SEC Investor

Carlson Capital Thinks FiberNet is Worth $14.50+/Share

2009-06-14T22:37:28.886-04:00

FiberNet Telecom Group, Inc. (NASDAQ: FTGX) may face some opposition to its buyout bid after Carlson Capital, L.P. issued a letter to the board in a Schedule 13D filing with the SEC. The activist hedge fund, which owns a 10.1% stake in the company, believes that the standing $11.45 per share offer by Zayo Group, LLC does not fairly compensate the company’s shareholders.

Here's a copy of the letter.

Carlson Capital, L.P., together with its affiliated entities (collectively "Carlson" or "we"), is the holder of approximately 10.1% of the common stock of FiberNet Telecom Group, Inc. (the "Company" or "FTGX"). Carlson has been a significant shareholder of the Company since July 2007. We are very disappointed with the $11.45 per share consideration for the proposed sale of the Company to Zayo Group, LLC ("Zayo"), which we believe does not fairly compensate the Company's shareholders.

Our analysis concludes that the intrinsic value of FTGX is IN EXCESS of $14.50 per share. To that end, Carlson does not intend to support a sale of the Company at the price that has been offered by Zayo.

The Company has impressively built a unique set of assets and relationships with domestic and global carriers that are unparalleled for a company of this size. We believe the Company's core service - providing value-added co-location and end-to-end network transport by means of its strategically positioned facilities - is a highly attractive business within a rapidly growing industry. The Company's 296 customers include many of the largest telecommunications providers from around the world. It should be noted that these extensive relationships have been assembled by only a few carriers in the U.S.

Over the past two years the Company has generated revenue growth rates comparable to its peers (including the hosting providers and competitive telecom carriers) but with a 60% lower level of capital intensity, as measured by capital expenditures to sales. This unique characteristic of FTGX's business model is not captured in a simple Enterprise Value / EBITDA multiple, and any comparative valuation analysis should factor in this important dynamic. We believe more appropriate multiples which consider different capital intensities are the following:

Price / Free Cash Flow, and
Enterprise Value / UFCF (UFCF being defined as EBITDA-Capex)

Thus, if one were to apply 2010 financial estimates to the low end of our intrinsic value ($14.50), FTGX would be valued at a 35% DISCOUNT (based on Price/FCF), and a 20% DISCOUNT (based on Enterprise Value/UFCF), when compared to its peer group.

While the proposed deal price is close to FTGX's 52-week high, the price is not reflective of the true equity value of the Company. In our judgment, the current and historic undervaluation of FTGX's common equity has been depressed due to the Company's limited trading liquidity (approximately 60% of FTGX's common stock is closely held by a few institutional holders and officers/directors of the Company) and lack of sell-side research coverage. If a transaction is to take place, shareholders must be adequately compensated for the quality of the Company's assets and its competitive position within the marketplace. The proposed transaction does NOT reflect the standalone fair market value of the Company, let alone a premium for control.

We strongly recommend that the Board use this go-shop period, as provided for in the merger agreement, to actively solicit appropriate offers for the Company. If there are buyers willing to offer a full and fair value for this business, we would be pleased to pledge our support in a sale of the Company. We would also note that other investors appear to share a similar view regarding the proposed deal, as the stock has consistently traded above the offer price since the announcement.

Dover Motorsports Faces Shareholder Pressure

2009-05-14T13:37:22.213-04:00

Dover Motorsports, Inc. (NYSE: DVD) may have to make some changes after a large shareholder expressed disappointment with certain company policies and compensation amounts in a Schedule 13D/A filing with the SEC. Mario Cibelli of Cibelli Capital Management owns approximately 16.3% of the company's outstanding shares and sent the following letter to the board outlining several concerns:

Dear Board Members,

In conjunction with the 2009 Annual Meeting of Stockholders of Dover Motorsports, Inc. ("the Company") which took place on April 29, 2009, we believe it is important for the Board Members to review in greater detail the voting results of the Shareholder Proposal and the re-election of Directors, including Chairman Henry B. Tippie. As per our discussion at the annual meeting, we reiterate our opposition to the Company's ban of the question and answer segment on its quarterly conference calls and continue to believe certain aspects of the Company's executive compensation plan are flawed.

