Sparton Corporation (NYSE: SPA) executives may find themselves in hot water soon after an activist hedge fund built up a stake. Lawndale Capital Management disclosed a 9.9% stake and a series of demands to the board in a Schedule 13D filing with the SEC. The activist hedge fund demanded four new independent directors be installed, requested the board hire an experienced turnaround management team, and reiterated their request that the company explore its strategic alternatives.
With only the recent announcement of current management tasked to implement 'recommendations' of consultants and no mention of reputable outside advisors exploring strategic alternatives, we can only presume the Board is not pursuing obvious steps, preferring instead to remain unaccountable and entrenched," said the hedge fund in its letter. "Lawndale cannot sit idly by while a discredited board relies upon a discredited management team to extricate Sparton from a morass of their own creation."
Lawndale believes that the current management has been given more than enough time to effect a turnaround and it's time for new blood. The hedge fund proposed its own slate of four new directors that could add independence to the board and work to build long-term sustainable shareholder value. The hedge fund also warned that if the board turned a blind eye to its proposal, it would pursue a hostile takeover of the board. The deadline it set was August 29th.
"After years of dissipating shareholder wealth, further improper voting of the Sparton shares held in the employee pension plan and any improper influence over voting of employee 401K plan holdings may potentially expose you all to very costly liability," said the hedge fund. "It is time for Sparton's Board to turn over a new leaf and embrace a more enlightened approach to corporate governance and work with us."
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