF Orrstown Financial Systems PL Capital RCMT RCM Technologies IRS Partnership No. 19 ZIXI Zix Corporation Rockall Emerging/Meldrum Asset HEDGE FUND SOLUTIONS (HFS) provides investment research, strategy and stakeholder communications consulting to companies and investors interested in, or involved with, shareholder activist campaigns. Since 2001 HFS has become the trusted advisor to numerous institutional investors, CEOs and board members worldwide. HFS also administers The Official Activist Investing Blog, the definitive source for activist shareholder information. Catalyst Investment Research is a portfolio of activist investing research products that combine company-specific shareholder activism research with deep value investment analysis and access to industry insiders. HEDGE FUND SOLUTIONS PORTFOLIO OF ACTIVIST INVESTING RESEARCH INCLUDES: Daily Alerts Weekly Summary of Activist Investments Quarterly Buying Analysis of Top 50 Activist Investors Company-Specific Shareholder Activism Analysis (combining shareholder activism & deep value company analysis) Special Reports on Activist Investing 400+ Page Shareholder Activism Report & Regularly Updated Shareholder Activism Resource Portal To Learn More: Download a brochure Page 2 of 9

3 Central European Distribution Corporation (CEDC) Activist Investor: Roust Trading 15,920, % Not Avail On December 28 CEDC entered into an agreement with Roust permitting the Company to use cash invested by Roust for debt restructuring and working capital needs. In addition, the Company formed an operational management committee (controlled by Roust) to oversee day-to-day operations in which all executive officers will report to the committee. Share Price M 172M Enterprise Value 1.5B -1.3B 64M 52 wk. range EV/ We previously covered CEDC in our December 14, November 23, November 16, March 16, February 24, February 3, 2012 and December 9, 2011 Catalyst Research Reports, highlighting Roustam Tariko/Roust Trading/Russian Standard s (19.5% shareholder and significant holder of 2013 convertible bonds) initial proposal to sell CEDC its Rouse business in exchange for 19.9% of the Company s shares outstanding. We also highlighted that on December 9, 2011 Mark Kaufman (9.6%; $6.35/sh cost basis) sent a letter to the board highlighting a few key points for the board to address, including (i) restructuring CEDC s balance sheet, (ii) improve management and governance, (iii) issue any new shares fair and equally, (iv) consider a business combination with Russian Standard. On February 1, 2012 Russian Standard submitted a second strategic partnership proposal to the board of CEDC (this first proposal was submitted on Dec. 6, 2011). In the proposed Partnership, Russian Standard suggested two transactions to take place: (i) Russian Standard will exchange $103 million of 2013 Convertible Notes at $7.00 per share in exchange for 25% of the Company s post-dilution ownership, and (ii) Russian Standard will sell CEDC its Roust business assets in exchange for an additional 7.99% ownership. In addition, Russian Standard will appoint 3 directors and key members of the Company s Russian management. On February 17 Mark Kaufman nominated himself for election to the CEDC board at the next annual meeting. On March 12, 2012 the board of CEDC sent a letter to Kaufman stating that the board currently intends to include Kaufman on the list of directors for nomination at the 2012 annual meeting of stockholders. On November 14 Kaufman sent a letter to CEDC s board commenting on a letter they recently sent to Roustam Tariko. In his letter, Kaufman said he shared Mr. Tariko s profound concern and deep frustration with the state of the business and called upon the board to reconstitute its membership with Kaufman and 3 additional independent directors. On November 19 Kaufman sent a letter to CEDC s board and special committee commenting on the special committee s open letter to shareholders. In his letter, Kaufman continued to express his concern about the current board and the company s performance under its watch. On December 11 Roust Trading (RTL) announced that CEDC had rejected a proposal made by RTL and its principal equity holder, Mr. Tariko, to provide them with access to interim and permanent capital, to bolster the company s leadership, and to support its operational needs. The Proposal was conditioned on CEDC promptly holding its overdue 2012 annual stockholders meeting, nominating a slate for the Board of Directors which would include a majority satisfactory to RTL, and providing responsibility for operational and financial management to Mr. Tariko that would enable him to address the company s well-known challenges. Despite initial agreement on all material terms of the proposal, RTL states that CEDC s entrenched directors ultimately rejected the proposal, insisting that they must retain control over the company s financial restructuring process. RTL urged all stockholders and holders of the Company s notes who agree that the rejected proposal would provide much-needed leadership, resources and commercial prowess to the Company, to strongly communicate such views to the Board of Directors. Page 3 of 9

