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Archive for the ‘Robert. L. Chapman’ Category

Bob Chapman says we may be in “the most dynamic passive investment environment of a lifetime”

Posted in Activist Investors, Robert. L. Chapman, Special Situation, Stocks, tagged , , on August 12, 2009| 8 Comments »

Robert L. Chapman, Jr. recently resigned as Chief Executive Officer of EDCI Holdings Inc (NASDAQ:EDCI) to focus on Chapman Capital in what he says “may be the most dynamic passive investment environment of a lifetime.” In the announcement to the market, said Chapman in his inimitable style:

Having ablated and amputated certain incontinent expenditures, and set EDCI on a prudent, judicious course of balanced scrutiny of acquisition vs. recapitalization, in addition to orchestrating EDC’s Blackburn-Hannover consolidation plan, I avidly look forward to shifting all my attention to Chapman Capital and related investment portfolios during what may be the most dynamic passive investment environment of a lifetime.

We’ve written previously about Chapman’s fondness for “asset-rich companies with battered stock prices,” which sees him frequently operating in the universe of stocks trading below liquidation value. We think it’s a good sign for sub-liquidation value investors like us that Chapman is back.

Read the announcement here:

EDCI Holdings, Inc. Announces Resignation of Robert L. Chapman, Jr. as Chief Executive Officer

NEW YORK, July 2 /PRNewswire-FirstCall/ — EDCI Holdings, Inc. (Nasdaq: EDCI – News; “EDCI”), the holding company for Entertainment Distribution Company, Inc., the majority shareholder of Entertainment Distribution Company, LLC (“EDC”), a European provider of supply chain services to the optical disc market, today announced the resignation of Robert L. Chapman, Jr. as Chief Executive Officer. Mr. Chapman, who also has resigned from EDCI’s Board of Directors, had replaced Interim Chief Executive Officer Clarke H. Bailey, who himself now replaces Mr. Chapman as EDCI Chief Executive Officer and EDC Interim Chief Executive Officer, effective July 2, 2009.

Mr. Chapman commented, “When I accepted the invitation six months ago from EDCI and EDC’s Boards of Directors to lead these companies through the difficult industry and global recessionary environment that characterized the first half of 2009, I conceived and preached the mantra of ‘Don’t Burn It & Don’t Blow It’ as it related to preserving EDCI’s sacred cash holdings. Furthermore, the seemingly constant headwinds of operating in the disc manufacturing and distribution business, with Universal Music Group as EDC’s supermajority customer, required immediate countermeasures to bolster EDC’s liquidity and longevity. Having ablated and amputated certain incontinent expenditures, and set EDCI on a prudent, judicious course of balanced scrutiny of acquisition vs. recapitalization, in addition to orchestrating EDC’s Blackburn-Hannover consolidation plan, I avidly look forward to shifting all my attention to Chapman Capital and related investment portfolios during what may be the most dynamic passive investment environment of a lifetime.”

Horace Sibley, Chairman of EDCI’s Governance Committee, commented, “In the CEO position at EDCI and EDC, Bob has demonstrated the fortitude to make tough decisions to solve tough problems. Over just a few months, Bob has reformulated the culture and streamlined the cost structure in ways that should benefit both EDCI and EDC for years to come. While the Boards of both EDCI and EDC were disappointed to learn of Bob’s decision to re-focus all his energy on his investment business, there can be no doubt that Clarke Bailey, Chairman of the Board, is the ideal leader to whom the baton should be handed to serve as CEO once again.”

Mr. Chapman joined EDCI’s Board of Directors as an independent director in November 2007, and is the Managing Member of Chapman Capital L.L.C., an investment advisor focusing on activist investing and turnaround investing. Prior to founding Chapman Capital in 1996, Mr. Chapman co-managed the Value Group within Scudder Stevens & Clark, which followed employment with NatWest Securities USA and Goldman, Sachs & Co.

