Disclaimer: I have no opinion on Xyratex, I never heard of the company until I saw the letter and cannot judge the validity of Mr Perelman's comments as it applies to that situation.
Regular readers will know that Baker Street Capital Management together with George Kerr, the managing director of Pyne Gould Corp (PGC) controls the AEP (Australia Equity Partners), which again controls Pyne Gould Corp (77% of the share count). I copy the majority of the sections that Mr Vadim Perelman highlighted in his letter to the board and CEO of Xyratex.
What is fascinating is the accusations which Mr Perelman so vehemently and confidently level against the management of Xyratex equally applies to PGC, the company that he and Mr Kerr controls. By pounding the table with the left hand and sanctioning abuse with the right hand Mr Perelman and Baker Street Capital Management is sitting on a two legged stool. It gets uncomfortable after a while and eventually you fall over. To say that it has more than a whiff of hypocrisy is going too far considering I do not know the man, but the contradictions are glaring between what he allows as controlling shareholder at PGC and what he so confidently preaches to Xyratex management.
The lack of transparency by the board of PGC, the company Mr Perelman controls via Baker Street Capital Management and his vehicle AEP, is the very reason this blog was started. The concerns are widely reported in the New Zealand press and this blog provides insight into most of those concerns.
You can take Mr Perelman's letter and for the most part simply replace Xyratex with Pyne Gould Corporation and address it to his partner and Managing Director of PGC, Mr George Kerr.
A copy of the letter can be found here. To avoid confusion, note that the bold and underlined formatting below were applied by Mr Perelman (not me) to emphasise the following matters.
"we are deeply concerned by this Board’s lack
of urgency in engaging with us in a meaningful, constructive dialogue to
address the issues impacting the value of the shareholders’ investment"....Applies to PGC. Mr Kerr did not even bother attend the last shareholder meeting and he is MD of the company!!
"We believe the Board should immediately
appoint three new directors we have identified, who are committed to working
with the Board to rigorously re-examine the current capital allocation and
R&D strategy, aggressively focus on maximizing profitability, and engage a
reputable investment bank to explore strategic alternatives".....Applies to PGC
"The performance of Xyratex PGC stock has been
extremely disappointing over almost any time frame."The PGC stock chart says it all
"the Company’s current strategy is to
reinvest the substantial profits from its mature core businesses in loss-making
and unproven investments in HPC and Cloud initiatives with little chance of
generating the returns that such risky investments require"......Applies
to PGC in so many ways. I note that the PGW shares that PGC management
was recently forced to sell increased by 42% over the last month. Xyratex will be hard pressed to destroy the kind of value Mr Kerr and Mr Perelman have been able to achieve in the time they controlled PGC.
"Consistent with management comments,
our research supports the view that Xyratex PGC has a bloated cost structure which,
if addressed urgently and decisively, would create an opportunity to
dramatically improve profits and generate significant value for shareholders"....Applies
to PGC and you can start with directors' remuneration.
"the current market price of Xyratex PGC fails to reflect our conservative estimate of the value
of Xyratex’ parts"....Applies
to PGC
"As a result, Xyratex PGC must make
meaningful operational improvements in order to enhance value for all
shareholders"....Applies
to PGC
"The nominal equity ownership of independent
directors creates a deep misalignment of interests with shareholders. "...Applies
to PGC. Actually scratch that. PGC has no truly independent directors.
"Additionally, the presence of the two top
executives on the Board interferes with its responsibilities to hold management
accountable."...Applies
to PGC
" Additionally, the presence of the two top executives on the Board interferes with its responsibilities to hold management accountable. Glass Lewis & Co., a leading proxy advisory firm, has taken issue with the CFO Richard Pearce’s position on the Board, noting: “We believe that the unique financial information and control over the company’s finances that is typical for a CFO should place the CFO in the position of reporting to and not serving on the board. It is crucial for the board to be in the position of overseeing the Company’s finances and its reporting. This oversight is likely to be more complicated and less rigorous when the CFO sits on the same board to which he reports.” We fully agree. The ultimate job of the Board is to protect shareholder interests and ensure that management acts in a manner that maximizes shareholder value"....Applies
to PGC. Mr Kerr controls all the strings at PGC and of course sits on the board.
"Xyratex PGC shareholders can no longer afford
the status quo"....Applies
to PGC
"We believe the resistance to new
ideas and thoughtful evaluation of all alternatives stems from a Board that
apparently lacks the proper incentives to act in the best interest of
shareholders"....Applies
to PGC
"The owners of Xyratex PGC cannot afford to wait
until the next annual general meeting to effect real and much needed change"....Applies
to PGC and at least the Xyratex CEO Steve Barber shows up at his annual general meetings. As mentioned the managing director of PGC, Mr George Kerr and Mr Perelman's partner who between the two of them control PGC did not even bother to show up at the last annual general meeting.
Ever heard the saying, "Practice what you preach"?
I doubt Mr Vadim Perelman would bother himself with what that, so I thought I would leave him with a quote of his hero Mr Warren Buffett, the American celebrity investor and billionaire. This was Mr Warren Buffett's advice to his son Howard Buffett,
"It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently".
I suppose that depends on the kind of reputation you wish to build. Mr Kerr clearly cemented his reputation as an executive that does not care what his shareholders and investors think and the more unpopular, the better it seems. Why would one expect any different from his partner, Mr Vadim Perelman? Actions speak louder than words.I understand he is young, so maybe he will still learn.
jA
Anderson Cooper once said, I think it's a good thing that there are bloggers out there watching very closely and holding people accountable. Everyone in the news should be able to hold up to that kind of scrutiny. I'm for as much transparency in the newsgathering process as possible.
No comments:
Post a Comment