Tollgrade

The annual meeting of shareholders of Tollgrade Communications will take place on August 5.

Here's a link to Tollgrade's recent communication with its shareholders.

As you can see there, Ramius has set out three dissident nominees: Scott C. Chandler, Edward B. Meyercord III and Jeffrey M. Solomon.

Tollgrade has focused its return fire especially on Chandler. His telecommunications experience, they tell us, consists in "leading Rhythm NetConnections Inc. first into an 'internet bubble' valuation of $9 billion and thereafter into a bankruptcy and liquidation where shareholders ultimately received $0 for their shares...."

Rhythm NetConnections? If memory serves, that was a minor player in the Enron saga, was it not? I'll look into it later this week.

CPI Corp.

The preliminary count indicates that the incumbents of CPI have prevailed over the challenge from Ramius.

CPI is the operator of the PictureMe Portrait Studios, which canbe found in Sears and WalMart locations.

Ramius had nominated Peter Feld and Joseph Izganics, and has complained that the company's current board is too much under the influence of Knightspoint Partners.

On Wednesday, the shareholders voted for the company slate of James Abel, Paul Finkelstein, Michael Glazer, Michael Koeneke, David Meyer and Turner White. All but Finkelstein, who is a new nominee, and Glazer, who joined the board last year, have served on the board since 2004.

Feld has tried to put the usual good face on this. "At the end of the day, the company is stronger than it was before our investment," he said. "We were an active shareholder and board member for five years and we did make substantial changes."

Andrew Freedman, a lawyer for Ramius, has a less sportsmanlike take. The "record daye" was May 9, i.e. anyone who owned shares as of that date were eligible to vote, but Freedman said a confusing process may have put ballots in the hands of people who acquired shares after that date. “We see the potential for double voting.” So we may hear more of this matter yet.

Ramius makes its case

I spoke last week about CPI Corp., and its planned stockholders' meeting July 8 (Wednesday).

Today I wish only to add that this is the case that Ramius is making. It objects to the fact that Turner White chairs the compensation committee, and that James Abel chairs the Nominating and Governance Committee.

Turner White, in particular, Ramius claims, has:

* No retail experience
* Limited financial experience
* Is a Knightspoint recommended director (a bad thing itself in their view)
* and as head of the Comp Committee has proposed and supported exorbitant compensation packages.

In general, the "outsized and undue influence" of Knightspoint supposedly throws into question "all aspects of the company's corporate governance."

CPI is arguing that Ramius has tried to force a desperation sale of the company. Ramius replies that this is "highly misleading," a phrase that usually means "not entirely wrong."

CPI Meeting, July 8

CPI Corp., a Missouri-based photography-services concern, hosts its shareholders meeting one week from today.

Its largest shareholder is Ramius LLC, which owns 23% of the equity and controls one board seat.

CPI's chairman, David Meyer, through his own investment firm, Knightspoint Partners, controls 1.5%, and two board seats.

A story in the St Louis Business Journal yesterday offers a scorecard.

The company is traded on the New York Stock Exchange (CPY). As you can see above, ithas a very dramatic looking price chart. Until the credit crunch of last autumn it was trading in a range between $14 and $18. About the time Lehman Bros declared bankruptcy in mid-September, CPI's price began a serious slide that took it down to $6. Then in mid October it recovered a good deal of that ground, which it lost again by the end of the month.

All that was but a bag-of-shells compared to the collapse of November, though. Through late Novemver and early December it was trading below $2.

the story since then has been one of recovery. So why the proxy fight? We'll talk Sunday.

Tollgrade

Tollgrade Communications, a network-testing company based in Pittsburgh, has responded to the prospect of a proxy contest. The possible dissidents in this case would be Ramius.

Tollgrade's chairman and CEO, Joseph Ferrara, has written to Ramius's principals, along these lines: "Since last spring, after learning that affiliates of Ramius had accumulated close to 10% of the common stock of Tollgrade, we have sought to constructively and respectfully engage with you and other representatives from Ramius. While we remain open to continuing to have those discussions and listening to any ideas and suggestions that Ramius may have on how we may continue to increase value for all shareholders, the disparaging and pejorative tone of your letter and the related press release, together with your overt threat to launch a proxy contest against Tollgrade, does not advance our ability to constructively engage with you or other representatives from Ramius to advance those discussions."