Mr. Bailey joined EDCI’s Board of Directors in December 1990. From September 2008 to January 2009, he served as EDCI’s Interim Chief Executive Officer, after serving as EDCI’s Chief Executive Officer from October 2003 to November 2006 and from December 1990 to March 1994. Mr. Bailey has served as Chairman EDCI’s Board of Directors since October 1999, following his service as EDCI’s Vice Chairman from November 1992 to June 1996. Currently, Mr. Bailey serves as a director on the Boards of Directors of both Iron Mountain Incorporated and ACT Teleconferencing, Inc.

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Facet Biotech Corporation (NASDAQ:FACT) alternate slate withdrawn; Greenbackd exits

Posted in Activist Investors, Facet Biotech Corporation (NASDAQ:FACT), Robert. L. Chapman, Seth Klarman, Special Situation, Stocks, tagged , on May 7, 2009| 4 Comments »

Dr. Roderick Wong has withdrawn his slate of director nominees for election at Facet Biotech Corporation’s (NASDAQ:FACT) 2009 annual meeting of stockholders. Wong’s withdrawal means that our investment thesis is gone, and we’re closing the position.

We opened the position at $9.13 and closed it at $8.96, which means we’re down 1.86% on an absolute basis. The S&P500 Index closed at 850.08 on the day we opened the position and closed yesterday at 919.53, which means we’re off 10% on a relative basis.

Post mortem

FACT was a new category of investment for us: special situations (see our post archive here). It was an activist play with a catalyst in the form of Dr. Roderick Wong’s nomination for the annual meeting of an alternative slate of directors, including well-known activist investor Robert. L. Chapman. The dissident slate called for a cash dividend of up to $15 per share and demanded the sale of the other non-cash assets, estimating they may be worth an additional $8 to $16 per share, which represented a substantial upside at FACT’s $9.13 closing price (equivalent to a market capitalization of $216.8M) at the time we opened the position. We estimated the liquidation value to be anywhere from nil to $259M or ~$10.85 per share and the net cash value from nil to $228M or $10.54 per share, so it wasn’t a typical liquidation play for us. The company was burning through its cash at a rapid rate, so the main risk to the investment was that the status quo was maintained. Although Wong et al held only 0.5% of FACT’s outstanding stock, we thought the presence of Bob Chapman and other noted activist and deep value investors on the register (Baupost Group holds ~18%) indicated a good chance of success for the dissidents.

The position started falling apart when Chapman and Broenniman withdrew their consents:

In March 2009, Facet Biotech Corporation (the “Company”) received a notice of intention to nominate five candidates for election to the Company’s five-person Board of Directors at the Company’s 2009 Annual Meeting of Stockholders (the “Annual Meeting”). Sent by Roderick Wong, the notice stated the intent to nominate Philip R. Broenniman, Robert L. Chapman, Jr., David Gale, Bradd Gold and Roderick Wong, for election to the Company’s Board of Directors. On April 30, 2009, Philip R. Broenniman and Robert L. Chapman, Jr. each separately notified the Company in writing that they were withdrawing their consent to being named as nominees for election to the Company’s Board of Directors at the Annual Meeting.

And the death knell was Wong withdrawing the entire slate:

RODERICK WONG WITHDRAWS DIRECTOR NOMINATIONS

Redwood City, Calif., May 4, 2009 — Facet Biotech Corporation (Nasdaq: FACT) and Roderick Wong, M.D., today jointly announced that based on productive discussions between Facet and Dr. Wong, Dr. Wong has withdrawn his slate of director nominees for election at Facet’s 2009 annual meeting of stockholders and will not present, recommend or move for the election of any of the nominees he had submitted for election.

Faheem Hasnain, president and chief executive officer of Facet, said, “We thank Dr. Wong for raising important concerns held by some of Facet’s stockholders and advocating for these stockholders. Our Board values his insights regarding the future of the company and we look forward to an ongoing constructive dialogue with Dr. Wong.”

Dr. Wong said “I am pleased to have brought this situation to an amicable conclusion. Our discussions have focused on issues that are critical to Facet’s success and I appreciate the time and attention that the company has devoted to our discussions.”