Re-election of Directors

At face value, it appears that the 96% vote "For" the re-election of Henry B. Tippie as Director was an overwhelming show of support for Mr. Tippie. However, this is not the case. If one were to reasonably assume that all insiders (Directors and Officers as a group), Michele Rollins and Gary Rollins voted "For" the re-election of Mr. Tippie, the vote of the non-insiders reflects a much different outcome: 65.2% "Withheld."

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Based upon the above tally, it is obvious that the non-insider vote is a reflection of the displeasure and frustration the outside shareholders feel regarding the direction of the Company under the leadership of Mr. Tippie. The two additional Directors who stood for re-election this year were not immune either. R. Randall Rollins and Patrick J. Bagley each had a significant number of "Withheld" votes cast by outside shareholders, with 28% and 33% votes "Withheld" respectively. To put this year's results in historical perspective, the total number of "Withheld" votes (16,901,289) cast by non-insiders for the three Directors this year alone is far greater than the total number of "Withheld" votes (10,401,834) for Directors in the prior six elections combined.

In fact, the number of "Withheld" votes related to the re-election of Chairman Tippie to the Board of Directors over his past three re-election periods is very striking and speaks to what we believe is a 'no confidence' vote by the outside shareholders.

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Shareholder Proposal

As you are aware, we submitted a Shareholder Proposal that sought to eliminate the Company's Shareholder Rights Agreement, or poison pill. We argued that since Mr. Tippie already had voting control of the Company, the Rights Agreement served no other purpose than to arbitrarily limit the number of shares a current or prospective shareholder could own at 10% of the combined classes of stock. Similar to the results of Mr. Tippie's re-election, the vote of the non-insiders was dramatically different than those of the insiders.

SHAREHOLDER PROPOSAL

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The outside shareholders have clearly and publicly have voiced their position. While not bound by the voting results of the outside shareholders, the Board of Directors should consider the overwhelming response to the Shareholder Proposal and the re-election of Henry B. Tippie when determining the strategic direction of the Company. Clearly, we are not the only shareholders that are very concerned about the direction of Dover Motorsports. Board members that are not responsive to their shareholders have difficulty in claiming their fiduciary obligations are being satisfied.

Elimination of Q&A during Quarterly Conference Calls

Yet another quarterly earnings release and conference call was conducted last week with no question and answer session. As we stressed during the annual meeting, we believe this is a poor, short-sighted decision made by Mr. Tippie and the management team. We believe the question and answer session of quarterly conference calls is an integral part of open communication between companies and shareholders. While we do not know if Dover's Board Members have listened to the Company's conference calls in the past, such communication can serve as a method to receive both positive and negative feedback on performance and strategy. Additionally, it is inconsistent and insulting that sister-company Dover Downs permits question and answer sessions on its calls while Dover Motorsports does not. Legitimate criticism and debate should be met head-on by Board Members. Shareholders deserve more than a silent retreat by Board Members concerning these critical issues.

Change in Control and Non-Compete Agreements

Another point we stressed during the annual meeting was the unusual nature of Mr. Tippie's and other executives' change in control payouts and non-compete agreements especially given the nature of the racing business and the destruction of shareholder value over the past seven years. At the annual meeting, Mr. Tippie mentioned that these arrangements are not unusual; however, both International Speedway and Speedway Motorsports do not have such a plan in place. To set the record straight, we think the Directors should be aware that this arrangement is unusual in the industry. We believe the non-compete agreements are particularly egregious given the Company's inability to secure a Sprint Cup race for the Nashville facility and the Company's significant financial underperformance versus its peers. In the event of a change in control, how are these payments truly justified?

Lastly, we are encouraged at the Company's recent efforts to divest its money-losing operations. We encourage Board Members to stay the course on divesting the Midwest assets.

I attempted to contact Mr. Tippie last week in order to discuss some of these issues. So far, I have not heard from him. Please do not hesitate to contact us if we can be of any assistance. Thank you.

Sincerely,

Mario D. Cibelli
Managing Member

NMT Receives Letter from Activist Shareholder

2009-04-13T12:04:23.8556033-04:00

NMT Medical Inc. (NASDAQ: NMTI) received a letter from Glenhill Capital Advisors on Monday, April 13, 2009, demanding some changes, in a Schedule 13D filing with the SEC.

Here's a copy of the letter:

As you may know, Glenhill Capital Advisors, LLC and its affiliates (“Glenhill”) own 1,264,820 shares of the outstanding common stock of NMT Medical, Inc. (the “Company”), representing approximately 9.7% of the Company’s outstanding shares. Glenhill has been a stockholder of the Company since July 2006 and has continually monitored the Company’s developments since that time. As the Company’s largest stockholder, Glenhill has a significant interest in the future of the Company and has spent significant time considering the Company’s business.