That's too polite folks. Mix it up a bit.

three brief items

1. Routine votes from brokers

The Securities and Exchange Commission has recently put out for comment a proposed amendment to NYSE rule 452. This rule allows brokers to cast votes on certain routine matters on a client/investor's behalf, if that investor (the beneficial owner) has not provided specific instructions to the broker at least 10 days before a scheduled meeting.

The significance of the practice is that it helps companies meet quorum requirements for those boring issues real people don't care about.

But of course there is lots of room for debate over what should or shouldn't count as a routine issue for this purpose. I hope to have something more to say here along these lines next week.

2. Orthofix resisting Ramius nominees

Ramius LLC and affiliated entities are trying to put three nominees on the board of the orthopedics-product company Orthofix. The nominees are: J. Michael Egan, Peter A. Feld and Charles T. Orsatti. If successful, they will replace current Chairman of the Board James F. Gero, and directors Peter J. Hewett and Walter P. Von Wartburg.

Orthofix is resisting, and the matter will presumably be resolved by or at a special meeting of the company's shareholders on April 2.

Proxy Governance Inc. has issued its own report on this contest, in which it said: "The problem with the dissident campaign is not an inability to evaluate what went wrong, but the profound absense of a plan to effect a credible recovery."

Orthofix is of course ensuring that everybody knows that PGI has said this.

3. CV Therapeutics takeover bid ends

Astellas Pharma, a Japanese company, announced last week the end of its hostile bid for CV Therapeutics. It had made a tender offer of $16 a share.

Astellas was outbid by Gilead Sciences, and Astellas says that it doesn't see value for its shareholders in trying to top Gilead's offer of $20 a share.

My impression is that there is a lot of dry powder out there, especially in the far East. Companies have responded to the crises of the last year and a half by selling assets and holding cash. Now they're tire of cash. Cash is boring. They want to put it to work. We may see a lot of merger and acquisition activity and even some bidding wars coming down the pike, and this one may look like a harbinger.

Gilead and CV are both California-based companies, so this is a neighbor-buys-neighbor story. But not every Far Eastern bidder will withdraw with such quiet grace.

Settlement agreement at Agilysys

Ramius has settled its dispute with issuer Agilysys, an IT contractor for companies in the retail and hospitality markets.

Ramius owns approximately 13% of Agilysys' shares, and has expressed its unhappiness with a "misguided, poorly executed acquisition strategy."

A shareholders meeting, scheduled for March 26, will now be shorn of drama.

It appears that Agilysys had to throw two of their own overboard. Directors Charles Christ and Eileen Rudden have resigned. They'll be replaced by two of Ramius' nominees, John Mutch and Steve Tepedino.

Here's some bio on the two new directors, from the settlement announcement:

Mutch (age 52) is the founder and a Managing Partner of MV Advisors, LLC, a firm that provides focused investment and strategic guidance to small- and mid-cap technology companies. In March 2003, Mutch was appointed to the Board of Directors of Peregrine Systems Inc. (“Peregrine”), a global enterprise software provider, to assist Peregrine and its management in development of a plan of reorganization, which ultimately led to Peregrine’s emergence from bankruptcy. Mutch served as President and Chief Executive Officer of Peregrine from August 2003 to December 2005 through its acquisition by Hewlett-Packard. Mutch is currently a director of Edgar Online, Inc., Adaptec, Inc. and Aspyra, Inc.

Tepedino (age 47) is a co-founder of Channel Savvy LLC, a management consulting firm specializing in technology channels, where he has served as President and Chief Executive officer since May 2006. Additionally, since that time Tepedino served as a Member of JET Creative LLC, a management consulting company specializing in the information technology industry. From 1984 to 2006, Tepedino worked in various positions at Avnet, Inc., a Fortune 500 company focused on global technology distribution.

As part of the settlementk, too, the company has disbanded its special committee formed to oversee its "strategic alternatives." If or when it creates a new such committee, one of the two new Ramius Directors will be a member.

Cleveland IT Contractor negotiating w/Ramius

Agilysys, Inc., an IT contractor headquartered in Ohio (Nasdaq: AGYS), faces a proxy contest from Ramius LLC, in connection with the company's annual meeting scheduled for March 26.

Three members of Agilysys' (staggered) board will stand for re-election at that meeting. The Ramius/challenge slate consists of: John Mutch; Steve Tepedino; James Zierick.