Wong gives no indication in the press release what, if any, concessions were made by FACT to bring the situation to an “amicable conclusion.” There were no reasons given for Chapman and Broenniman’s withdrawl either. It could be that, without Chapman and Broenniman, Wong felt he didn’t have the support to roll the board and so sought a face-saving resolution with the company. We don’t know, but we welcome speculation in the comments.

[Full Disclosure:  We do not have a holding in FACT. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]

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Special situation: Facet Biotech Corporation (NASDAQ:FACT)

Posted in Activist Investors, Baupost Group, Facet Biotech Corporation (NASDAQ:FACT), Robert. L. Chapman, Special Situation, Stocks, tagged , , , , on April 22, 2009| 11 Comments »

Facet Biotech Corporation (NASDAQ:FACT) is a new category of investment for us: special situations. It’s an activist play with a catalyst in the form of Dr. Roderick Wong’s nomination for the annual meeting of an alternative slate of directors, including well-known activist investor Robert. L. Chapman. The dissident slate has called for a cash dividend of up to $15 per share and demanded the sale of the other non-cash assets, estimating they may be worth an additional $8 to $16 per share, which represents a substantial upside at FACT’s $9.13 closing price yesterday. The company currently has a market capitalization of $216.8M. We estimate the liquidation value to be anywhere from nil to $259M or ~$10.85 per share and the net cash value from nil to $228M or $10.54 per share. The company is burning through its cash at a rapid rate, so the main risk to the investment is that the status quo is maintained. Although Wong et al hold only 0.5% of FACT’s outstanding stock, we think the presence of Bob Chapman and other noted activist and deep value investors on the register (Baupost Group holds ~18%) indicates a good chance of success for the dissidents. It’s not one for the Greenbackd Portfolio, but it’s an interesting play, so we’re creating a new Special Situations portfolio and adding FACT as our first holding.

About FACT

FACT is a biotechnology company spun out of PDL Biopharma, Inc. (PDL) in December last year. It operates what previously had been PDL’s biotechnology business. In the spin-off, PDL contributed to FACT certain intellectual property associated with the biotechnology business, $405 million in cash, an assignment of future payments from Biogen Idec Inc. and Bristol-Myers Squibb Company (BMS) and royalty and milestone revenues from certain other agreements. FACT is now engaged in “identifying and developing oncology therapeutics.” It has four antibodies in the clinic for “oncology and immunologic disease indications,” of which two are in phase II and two in phase I. The company has several “investigational compounds in various stages of development” for the treatment of cancer and immunologic diseases, three of which it is developing with Biogen Idec and one with BMS. The company’s investor relations website is here.

The value proposition

The company’s hard asset value (which excludes the PDL biotechnology business intellectual property) rests mainly on its holding of cash and equivalents contributed by PDL (the “Book Value” column shows the assets as they are carried in the financial statements, and the “Liquidating Value” column shows our estimate of the value of the assets in a liquidation):

fact-summary1

Balance sheet adjustments

We need to make the following adjustments to the balance sheet estimates above:

  • Cash burn: We’ve assumed cash burn to the annual meeting on May 26 of $40M (management estimates $90M for the year).
  • Off-balance sheet arrangements and contractual obligations: According to FACT’s 10K, it has no off-balance sheet arrangements, but its contractual obligations are extensive, including $220M in lease payments and related obligations, $10M in contract manufacturing obligations and $2M in equipment operating leases for a grand total of $234M.
  • Termination payments: If Wong’s nominees are elected to the board at the annual meeting, five officers will receive around $10M in termination payments. Not bad for a few quarters work. Those payments are pretty obscene, so we’ve set them out below:fact-termination1

If the company sustains another twelve months of cash burn and must pay out all its contractual obligations, it has next to no value in liquidation aside from the intellectual property associated with PDL’s biotechnology business, the value of which we can’t estimate. On that view, we estimate the liquidation to be nil. If the dissidents get control quickly, stop the cash burn and can sublease or assign the leases or otherwise negotiate the contractual obligations away, then we estimate liquidation value of around $259M or ~$10.85 per share and net cash value of $228M or $10.54 per share plus whatever PDL’s biotechnology IP is worth (the dissidents estimate between $8 and $16 per share). Of course, the dissidents have a different plan in mind, calling for an immediate cash dividend of up to $15 plus the sale of the company to crystalize the value of the non-cash assets.