As the Managing Member of Glenhill, I am writing to express my concern with the plan of the Company’s Board of Directors (the “Board”) to launch a search for a new President and Chief Executive Officer to replace John Ahern. I urge the Board to reconsider this plan, as an executive search, in my view, is not in the best interests of the Company or its stockholders at this time. First of all, hiring a new chief executive is an expensive proposition, as any candidate will, in all likelihood, demand a significant compensation package, including a substantial salary and a large number of stock options. Such a package will strain the Company’s limited resources and dilute the equity of the Company’s existing stockholders. In addition, an executive search is a time-consuming process and will likely divert the attention of management and the Board. Major decisions facing the Company will inevitably be postponed until the executive is hired and familiarizes himself or herself with the Company and its operations.

Furthermore, searching for a new chief executive at this time is especially unnecessary since realistically the Company’s future is dependent upon the decision by the Food and Drug Administration (“FDA”) in December 2010 regarding the Company’s main device. Regardless of the FDA’s ultimate decision, it is likely that the Company will consider at that time various strategic alternatives to continuing its existence as a stand-alone entity. Since it will take a new chief executive a substantial amount of time to familiarize himself or herself with the Company and the issues that it faces, it is unlikely that he or she will be able to make a significant contribution to the Company prior to the FDA decision. Accordingly, I do not believe it is prudent for the Company to enter into an expensive long-term arrangement with a new chief executive when the Company, in all likelihood, has a limited lifespan as a stand-alone entity. Rather, I urge the Board to designate Frank Martin as Chairman of the Board and to appoint Richard Davis, the Company’s current Chief Operating Officer, as interim Chief Executive Officer until the Company receives notice of the FDA decision. These individuals possess detailed knowledge of the Company’s business and are in a strong position to lead the Company for the foreseeable future.

In addition, I am greatly concerned with the Company’s recently announced decision to maintain a two-year timetable for data analysis of its Closure I trial. For the last several years, the Company has informed stockholders of its desire for an early analysis of the data if the independent committee of biostatisticians and trial design experts concluded that it was “highly likely” that sufficient primary outcome events would have occurred so that an analysis could be performed in October 2009. Yet the Company announced in its press release dated April 7, 2009 (the “Press Release”) that it will maintain a two year timetable for data analysis despite its knowledge that a one year evaluation period was highly likely to be statistically significant. Stockholders have yet to receive an explanation for this change. While the Press Release notes the medical community’s desire for more data, in my investing career I have yet to see an instance where the medical community did not want to review more data and that is precisely the reason such decisions are left to an independent committee. I also believe the Company should be more mindful of its public responsibility to the thousands of stroke victims each year who could use the Company’s technology if the early analysis of the data would support its use. The Company is ill-advised to adhere to a higher standard than that which is already mandated by current regulations.

I am also concerned with the economic disconnect between the Board and its stockholders. While all members of the Board receive approximately $50,000 a year for their service on the Board, only a few directors have purchased more than a nominal amount of shares of the Company’s common stock. In fact, the cash compensation received by members of the Board has historically dwarfed the market value of their holdings of the Company’s common stock. It would be unfortunate if members of the Board decided to maintain the timetable so that the shareholder value is put at risk.

I strongly urge the Company to reconsider its decision regarding the search for a new chief executive officer and to maintain an expedited timetable for analysis of the data. I believe the requests set forth in this letter are in the best interests of the Company and its stockholders and I look forward to prompt action by the Board in furtherance of our shared interests. Please feel free to contact me at (646) 432-0600 to discuss this issue further.

Carry-Forward Extension Helps Pressure BioSciences

2009-03-30T10:57:35.8824158-04:00

Pressure BioSciences, Inc. (NASDAQ: PBIO) is expected to receive approximately $623,000 in the form of a tax refund from the government this year for the 2004 calendar year. The five-year carry back of 2008 net operating losses are eligible for small businesses under the American Recovery and Reinvestment Act of 2009, passed by Congress and signed into law by President Obama in February 2009.

The new tax provision could help many companies posting losses last year to get refunds for taxes paid as far back as five years earlier. The businesses could then re-file their old tax returns, using the losses suffered last year to offset profits made when times were good. The two year net operating loss carry-back provisions in 2002 provided much-needed relief to manufactures and Obama expanded it.