Their grievance? In the words of their proxy statement: "In light of the Company’s continued poor operating performance, we believe that it is imperative that management and the Board immediately commit themselves to: realigning the cost structure of all three business units to achieve margins on par with industry peers;
significantly reducing corporate overhead; and refraining from making any further acquisitions."


It appears that negotiations are underway. In a statement, Agilsys' chief executive, Martin Ellis, said recently: "We are always willing to work with shareholders and on many occasions we have met with Ramius representatives to conduct negotiations to avoid a potential proxy contest. We hope these discussions can continue in good faith."

The negotiations are aimed at a "standstill agreement." Not, in other words, making Ramius happy but giving it enough in terms of board representation so it will agree to a standstill into 2010. This seems likely to involve conceding two of the three positions now contested, which would represent 2/9ths of the overall board.

The three incumbents each, pending any such dea, seeking re-election are: Thomas A. Commes; R. Andrew Cueva; Howard V. Knicely.

Lubys: The Other Foot

The story so far: The Pappas family runs Lubys,with the brothers occuping the CEO and COO posts. The incumbent board is happy with this, although some investors, notably Ramius Capital, object that given the other interests of the Pappas' this is a situation rife with conflict.

Yesterday, we spoke about how the incumbent board responds to the conflicts charge while playing defense. We saved for today the fact that their chief response has been to take the offensive. The conflict shoe, they say, is on the other foot.

As CEO Chris Pappas said in a letter to the Houston Chronicle, which it printed this Sunday: "Ramius ... doesn't care about Luby's history or our future. Ramius doesn't bring relevant restaurant experience, only a risky notion to strip Luby's of its real estate assets, the sort of short-term financial scheme typical of Wall Street thinking."

The general charge here is a common one, that there is an inherent opposition between Wall Street and Main Street, and that it the opposition between the New Yorkers who care only about the next quarter's bottom line -- or who aren't even thinking that far ahead, because they're hoping the get a quick churn-around on the stock maybe this afternoon or tomorrow -- and those decent heartland-dwelling folk who stick around to build a business over years or decades.

Personally, I think that opposition is nonsensical. If the accounting is done honestly, next quarter's bottom line will be what it is because of long-term considerations, the two are only in opposition if the corporate management is allowing or encouraging its accountants to let them be in opposition. And the big problem in such a case is in the heartland, not on Wall Street.

As to real estate ... this is a more specific example of the broader nonsense of the above quoted rhetoric. Yes, Ramius has said that if its nominees get on the board they'll study the possibility of real estate sales. And why should they not? Is it essential to the success of a restaurant that it own the land its sitting on? Surely not. Indeed, maybe Lubys are sitting on leased land as it is (anbd sometimes the leasor is another Pappas family interest), so the question of whether some land ought to be sold is a question of moving along a continuum, not a matter of yes-or-no.

In general, I think Luby incumbents have presented a plausible defense to the charges of conflict, but their offense Sticks. Maybe neither side has any conflicts of a sort about which non-aligned shareholders ought to worry. In that case, the shareholders may have to study the respective track records of the two sides to make up their minds.

They'll have to do so without any further assistance from me, though, because this blog must move onward, ever onward. Tomorrow, I plan to discuss JANA and CNET.

Lubys, continued

On Friday, both the incumbent board and the dissident slate in the Lubys proxy contest filed their "definitive proxy soliciting materials" with the SEC.

(By the way, the company itself uses the apostrophe, re-positions it, or drops it according to context, so Lubys, Lubys', and Luby's are each correct.)

As I mentioned yesterday, the Pappas brothers run Lubys. I wasn't so clear yesterday about the fact that the Pappas' also run privately owned restaurant chains under variants of the family name: Pappadeaux, Pappasito's, Pappas Bros. Steakhouse, Pappas Seafood House and Pappas Bar-BQ.

The dissidents argue that this creates a conflict. The interests of the shareholders of Lubys might well be served by competitive actions vis-a-vis those privately owned chains that the Pappas' themselves are unlikely to undertake.

Indeed, the Pappas own the land on which some of the Lubys restaurants sit, and within this landlord-tenant relationship there is further room for dealings at the expense of the tenant's shareholders.

The incumbent board replies that the Pappas' are among the largest sharehholders in Lubys, so their interests are aligned with those of the other shareholders, that they are only two members of a ten-member board, which has "worked diligently to supervise the efforts of Management in turning the company around," and that in fact the Pappas' have turned the company around.

"Luby's today has the financial strength to execute on its strategic growth plan...."

