WESTPORT, Conn., March 3, 2016 /PRNewswire/ -- North Star
Partners, LLC ("North Star"), one of Checkpoint System, Inc.'s
("Checkpoint" and, the "Company") (NYSE: CKP) largest shareholders,
owning 3.9% of the Company's shares outstanding, delivered a letter
to the Company's Chairman of its board of directors, Stephen David, today announcing that it opposes
the sale of Checkpoint to CCL Industries, Inc. for $10.15 per share. In addition, to ensure
shareholder value is protected and maximized, North Star announced
that on March 1, 2016, it nominated
three candidates for election to Checkpoint's board of directors at
the Company's upcoming Annual Meeting of Shareholders.
In the letter sent to Checkpoint today, Andy Jones, Managing Partner of North Star
stated, "[t]he undervaluation of Checkpoint compared to its
intrinsic value is now more acute than ever." Mr. Jones
continued, "North Star will not sit quietly and allow this transfer
of value from public stockholders to CCL go
unchallenged."
The full text of the letter follows:
March 3, 2016
Mr. Stephen N. David
Chairman of the Board
Checkpoint Systems, Inc.
101 Wolf Drive
Thorofare, NJ 08086
Dear Mr. David:
NS Advisors, LLC ("North Star", "North Star Partners", or "us")
currently owns 1,612,046 shares, or approximately 3.9%, of
Checkpoint Systems, Inc. ("Checkpoint", "CKP", or the "Company"),
and we are writing to express our extreme disappointment with your
decision to endorse a takeover of our Company by CCL Industries,
Inc. ("CCL") for $10.15 per share, a
price that we believe to be substantially below the true intrinsic
value of the business.
As you know from our previous correspondence with the Board of
Directors (the "Board"), North Star acquired its Checkpoint shares
because we considered, and continue to consider, Checkpoint's stock
to be substantially undervalued. We believed (and continue to
believe) that the Company has significant upside potential as an
independent company under the appropriate leadership team.
The undervaluation of Checkpoint, compared to its intrinsic
value, is now more acute than ever. The inadequacy of the
deal price is most visible in the 6.7 times trailing ebitda
multiple that is inferred from the press release issued by CCL on
March 2, 2016 (Checkpoint's press
release fails to highlight the low valuation). The actual
trailing ebitda multiple is likely much lower, after adjusting for
$15 million in cost savings that
management has identified for 2016, the $7-10 million decline in extraordinary consultant
and R&D expense hitting 2015 numbers, and the growth in the
core business that is widely expected. While the trailing
ebitda multiple has been depressed under the current management
team, it still has averaged 8.2 times over the last 3 years.
If the Company were sold at a 20% deal premium to just this 8.2
average, shareholders would have realized a price closer to
$15 per share, not the $10.15 per share that the Board
approved.
The opportunity that exists in Checkpoint is evident in CCL's
March 2nd presentation, in
which it specifically highlighted, among other
things:1
- Meaningful earnings accretion with an attractive return
profile;
- Checkpoint's blue chip customer base;
- Attractive recurring revenue model;
- Up to $40 million
($30 million in US) in annual
synergies achieved within 18 months of the transaction;
- Opportunity to improve net working capital
efficiency;
- Checkpoint's asset-light business model and working capital
opportunities = robust free cash flow and drive rapid
de-leveraging; and
- RFID opportunity growing approximately 24% per year,
2015-2018
These highlights certainly don't seem to describe a business
that should sell for less than 6.7 times trailing ebitda, a fact
that is underscored by the confidence expressed during CEO
George Babich's discussion of the
Company's growth prospects during the last earnings
call.2
George made the following statement while commenting on the
Company's sales pipeline:
". . . the conversion of just a
small handful of these RFID, EAS or R&D projects to an
enterprise-wide rollout will dramatically change our near-term top
and bottom line financial trajectory."
George also made a bullish statement while commenting on The
Global Retail Theft Barometer:
". . . we believe that after a
report such as this reflecting an increase in shrinkage, retailers
will shift more investment spending back into loss prevention
solutions, and we expect that will be the case in
2016."
In the Q&A following CCL's presentation to its shareholders
on March 2, 2016, CCL management was
asked about the underperformance of Checkpoint and the opportunity
for cost savings. In their response they noted:
". . . it's a company that had
many changes of management. So it's all an indication that things
are not quite right . . . . And to us, it's clearly
underperforming, clearly could do much better, clearly has a nice
position in the retail and apparel marketplace. I think it's just
performance. "
We are not alone in our belief that a sale of Checkpoint for
$10.15 per share grossly undervalues
the business. In a note issued by sell-side analyst Imperial
Capital shortly after the transaction was announced, Imperial
stated:
"We believe that the stated
valuation of US$443mn is
disappointing, relative to the company's prospects several
years ago, the reportedly 'large pipeline discussion' Checkpoint
has been having with key retailers, and the 6.9x FY15E EV/EBITDA
valuation which the company is being valued at by CCL (which is
below average for our select group of applied security technology
vendors)."
North Star will not sit quietly and allow this transfer of
value from public stockholders to CCL Industries go
unchallenged.
Over the last year, through several in-person meetings,
telephone calls and detailed letters to the full Board, we have
actively encouraged the Company to address its poor corporate
governance; poor governance that facilitated the Board's decision
to endorse such an obviously unfair transaction.
As you well know, each of our attempts to compel the Company to
improve its remarkably substandard governance has been blatantly
ignored by the Board. It's important to note that we are not
alone in our concerns about the poor governance at Checkpoint:
Institutional Shareholder Services (ISS), in its report on
May 21, 2015, gave the Company a risk
rating of "10", the lowest possible rating that can be awarded to
any company.