The catalyst

The FACT situation kicked off with the dissident slate’s March 30 press release:

Facet Alternate Director Slate Proposed

Cash Dividend, Sale of Company Demanded

NEW YORK, March 30 /PRNewswire/ —

* Alternate Slate Delivered to Facet: On March 26, 2009, a proposed alternate slate of directors (the “Alternate Slate”) was delivered to Facet Biotech Corporation (“Facet,” or the “Company”; http://www.facetbiotech.com) CEO and President Faheem Hasnain (“Mr. Hasnain”), and to the Facet Board of Directors (the “Incumbent Board”), with a stated platform of maximizing shareholder value via a substantial cash dividend followed by a sale of the Company. Facet apparently has determined not to make immediate public disclosure to its owners that such an alternative to the Incumbent Board now is available.
* Alternate Slate Concern Heightened Following Dialog with Facet Management: Following receipt of notice of the Alternate Slate, Mr. Hasnain and CFO Andrew Guggenhime held a conference call with three members of the Alternate Slate, including nominating shareholder Dr. Roderick Wong. On the call, Dr. Wong expressed extreme dissatisfaction with the rapid cash-depleting business plan of the Company, expected to approach $100 million in 2009 alone. Moreover, the Alternate Slate made clear its view that a substantial cash dividend, followed by a sale of the Company, is favored by a preponderance of Facet’s owners. Based on the unsatisfactory response from Facet management to these presented views, the Alternate Slate determined it prudent to make public disclosure of its formation and of its conference call with the Company.
* Immediate And Substantial Cash Dividend Of Up To $15 Per Share Demanded: Subject to a review of the Facet 2008 Form 10-K, which should be released by the Company on March 31, 2009, the Alternate Slate is seeking the immediate distribution of a substantial portion – up to $15 per share – of the approximately $17 per share on the Company’s balance sheet as of December 31, 2008, followed by a sale of Facet.
* Non-Cash Assets May Be Worth An Additional $8 – $16 Per Share: Subject to further review, the Alternate Slate currently estimates that the Company’s non-cash assets, including the antibody technology platform and the drug candidates, could yield an additional $8 – $16 per share via a sale of the Company.
* Liquidation Demand From Alternate Slate Follows Similar Action At Other Companies: The Alternate Slate notes that similar demands were made of management at Northstar Neuroscience, Inc. and, most recently, at Avigen, Inc. As with Facet, investors in these two companies insisted upon and, appropriately, were rewarded with corporate liquidations.

As demonstrated by the Company’s public valuation near the low end of the range within the biotech sector, as measured by a variety of metrics, the Alternate Slate believes the preponderance of Facet shareholders have little confidence in the strategic plans supported by management and the Incumbent Board. Moreover, given that the top five (by percentage ownership per Securities and Exchange Commission public filings) Facet owners appear to represent over 45% of the outstanding shares, the Alternate Slate believes that the Company’s management and Incumbent Board may, with only modest effort, conclude that the majority of Facet investors agree with the cash dividend and sale platform endorsed by the Alternate Slate.

According to S.E.C. filings, these top-five holders are:

1. Baupost Group, LLC 16.68%
2. Iridian Asset Management, LLC 12.39%
3. Goldman Sachs Group, Inc. 6.20%
4. AXA 5.29%
5. Barclays Global Investors 4.82%

Dr. Roderick Wong then nominated an alternative slate of directors, including Philip R. Broenniman, Robert L. Chapman, Jr., David Gale, Bradd Gold and Roderick Wong. While we don’t know much about Wong, we’ve written about Bob Chapman before (see our earlier post, Where in the world is Chapman Capital). In response to Wong’s nomination, FACT sent the following letter to Wong on April 6:

Dear Dr. Wong:

We are in receipt of your letter dated March 26, 2009 and the accompanying notice of your intent to nominate directors at our 2009 Annual Meeting of Stockholders. We welcome the input of our stockholders, and our Board has considered the suggestions articulated in your letter and March 30, 2009 press release.