Pharmaceutical companies are likely to be the largest beneficiaries of this new law given their rather unstable operating histories. A company with a profitable drug for two of the last five years that sold it to fund a new drug in development may now reach out and get tax refunds for those two years of profitability. This could prove extremely valuable in today’s tough financing environment.

Another unintended consequence of this lengthening of the carry-forward may be in mergers and acquisitions. Often times, larger profitable companies buy non-profitable companies with promising assets to not only gain the assets, but also use the carry-forwards to help offset their profits. Now, these carry-forwards are valid for the past five years.

Comtech Executives Start Buying Up Shares

2009-03-27T12:10:17.1901313-04:00

Comtech Telecommunications Corporation (NASDAQ: CMTL) shares moved higher after several insiders purchased $650,000 earlier this week. President and CEO Fred Kornberg 25,000 shares for $22.57 per share, while other buyers included the firm’s CFO, VP of Finance, Corporate controller, VP of Tax and Secretary. The purchases are the first made in the open market in over three years, and all of the insiders still hold less than one percent of the company.

The move comes after Comtech announced weak 2010 earnings guidance and cut its 2009 earnings and revenue forecasts. Given that these insiders have traditionally been heavy sellers, many experts believe that the buying was an encouraging reversal of sentiment, even if they took more out in the past than they put in now. Meanwhile, at least one analyst remains optimistic on the stock – given its low valuation – with a price target of around $32.50 per share.

Comtech designs, develops, produces, and market products, systems, and services for communications solutions. The company has three business segments: telecommunications transmissions, mobile data communications, and radio frequency (RF) microwave amplifiers. The company sells its products to a diverse customer base in the global commercial and government communications markets. Shares of Comtech rose $0.15, or 0.63%, to $23.83 per share in early trading.

Mexico Fund Faces Shareholder Pressure to Narrow Discount

2009-03-26T12:49:35.5700907-04:00

Mexico Fund Inc. (NYSE: MXF) is receiving some criticism from shareholders with regards to its chronic discount to net asset value. City of London, which owns 17% of the fund, disclosed yet another letter to the board in a Schedule 13D filing with the SEC. In the letter, the hedge fund argued that the board must take immediate measures to reduce the excess supply in shares and narrow the discount.

Unlike mutual funds, closed-end funds like Mexico Fund do not automatically trade at the value of their underlying assets. Rather, shares of the fund are purchased and sold much like a regular stock. As a result, it is common for some closed-end funds to trade at a premium or discount to their net asset value, depending on investor sentiment about the future of the fund.

Unfortunately, the economic crisis has led to many investors pulling their money out of funds like the Mexico Fund. The result has been a chronic discount to net asset value that recently reached in excess of 25%. It is not uncommon for large investors to turn activist and push for changes to narrow the discount. The recommendations often range from tender offers to liquidations, designed to unlock value.

Instead of taking these actions, the Mexico Fund instead opted to issue new shares in a rights offering! Unfortunately, there was not enough liquidity in the stock’s market and shares dropped even lower as a result of the excess supply. Meanwhile, the company has lowered its quarterly cash dividends and reduced its share repurchasing plans in moves that also damaged shareholder value.

Mexico Fund issued 5,021,908 shares through their rights offering at a significant discount to net asset value, while it was only authorized to repurchase 2,956,814 shares through its in-kind share repurchase program. Things are made even worse by a dividend reinvestment program that also continues to issue shares and contribute to the fund’s oversized nature.

City of London finished their letter with a threat:

"City of London continues to hold the belief that the Board needs to immediately address the problem of excess supply in order to significantly and permanently reduce the discount at which the Fund's shares trade to net asset value back much closer to parity. If the Board's objective in proposing to eliminate the in-kind repurchase is to more effectively reduce the Fund's trading discount, then City of London suggests the Board inform shareholders openly and publicly of their intentions. While we have no present plans or proposals on the issue, we may look to act in the future if the Board does not demonstrate the necessary commitment to managing this Fund."

In the end, if City of London is successful, Mexico Fund may be a stock worth watching for investors when it returns to net asset value.

APP Chief Makes a Curious Purchase

2009-03-25T13:35:09.6424284-04:00

American Apparel Inc. (AMEX: APP) Chairman and CEO Dov Charney purchased 855,000 shares of stock on Thursday and Friday with a value of around $2.67 million, according to Form 4 filings with the SEC. The move was not only the first time the executive has purchased shares of his own company, but also comes just days after the company struck a refinancing deal to potentially sell shares for $2.00 each.