4 Globecomm Systems Inc. (GCOM) Activist Investor: JMB Capital 1,500, % On January 3 JMB Capital sent a letter to the Board (i) highlighting that several directors had more withhold votes than for votes (see below) at the Nov 15, 2012 annual meeting, and (ii) strongly urged the board to consider options to maximize shareholder value, including reengaging an investment banker to pursue a sale of the company. Share Price Name Broker 392M For Withheld Non-Votes 267M Richard E. Caruso 8,832,891 9,263,380 3,579,974 Enterprise Value 218M 51M Keith A. Hall 13,887,565 4,208,706 3,579,974 39M David E. Hershberg 14,603,823 3,492,448 3,579, wk. range Harry L. Hutcherson, Jr. EV/ 5.6 8,992,802 9,103,469 3,579,974 Brian T. Maloney 8,615,493 9,480,778 3,579,974 Jack A. Shaw 8,912,314 9,183,957 3,579,974 A. Robert Towbin 9,180,637 8,915,634 3,579,974 C.J. Waylan 8,835,892 9,260,379 3,579,974 We previously covered GCOM in our November 9, October 26, October 19, October 12 and September 28 Catalyst Research Reports, highlighting Discovery Capital increase in active ownership from 5.3% to 6.9% since late July (Discovery reduced its ownership to 5.9% in late December). We also highlighted Discovery s October 9 letter to the board recommending they immediately engage an investment bank to solicit offers from multiple parties that Discovery believe are interested in acquiring the company. On October 16 Emancipation Capital disclosed a 5.0% active stake (avg. cost of $11.47/sh) and stated that they should re-engage investment bankers and prepare the company for sale. In addition, Emancipation suggested GCOM add at least one shareholder representative to the board. On October 25 JMB Capital disclosed a 6% active stake (avg. cost of $10.28/share) and announced their support for Discovery Capital and Emancipation Capital s call for the company to re-engage an investment bank to examine a sale of the business. In addition, JMB said they will oppose the re-election of directors and the stock option plan at the upcoming annual meeting. On November 8 Emancipation Capital announced plans to vote their shares against the Company s proposed stock incentive plan at the 11/15 annual meeting because the Proposal, as it currently stands, includes a compensation plan for Directors that Emancipation is strongly against. Proxy Solicitor to Globecomm Systems Continue to Next Page Page 4 of 9

5 Orrstown Financial Services, Inc. (ORRF) Activist Investor: PL Capital 555, % 8.06 On December 28 legal counsel for ORRF informed PL Capital that the board had met and decided not to remove or revise recently implemented by-law amendments made on Nov. 19 (which states new directors must live within 50 miles of the company s HQ). As a result, PL announced plans to initiate a lawsuit and pursue a proxy contest at the 2013 annual meeting. On the same day, PL Capital nominated one individual for election to the board. Share Price N/A 82M Enterprise Value 26M 58M N/A 52 wk. range EV/ N/A We previously covered ORRF in our December 7 and October 26 Catalyst Research Reports highlighting PL Capital s initial 6.4% active ownership stake. On December 3 PL Capital sent a letter to ORRF expressing its disappointment in the Company s decision to amend the Company Bylaws requiring board members to have a primary residence less than 50 miles from the Company headquarters. PL Capital also objected to ORRF s new Bylaw stating that Directors are not eligible to serve on the Company s board if they serve as a management official (i.e. director or officer) of another depositary institution, except for the existing incumbent directors, who were exempted from meeting both of these requirements. A copy of PL Capital s December 3 letter to ORRF is available here: RCM Technologies Inc. (RCMT) Activist Investor: IRS Partnership No. 19 L.P. 1,467, % 5.32 On January 2 IRS Partnership No. 19 (IRS) nominated 2 people for election to the board at the 2013 annual meeting. In addition, IRS submitted proposals to (i) declassify the board, (ii) adopt a majority vote standard, and (iii) adopt a policy to ensure the Chairman is an independent director. Share Price M 67M Enterprise Value 37M 30M 7M 52 wk. range EV/ 5.0 We previously covered RCMT in our January 20, 2012 Catalyst Research Report, highlighting Michael O Connell s 5.1% active ownership stake plans to speak with the Company about ways to increase value, including engaging with the Company on a review of its strategic activities, assessment of its organization, management of its balance sheet, the pursuit of other corporate transactions and board representation. Note: Michael O Connell is associated as a 13D group investor with IRS Partnership No. 19 Legal counsel to IRS Partnership No. 19 Continue to Next Page Page 5 of 9

6 Zix Corp (ZIXI) Activist Investor: Rockall Fund/Meldrum Asset Management 6,250, % Not Avail On December 28 ZIXI entered into a settlement agreement with Rockall/Meldrum. Under the Agreement, ZIXI agreed to (i) appoint 2 individuals to the board immediately, (ii) nominate no more than 7 to stand for election at the 2013 annual meeting, and (iii) encourage the retirement of on current director (effectively reducing the size of the board from 8 to 7). Share Price M 180M Enterprise Value 154M 23M 12M 52 wk. range EV/ 13.2 We previously covered ZIXI in our October 26 and May 11, 2012 Catalyst Research Reports, highlighting Rockall s announcement that they had notified ZIXI that they want to speak with the board to discuss available strategic options for accelerating the growth of the Company s encryption business, and related growth in shareholder value. On October 25 Rockall/Meldrum delivered a letter to ZIX requesting a special meeting of shareholders to remove and replace 3 board members. Legal counsel to Rockall/Meldrum Asset Page 6 of 9

