New York-based activist hedge fund and stockholder Steel Partners II L.P., engaged in a proxy battle with digital data storage company Adaptec Inc. (ADPT), said Monday that it has urged Adaptec stockholders to follow the recommendation of proxy advisory firms RiskMetrics Group and Proxy Governance Inc. to consent to the removal of CEO "Sundi" Sundaresh and Legacy Director Robert Loarie.
In response, Adaptec urged stockholders to follow the recommendation of proxy advisory firm Glass, Lewis & Co. to reject Steel Partners' plans to take control of the board by not signing a white consent card, and instead sign the gold consent revocation card.
Steel Partners said that it has issued a letter to Adaptec's shareholders to consent to the removal of the chief executive and the director by signing, dating and returning the White consent cards on Monday itself. The hedge fund added that the deadline to deliver the consents is November 2, 2009, while its aim was to have the number of consents it needs by Friday, October 30. Adaptec's annual shareholder meeting is slated for November 10.
In the letter, Steel Partners said that the massive show of support from RiskMetrics, formerly Institutional Shareholder Services, and Proxy Governance, two truly independent third parties, validates its plans to maximize value at Adaptec and its call for changes to Adaptec's board. Further, the hedge fund said that the support from the two independent proxy advisory firms invalidated the Legacy Directors' personal attacks on Steel Partners and their attempts to distract stockholders from the real issues that the company faced. Steel Partners said in its letter, "Both RiskMetrics and Proxy Governance noted that the Board hired an independent financial advisor to explore strategic alternatives for the Company and that the financial advisor recommended the Company explore the sale of the Company's current operating business, intellectual property and real estate, and then look to redeploy its capital in a way to maximize the value of the net operating loss carry forwards."
According to Steel Partners, the company's financial advisor believes that the business is worth more than the negative enterprise value that is placed on it. While the board approved going forward with this recommendation, legacy directors, including Sundaresh, Kennedy and Loarie, voted against it. Steel Partners said that it believes the sale of the operating business will let Adaptec trade at or above its higher cash value, thereby allowing stockholders who want to cash out.
The hedge fund added the reality was that Legacy Directors and CEO Sundaresh have had four years to execute a successful business plan and turnaround, but all they have to show for it is a "horrendous track record of stockholder value destruction".
Steel Partners added, "Removing CEO Sundaresh and Legacy Director Loarie leaves stockholders with a balanced Board that is well-equipped to manage the Company's affairs and ensure management acts with the discipline needed to protect and enhance stockholder value in the future. Electing the Company's proposed slate would result in a Board dominated by the Legacy Directors and Mr. Sundaresh's handpicked nominees."
In response to Steel Partners' comments, Adaptec in a statement, urged its stockholders to follow the recommendation of proxy advisor Glass, Lewis & Co. to reject Steel Partners' plans to take control of the board by not signing a white consent card, and instead sign the gold consent revocation card. The company accused the hedge fund of preventing the board from taking steps toward the payment of a "significant cash dividend" to stockholders.
Joseph Kennedy, Chairman of Adaptec's Board, said, "Steel specifically stated that no action should be taken until after its consent solicitation is concluded. It appears clear to us that Steel took this position because it believes that, if it succeeds in its consent solicitation, it will control the Board and thus be able to block any distribution of cash."
Kennedy added, "Adaptec stockholders should understand that Steel has demonstrated, once again, that Steel's first step toward its secret plan appears to be to hoard Adaptec's cash - and intimidate the majority of the Board into inaction - until it can gain control."
Adaptec noted that Glass, Lewis & Co. had said in its report dated October 9 that it was not convinced Steel Partners is the appropriate candidate to address Adaptec's performance challenges.
Adaptec quoted Glass, Lewis & Co. as saying in its report, "Given that the Steel Partners nominees have served on the Company's board since December 2007, with seemingly little improvement in the Company's operational performance, we see no reason to believe that their re-appointment to the Board …would have a more significant impact at this time."
In Monday's regular trading session, ADPT is currently trading at $3.24, down $0.01 or 0.31% on a volume of 0.38 million shares.
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