ISS also recommended that shareholders vote against the advisory
vote on executive compensation held at the June 2015 annual meeting, citing the lack of
alignment of pay with stock price performance and the use of
above-median benchmarking for executive compensation despite
Checkpoint's negative total shareholder returns. In a
stunning rebuke, shareholders wisely and overwhelmingly voted
against the Company's compensation plan, sending a strong message
to the Board that dramatic change was needed to protect
shareholders' interests. Again, the Company predictably
ignored shareholders' wishes, and, instead of implementing overdue
change, the Board rewarded you - the head of the compensation
committee responsible for orchestrating and approving this poorly
designed plan, by promoting you to Chairman of the Board! A
disconcerting vote of confidence that clearly demonstrates the
Board must be reconstituted with individuals who will ensure
shareholder value is protected and maximized.
Because of this Board's longstanding refusal to adopt improved
corporate governance practices, on March 1,
2016, we provided notice to the Company of our intention to
nominate an alternate slate of three directors for election at this
year's annual meeting. We are confident that our nominees, if
elected, will vastly improve the Board's composition and create a
sense of urgency to reset the Company on a path to recovering the
value that has been destroyed by current management under the
supervision of a Board that as currently composed is apparently
disconnected with the interests of shareholders.
No doubt you and the rest of the Board were keenly aware that
you would likely face opposition to the election of such deeply
entrenched and ineffective directors at this year's annual
meeting. Instead of allowing shareholders the opportunity to
elect representatives that would truly represent their interests
and hold management accountable, the Board has entered into a
poorly conceived transaction that significantly undervalues the
future prospects and earnings potential of our business. It
appears that the Board is leaving no stone unturned in its attempts
to avoid the indignity of losing its hand-picked members. Why
else would it agree to sell the Company at a price that is 25%
below where the stock traded just a year
ago?
While Checkpoint's shareholders are clearly aware of the
shortcomings of the Board's poor decision making and management's
underperformance, the solution here is not to give the Company away
at a cheap price. The solution is to focus on improving
Checkpoint -- under the oversight of a strengthened Board, and to
make the changes necessary to correct the performance issues so
that the current owners of the Company can reap the full benefit,
not some opportunistic third party! This Board's lack of
appropriate oversight that has done nothing about management's
failure to improve results is not an acceptable reason to sell the
Company at a discounted price. If an appealing opportunity
exists to pursue strategic alternatives, then a reconstituted and
improved Board should be charged with evaluating the options with
the best interests of shareholders in mind. In contrast, the
proposed transaction with CCL clearly fails to reflect the
Company's long term intrinsic value and there is no justifiable
reason to sell the Company today at such a deep discount.
From the shareholders' perspective, this transaction would close
out the bright future we have in RFID, lock in losses for your
long-term shareholders and likely reward a big pay day to an
undeserving management.
Your duty as Chairman of the Board is to protect shareholders
from precisely this kind of harm. We are calling on you to fulfill
your responsibilities.
Sincerely,
Andrew R. Jones, CFA
Investor Contact:
Andy
Jones
North Star Partners
203-227-9898
Media Contact:
Damien
Park
Hedge Fund Solutions, LLC
215-325-0514
CERTAIN INFORMATION CONCERNING THE PARTICIPANTS
North Star Partners, LP, together with the other participants
named herein (collectively, "North Star"), intends to file a
preliminary proxy statement and accompanying proxy card with the
Securities and Exchange Commission ("SEC") to be used to solicit
votes for the election of its slate of director nominees at the
2016 annual meeting of shareholders of Checkpoint Systems, Inc., a
Pennsylvania corporation (the
"Company").
NORTH STAR STRONGLY ADVISES ALL SHAREHOLDERS OF THE COMPANY TO
READ THE PROXY STATEMENT AND OTHER PROXY MATERIALS AS THEY BECOME
AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. SUCH
PROXY MATERIALS WILL BE AVAILABLE AT NO CHARGE ON THE SEC'S WEB
SITE AT HTTP://WWW.SEC.GOV. IN ADDITION, THE PARTICIPANTS IN THIS
PROXY SOLICITATION WILL PROVIDE COPIES OF THE PROXY STATEMENT
WITHOUT CHARGE, WHEN AVAILABLE, UPON REQUEST.
The participants in the proxy solicitation are North Star
Partners, LP, North Star Partners II, LP, NS Advisors, LLC,
Howard Hoffmann, Andrew Jones, and Jane
Scaccetti.
As of the date hereof, North Star Partners, LP directly owns
1,077,004 shares of common stock, $0.10 par value per share, of the Company (the
"Common Stock"). As of the date hereof, North Star Partners
II, LP, directly owns 535,042 shares of Common Stock. NS
Advisors, LLC, as the general partner of North Star Partners, LP,
may be deemed the beneficial owner of the 1,077,004 shares of
Common Stock directly owned by North Star Partners, LP. NS
Advisors, LLC, as the general partner of North Star Partners II,
LP, may be deemed the beneficial owner of the 535,042 shares of
Common Stock directly owned by North Star Partners II, LP. As of
the date hereof, none of Howard
Hoffmann, Andrew Jones, or
Jane Scaccetti directly or
indirectly beneficially own any shares of Common Stock.
1 See CCL Industries Checkpoint Systems Acquisition,
Investor Update, March 2, 2016.
Available at: http://www.cclind.com/investors/presentations
2 See Checkpoint Systems Inc., Q3 2015 Earnings Call
Transcript, November 4, 2015.
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visit:http://www.prnewswire.com/news-releases/north-star-partners-opposes-checkpoint-sale-to-ccl-industries-300230221.html
SOURCE NS Advisors, LLC