7 CONTACT INFORMATION: Hedge Fund Solutions, LLC Damien J. Park Tel FREE Subscription to the weekly report: or The Catalyst Equity Research Report is a general circulation weekly. Hedge Fund Solutions and/or its affiliates (the Firm ) may have a consulting relationship with the companies featured in this report (the Companies ). The Firm may also actively trade in the securities of the Companies for its own account. At any time, the Firm, funds it manages and/or its employees or their family members may have a long or short position in registered or non-registered securities or in options on any such security of any company mentioned in this report. The information contained in this report is not a complete analysis of every material fact with respect to the company, industry, or security and is not an offer or solicitation to buy or sell any security. Although opinions and estimates expressed in this report reflect the current judgment of the Firm, the information upon which such opinions and estimates are based is not necessarily updated on a regular basis. In addition, opinions are subject to change without notice. The Firm from time to time may perform consulting services for companies mentioned in this report and may occasionally possess material, nonpublic information regarding such companies. This information is not used in the preparation of this report. Facts and other information contained in this report have been obtained from the public sources considered reliable but are not guaranteed in any way. Hedge Fund Solutions Portfolio of Activist Investing Products Catalyst Investment Research Daily: Alerts Weekly: Catalyst Equity Research Report Quarterly Buying Analysis Top 50 Activist Investors Specific Activist Target Catalyst Investment Research Special Reports Shareholder Activism Report & Resource Portal Download a Brochure Page 7 of 9

8 PLATINUM SPONSORS Broker-Dealer APB Financial Group is a Special Situations Brokerage Firm tailored to investors seeking fundamental value and catalyst-driven activist investments. Steven Abernathy, Principal sabernathy@abbygroup.com Tel: PLATINUM SPONSORS Legal Advisers Olshan Frome Wolosky LLP is a law firm dedicated to providing personal service tailored to the specific requirements and concerns of the firm s clients. Olshan is widely recognized as a preeminent law firm in the activist strategy area, and represents experienced activist investors, funds new to the activist area, as well as other investment and hedge funds. Olshan has extensive experience advising clients in a wide range of activist strategies, from private negotiations with management to public, high profile proxy contests, including expertly and efficiently handling litigation relating to activist matters. We also specialize in mergers and acquisitions and hostile takeovers, with extensive expertise in these matters. Olshan s highly regarded attorneys provide a full range of legal services and are uniquely positioned to provide expert advice regarding the complicated and nuanced legal issues facing activist investors today. Steve Wolosky, Partner swolosky@olshanlaw.com Tel: Schulte Roth and Zabel LLP, one of the leading law firms in the activist investing area, has been involved in some of the highest-profile campaigns facing the business world in recent years. Serving both activist-only and occasional activists, the firm advises on federal securities law, state corporate law, Hart-Scott-Rodino, proxy rules and related matters, as well as handling investigations and litigations arising out of clients' activist activity. The firm, with over 450 lawyers in offices in New York, Washington, D.C., and London, has a long history of serving private equity and hedge fund clients. Marc Weingarten, Partner marc.weingarten@srz.com Tel: Page 8 of 9

9 PLATINUM SPONSORS Proxy Advisors Alliance Advisors LLC is a multi-faceted shareholder communications firm specializing in proxy solicitation, corporate governance consulting, and information agent services. Our in-depth view of the investor communities and governance environment allows us to prepare for successful outcomes. Alliance Advisors fight team has built a distinguished reputation by successfully completing countless contested assignments. The team will complete a comprehensive analysis of the shareholder base and build a calculated battle plan accordingly. We will assist in the crafting and delivery of your message to the target audience, ensuring the message is heard and understood. Alliance Advisors consistently delivers successful outcomes to our clients. Peter Casey, Executive Vice President pcasey@allianceadvisorsllc.com Tel: Innisfree M&A Incorporated is a full service proxy solicitation/investor relations firm providing clients with sound tactical and strategic advice and results-oriented implementation in proxy and consent solicitations (whether friendly or contested), tender and exchange offers, mergers, rights offerings, strategic restructurings and other domestic and cross-border transactions requiring action by public security-holders. We provide expert consulting services on a wide range of matters, including executive compensation proposals, corporate governance issues and investor relations. Innisfree s reputation derives from our success in complex and/or contested situations. Key to that success is our ability to track, identify and understand the shifting dynamics of a company s security-holder base and provide battle-tested advice based on that information. We are convinced, and our unrivaled record demonstrates, that this refined, analytical based approach enables us to deliver the extraordinary results our clients expect. Arthur Crozier, Co-Chairman acrozier@innisfreema.com Tel: MacKenzie Partners, Inc. is a full-service proxy solicitation, investor relations and corporate governance consulting firm specializing in mergers-and-acquisitions related transactions. The firm has offices in New York City, Los Angeles, Palo Alto and London. MacKenzie's services include corporate governance consulting, security holder solicitations, information agent services for tender and exchange offers, beneficial ownership identification, market surveillance and associated financial, investor and media relations services. We work in close partnership with our client's attorneys, investment bankers and other consultants, providing advice and counsel at each stage of the transaction. Mark Harnett, President mharnett@mackenziepartners.com Tel: Page 9 of 9