The teen apparel company was in danger of default not long ago, until it secured $80 million in capital from private equity firm Lion Capital LLP. However, the capital injection came at a high cost that gave the hedge fund the rights (or warrants) to purchase 18% of the company for just $2.00 per share. The price was well below the average trading price of the stock, but investors saw it as a necessary evil.

Some experts are mixed on the true purpose of the insider purchase, however. Some believe that it was a positive sign for the company or a signal to investors that he still has faith. However, others believe that it was a purchase to maintain his ownership stake, which stands at 53.7% after the purchase. Regardless, investors look the news in good heart and sent shares more than 4% higher on the day.

Wilshire's Annual Meeting Delayed Until March 30

2009-03-24T12:09:23.946-04:00

Wilshire Enterprises (AMEX: WOC) shareholders will have to wait another week before hearing the results of their proxy contest. The company filed a Schedule 14A filing with the SEC indicating that they would adjourn the annual meeting until Monday, March 30, 2009 at 1:00 p.m. Eastern Standard Time. The meeting will determine whether Full Value will overtake the board and liquidate the company.

Many investors view the delay as a last-second desperate tactic by management to save their jobs. The company has already spent thousands of dollars in color brochures and other materials designed to convince shareholders to vote in their favor. Meanwhile, many other shareholders have even reported receiving calls at home from management looking for votes on Yahoo! Finance.

The one thing that is certain is that Full Value has agreed to conduct a tender offer at $2.00 per share upon victory, which represents a substantial premium to today’s $1.15 share price. Meanwhile, management has been criticized not only by Full Value, but also independent proxy advisory firms, for not taking any meaningful actions to turn the company around.

Whether or not the company gets sold or not remains to be seen, but shareholders will now have to wait a bit longer to find out.

Insider Takes a Larger Stake in Target

2009-03-23T10:44:41.2256743-04:00

Target Corporation (NYSE: TGT) shares opened sharply higher amid a broad market rally on the Treasury’s new plan to buy up toxic assets. However, investors have another good reason to be happy after looking at a Form 4 filing with the SEC. Executive Officer Gregg Steinhafel purchased 150,000 shares on March 18th at an average price of $30.35 per share. However, is this a real sign of confidence or something else entirely?

Insider purchases have typically been a sign of confidence in the target company. However, there is some speculation that this and future purchases by insiders may be intended to acquire votes against Bill Ackman, who announced his proxy contest just a day earlier in a Schedule 13D filing with the SEC. The billionaire activist proposed his TIP REIT plan a few months ago, but met strong resistance from the board of directors.

Ackman nominated five individuals to the company’s board at Target’s 2009 annual meeting. The nominees include William Ackman, Michael Ashner, James Donald, Ronald Gibson, and Richard Vague. All of these nominees appear well qualified for the job, while Ackman’s plan, if instated, may be an effective way to unlock value in the depressed retailer. Either way, this is definitely a situation worth watching for shareholders and investors!

Gamco Asks Hawk Corporation to Remove Poison Pill

2009-03-20T10:39:18.1249817-04:00

Hawk Corporation (AMEX: HWK) may see some more buying if one large shareholder gets its wish. Gamco Investors, which owns more than 10% of the company, requested that the company remove its poison pill provisions to allow it to purchase more than 15% of the company in a Schedule 13D filing with the SEC. The move would pave the way for future investment from Gamco, but may also open the door to unwanted hostile actions if not done properly.

The move to purchase more shares of Hawk Corporation comes despite negative sentiment by management. The company noted during its 2008 earnings release that its record results were driven by the first three quarters and the impact of the recession began to hit in the fourth quarter. As a result, the company reduced its guidance by 26% to 33% for 2009. The company also took proactive actions by cutting costs, controlling discretionary spending, reducing its headcount and freezing pay levels.

Hawk Corporation is a supplier of friction products for industrial, aerospace, agricultural and performance applications. Through its subsidiaries, the Company operates in the friction products segment. Its friction products include parts for brakes, clutches and transmissions used in construction and mining vehicles, agricultural vehicles, trucks, motorcycles and race cars, and brake parts for landing systems used in commercial and general aviation. The friction products are made principally from formulations and designs of composite materials and metal powders.