Metropolitan Capital disclosed a 7% stake in
Cyberonics Corporation (NDAQ:CYBX) today in a
13D filing with the SEC. The hedge fund also enclosed a lengthy letter stating their intention to nominate three candidates to the company's Board of Directors, with the support of the shareholder group Committee for Concerned Cyberonics Shareholders. In the letter, Metro elaborates on several critical issues facing the company, reasoning that "if there was ever a question about the need for change at Cyberonics, recent events have provided an emphatic answer ... Our nominees will provide a much needed independent voice in the Boardroom, which will represent the start of the process of rebuilding shareholder value." (
Read the rest of the letter)
Metro was first involved with Cyberonics six years ago, when
Medtronics (NYSE:MDT) offered to buyout the company at $26 per share. Mr. Cummins, the past and current CEO of the company, implored Metro to reject the offer, saying that he would be able to generate more value over the long-term. Metro agreed and the offer fell apart. This turned out to be a bad move as shares have declined over 50% so far this year alone. Meanwhile, Mr. Cummins has profited handsomely from over $17 million in options grants and even more in restricted shares. Even more appaling is the fact that the Board granted Mr. Cummins stock options on the
same day as an FDA approval of the company's primary product, which resulted in an overnight gain of over $2 million - not bad for a days work! Despite the CEO's poor performance and questionable ethics, the Board of Directors went so far as to contract Mr. Cummins for an
additional five years with the company
and institute a 50% pay raise.
Clearly change is needed in this company, and Metropolitan Capital is taking the steps to enforce it. Whether or not they can salvage the company depends on many factors. Even if they successfully obtain the three seats on the Board, the group will likely face a proxy battle to remove Mr. Cummins and also be forced to pay contract termination fees and a plethora of other costs. In the long term, however, this move could help the company turn itself around and provide significant returns to shareholders.
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