Our Board and management remain firmly committed to increasing the value of the Company to our stockholders. To this end, our Board has regularly evaluated the Company’s business plan as well as strategic alternatives to create value for our stockholders since the Company’s spin-off less than four months ago. In this regard, we note the following:

· Facet has undergone a rigorous analysis of its strategy, both in connection with our recent spin-off and subsequently.

· Our goal has been to focus on therapeutic areas that we believe hold the greatest opportunity for us to create meaningful value for our stockholders. As a result of our continued review and analysis, we are focusing our efforts on oncology.

· We believe our development programs and technology capabilities represent substantial potential value for our stockholders. Indeed, our collaborations with Bristol-Myers Squibb and Biogen Idec on certain of our development programs validate the value of these programs. We firmly believe that by continuing to advance these and other programs, as well as our proprietary protein engineering technology platform, we can enhance value for our stockholders.

· Furthermore, in an effort to maintain strict financial discipline, we have aggressively lowered our cost structure. In particular, as we recently announced, we have reduced our headcount and our overall anticipated cash utilization in 2009, thereby extending the time period for which we have funding.

We believe that our current Board, comprised of four independent directors and Faheem Hasnain, our President and Chief Executive Officer, and the management of the Company have a record of working to advance the interests of all stockholders, consistent with their fiduciary duty.

Based on our strategic review and ongoing analyses, the Board believes that our current strategic plan is the right plan to build value for our stockholders. Since we are committed to considering all

alternatives to creating value, we have reviewed your proposal for the liquidation of the Company. We have, however, unanimously concluded that the interests of our stockholders are best served by continuing to focus on executing our current strategy. Moreover, the Board believes that the assumptions stated in your March 30 press release with regard to the Company’s ability to distribute a significant cash dividend do not properly take into account, among other things, the Company’s significant lease and other obligations, which are detailed in the Company’s 2008 Annual Report on Form 10-K. Further, we believe that in this current economic environment, your proposals would significantly impair the Company’s ability to realize appropriate value for its existing assets.

Accordingly, we do not believe that your suggestions are in the best interests of our stockholders. We intend to maintain an open and active dialogue with our stockholders as we continue to work to enhance stockholder value.

Sincerely,

Brad Goodwin

Chairperson of the Board

Seth Klarman’s Baupost Group filed its 13D notice on April 8, disclosing a 17.8% holding in FACT. We’ve written extensively about Klarman’s liquidation value investment process (see our Klarman post archive here). Klarman is a noted deep value investor. While the Baupost Group’s position was built at a lower price than persists today, we feel reasonably comfortable following Klarman into a position.

Conclusion

FACT is a special situation: an activist play with an upside of $15 per share in a special cash dividend and an additional $8 to $16 per share upon the sale of the other non-cash assets. The downside is potentially unlimited. The dissidents appear to be led by Dr. Roderick Wong, and include noted activist investor Robert. L. Chapman. Seth Klarman’s Baupost Group, holds 17.8% according to its most recent 13D notice. The dissidents’ initial press release seems to imply that they have the support of stockholders representing 45% of the outstanding stock, although this is not independently verifiable. At its $9.13 closing price yesterday, the company has a market capitalization of $216.8M. We estimate the liquidation value to be anywhere from nil to $259M or ~$10.85 per share and the net cash value from nil to $228M or $10.54 per share. The company is burning through its cash at a rapid rate, so the main risk to the investment is that the status quo is maintained. We think the presence of Bob Chapman on the slate and Klarman’s Baupost Group on the register bodes well for the dissidents, so we’re adding FACT to our new Special Situations portfolio.

FACT closed yesterday at $9.13.

The S&P500 Index closed yesterday at 850.08.

Hat tip to John Allen.

[Full Disclosure:  We do not have a holding in FACT. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]

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