Lamassu Holdings has blasted the board of Ditech Networks Inc (NASDAQ:DITC). In a letter to the board, Lamassu Holdngs accuses DITC management of “spending as though Ditech Networks has money to burn, adding to the amount of money you have already lost for shareholders during your tenure,” “aggressively [overstepping] the bounds of good corporate governance” and “clearly [violating] your fiduciary responsibility.”
We’ve been following DITC (see our archive here) because it is trading below its net cash value with an investor, Lamassu Holdings LLC, disclosing a 9.4% holding in November last year. Lamassu has previously offered to acquire DITC for $1.25 per share in cash. Lamassu says that it “anticipates its due diligence requirement will take no more than two weeks and there is no financing contingency.” Lamassu has now nominated two candidates for election to the board “who are committed to enhancing shareholder value through a review of the Company’s business and strategic direction.” Lloyd I Miller III has also disclosed a 5.9% holding and has come out in support of Mr. Leehealey and Mr. Sansone – the director candidates nominated by Lamassu Holdings for election to the board of directors at the DITC annual meeting – as “candidates who are independent of management and he seeks to encourage greater attention to corporate governance by all members of the Board of Directors.” The stock is up 44.9% from our initial $0.89 to close yesterday at $1.29, giving the company a market capitalization of $33.9M. We last estimated the net cash value at around $32.2M or $1.23 per share and the liquidation value at around $43.4M or $1.65 per share. While the deterioration in value is a concern, Mr. Miller’s support of Lamassu Holding’s director candidates introduces a new element to the position. We’re inclined to hold on to see how the annual meeting plays out.
The press release setting out the text of the letter from Lamassu Holdings is set out below (via Yahoo Finance):
NEWPORT BEACH, Calif.–(BUSINESS WIRE)–Lamassu Holdings, LLC (“Lamassu”) has sent the following letter to the Board of Directors of Ditech Networks, Inc. (NASDAQ:DITC – News) (“Ditech Networks”) Members of the Board:
Over the past month a significant number of shareholders have either publicly, through filings, or privately rejected your leadership by expressing their support for Lamassu’s director nominees. Instead of listening to these shareholders and correcting your course, you push forward spending as though Ditech Networks has money to burn, adding to the amount of money you have already lost for shareholders during your tenure. Your recent decision to tie executive compensation to a level of investment associated with mStage/toktok, an unproven technology that to date has produced no revenues and has no immediate prospects, is outrageous and limits management’s ability to make the hard but intelligent decisions to reduce investment in that technology if its prospects for revenue continue to be elusive. With this measure we believe you have aggressively overstepped the bounds of good corporate governance and have clearly violated your fiduciary responsibility.
Investors in Ditech Networks (NASDAQ: DITC – News) are not venture capitalists and did not sign up for this type of speculative investing with such a large portion of the Company’s assets. Management needs to have the latitude to make the decisions that are appropriate given the revenue prospects of each product and the Board should ensure that no individual investment puts the Company in as much jeopardy of total failure as the mStage/toktok investment does.
In addition, given the level of support for Lamassu’s slate of director nominees, we remain completely perplexed by your apparent desire to engage in a pointless proxy fight and waste Company resources to protect your own interests. It is obvious shareholders will aggressively reject the idea of spending millions of dollars of their money in this manner when the addition of Lamassu’s nominees to the Board will clearly provide a much needed new perspective that is not steeped in the countless mistakes of the past or married to visions and dreams that produce little or nothing in the way of actual revenue.
For the sake of all investors we encourage you to radically alter your behavior and begin listening to shareholders as opposed to pursuing your own interests and extremely risky agendas. While you personally will not be significantly harmed if mStage/toktok is unsuccessful and Ditech Networks ultimately fails, many investors are not in a position to so casually lose their money.
Sincerely Lamassu Holdings, LLC
Hat tip to Toby.
[Full Disclosure: We do not have a holding in DITC. 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.]
Greenbackd 