Further, the incumbents take the position that the "conflict of interest" shoe is on the other foot. I'll write tomorrow about Luby's case against Ramius.

Luby's: Fish or Beef

Investors in Luby's, a cafeteria-style restaurant chain, at any one of which you might well find yourself standing in line behind some fellow who's hesitating between the fish plate or the beef, have a choice to make of their own. Stick with the Pappas family, or go with the dissident slate.

And the professional kibitzers -- otherwise known as proxy advisory services -- are saying the "fish" offered by the company's largest shareholder, Ramius, looks good.

They've still got a bit more than a week to fill up their plate and take a seat. The annual meeting is January 15.

Luby's has been a publicly held corporation since 1973 and has been listed on the New York Stock Exchange since 1982. The two members of the Pappas family, Christopher and Harris, arrived in 2001. Currently, Chris P is the CEO and Harris P is the COO. And there's the rub.

But it's a lazy Sunday and I'll stop here, holding back discussion of the pros and cons of Pappas family control for tomorrow.

As for Ramius, I'll simply observe that my regular readers may remember the name.

Datascope Results: Tie Game

Datascope held its annual meeting on December 20. This was the big showdown. Or (as Jon Stewart likes to say) not so much.

The activist investor/hedge fund manager Ramius wanted to put two new faces on the seven member board. The company stood by the two corresponding incumbents up for re-election, James J. Loughlin or William L. Asmundson.

It now appears that one of the two dissident nominees, David Dantzker, has won a seat, but that the other, William Fox, has not. It isn't clear yet whether Dr. Dantzker's victory will be at Mr. Loughlin's expense, or Mr. Asmundson's. That will presumably be straightened out when the meeting reconvenes January 3.

The December 20 meeting seems to have been devoid of bile. Although this lessens the amusement value of the enterprise since the snappiest quote I can give you from a Ramius representative at the meeting is: "We do believe operations and corporate governance can be much improved," the amity is probably good for the stock price. Datascope was worth $2.30 a share at close of business last Tuesday, a little more than a day before the meeting convened, but is trading above $2.40 as I write.

Smiles and sugarplums all round, then.

Ramius, Datascope, blank checks

The hedge fund Ramius Capital seeks to put two new faces on the board of directors of Datascope, a medical device manufacturer based in Montvale, New Jersey. Stockholders will vote on these two seats at a December 20 meeting.

Datascope has conducted a series of internal investigations this year and five of the company's top executives have left. It is natural to suspect that the former led to the latter, that "where there's smoke...." And if there isn't any fire, there's been a considerable waste of money in calling out the bucket brigade -- Datascope spent$1.7 million on legal expenses relating to those investigations.

Ramius said in a statement that it hopes the "election contest will send a strong message to the remaining incumbent directors that stockholders are not satisfied with the company's corporate governance and management."

Such troubles might in some circumstances put a company "in play" as a takeover target. But Datascope has the sort of "poison pill" provision I discussed here last week, and that is part of what Ramius objects to in their own proxy campaign. It also entrenches itself through other means, notably through the ability of the Datascope board to issue "Blank Check" preferred stock. This is, like poison pills, a fairly common means of entrenching the incumbents against the threat of acquisition, and a proxy fight is useful as a means of lowering these barriers, empowering a potential acquirer.

I believe this is the first time I've used that phrase "blank check" in this still-new blog. The idea is that a board allowed to make such issuances by its charter or by-laws can issue such stock to a friendly party or "white knight" in the event that a black-suited knight, an unfriendly acquirer, appears. Depending on the conversion rights that go with the preferred stock, it can have the effect of diluting the acquirer's holdings, making the acquisition more expensive and/or less attractive.

Boards commonly argue that the authority to issue such "blank check" stock is good for the company because of the increased flexibility it gives the board in the pursuit of financing. But fiduciaries are wary of it.

On the website of American Century Investment Management, for example, you'll find an explanation of that asset management firm's proxy voting policies that includes the following:

"Generally, the Adviser will vote against blank check preferred stock. However, the Adviser may vote in favor of blank check preferred if the proxy statement discloses that such stock is limited to use for a specific, proper corporate objective as a financing instrument."

Datascope's board has seven members, so even if both the dissident nominees are elected -- and they express such wariness in boardroom deliberations -- they may well end up being a minority voice in such matters. Still, I suppose that the issuance of blank check stock by a 5 to 2 vote might itself serve as a red flag.