Bel Fuse Inc. (NASDAQ: BELFA) and (NASDAQ: BELFB) today
delivered a letter to Ralph Faison, Director, President and Chief
Executive Officer of Pulse Electronics Corporation (NYSE: PULS)
commenting on the Pulse Board's rejection of Bel's proposal to
acquire all of the outstanding shares of Pulse common stock for per
share consideration of $6.00.
For the past several years, Bel has made several exhaustive but
unproductive attempts to engage privately and constructively with
the Pulse Board about a business combination that makes the most
sense for Pulse shareholders. Each time, Bel was asked to postpone
merger discussions to some future date. And each time, Bel honored
these requests; patiently waiting while Pulse churned through four
CEOs (including an interim CEO), share value plummeted by more than
$750 million and shareholders suffered.
In the letter sent to Pulse today, Daniel Bernstein, the
President and CEO of Bel, stated, "We were disappointed yet again
by your letter dated March 10, 2011 when the Pulse Board summarily
rejected our proposal as 'opportunistic' and not in the best
interest of Pulse, prior to making any attempt to engage with us to
discuss other alternative transactions or suitable valuations that
would maximize your shareholders' value."
Mr. Bernstein continued, "While we continue to hope that the
Pulse Board will work with us to structure a transaction that
enables shareholders to receive a full and fair value for their
investment, we have found no evidence to suggest this will occur
under the stewardship of this current Board of Directors."
Bel intends to seek to elect two highly qualified, independent
Directors for election to the Pulse Board at Pulse's upcoming
annual meeting. If elected, these new Directors will represent a
minority of the Pulse Board and are committed to working
constructively with the other members of the Board to ensure that
the interests of all shareholders are protected. Specifically, if
elected, these candidates intend to urge the other members of the
Pulse Board to conduct a comprehensive examination of all strategic
alternatives - including a complete sale of the business to the
highest and most qualified bidder.
The letter concluded with Mr. Bernstein imploring the Pulse
Board to do what is in the best interest of shareholders, stating,
"Ralph, let me reemphasize what we have said to you and other
members of the Pulse Board in the past. Bel has a strong balance
sheet representing over $85 million in cash and no debt; we are
ready and willing to negotiate a transaction that makes the most
sense for your shareholders, including a revised offer to reflect
any incremental value you can demonstrate."
The full text of the letter follows:
March 21, 2011
Mr. Ralph FaisonDirector, President and CEOPulse Electronics
Corporation1210 Northbrook Drive, Suite 470Trevose, PA 19053
Dear Ralph:
For the past several years, we have repeatedly attempted to
privately engage the Board of Directors of Pulse Electronics
Corporation in serious discussions about a business combination
involving Bel Fuse Inc. and Pulse. Each time, we were asked to
postpone merger discussions to some future date. And each time, we
honored these requests; patiently waiting while Pulse churned
through four CEOs (including an interim CEO), share value plummeted
and shareholders suffered.
On November 3, 2008, we contacted then Chairman and CEO James
Papada, asking if Pulse would be willing to renew discussions
regarding a potential business combination. Mr. Papada responded
that "while the board still perceives there to be significant
upside to such a combination, the timing is just not right for us
at this particular time." Mr. Papada advised us that Pulse would
prefer to defer any discussions about this matter until it had a
clearer outlook for 2009. Based on what was happening in the global
economy at the time, we understood this position and agreed to
restart discussions in the near future.
On October 6, 2009, we wrote to Mr. Papada suggesting that the
announcement of his upcoming retirement and the sale of the AMI
Doduco business presented an opportune time to renew discussions
about a potential merger of our two companies. At that time, the
Pulse Board requested that we postpone discussions until a CEO
replacement was identified and the AMI Doduco sale was final. Again
we respectfully obliged.
Ten months later, on August 4, 2010, long after Mr. Papada's
retirement and following the completion of the AMI Doduco sale on
September 4, 2010, we contacted John Burrows, Pulse's Lead
Independent Director, to express our continued interest in a
business combination. We were again told that it was "not the right
time for a conversation."
On December 14, 2010, we sent a letter to Mr. Burrows expressing
our interest in renewing discussions about a potential deal that
made the most sense for our respective shareholders. In this
letter, we disclosed our desire to commence a meaningful dialogue
privately, but also stated our intention to preserve all of our
options, including nominating directors for election to the Pulse
Board. This was finally enough to provoke a courtesy meeting with
us, at which time we were once again asked to defer merger
discussions for another 18 to 24 months.
After exhaustive but unproductive attempts to engage privately
and constructively with the Pulse Board, we felt we had no other
option but to make our interest in acquiring Pulse public.
On February 28, 2011, Bel made a compelling proposal for a
business combination under which Bel would acquire all of the
outstanding shares of Pulse common stock for per share
consideration of $6.00, representing a significant premium to
market. Our proposal built in the flexibility to allow Pulse
shareholders to choose whether to receive the consideration in cash
or Bel Class B common stock and we invited the Pulse Board to enter
into negotiations with us to structure a transaction that makes the
most sense and provides the greatest tax advantages for Pulse
shareholders.
We were disappointed yet again by your letter dated March 10,
2011 when the Pulse Board summarily rejected our proposal as
"opportunistic" and not in the best interest of Pulse, prior to
making any attempt to engage with us to discuss other alternative
transactions or suitable valuations that would maximize your
shareholders' value.
The Pulse Board's latest reason for not entering into a business
combination with us, discussed in the March 10 letter, is that our
offer does not reflect the actions Pulse has taken recently to
improve its performance. These actions, while important and indeed
necessary to meet the minimum standard necessary to remain
competitive in our industry are, in our view, all long overdue. In
fact, in our letter to Directors Burrows and Barton dated June 28,
2007, we recommended that many of these actions be taken as the
best way to generate the greatest return for our combined
shareholders (June 28, 2007 letter attached). It's ironic that
Pulse is now claiming that these initiatives are the primary
reasons for not entering into a business combination with us
today.
Furthermore, the set of "strategic actions" Pulse commits to
undertake over the next 18 to 24 months, such as lowering operating
expenses and rationalizing the Company's manufacturing footprint,
are hardly compelling reasons for not entering into discussions
with us. In fact, we are confident that a combined entity would
have the ability to achieve these objectives more quickly, with far
less execution risk and at a much lower cost. We strongly believe
that consummating a combination of our two highly complementary
organizations has the potential to achieve significantly more value
for shareholders than Pulse can achieve on a standalone basis.
Indeed, it appears to be worth repeating some of these synergistic
values again here. They include:
$ The ability to rapidly increase global
sales through a broader and more complete product portfolio.
$ An integrated operational and
organizational infrastructure better able to serve customers.
$ Benefits from economies of scale with
regards to procurement, engineering capabilities, IT infrastructure
and customer service.
$ Improved margins and considerable cost
savings, which are expected to yield more than $15 million annually
when fully realized, primarily from rationalizing redundant
operational costs and duplicate public company costs.
$ A more robust and flexible capital
structure with greater access to capital for future expansion.
With regards to your plans to improve the wireless product
group's financial performance and to implement a new ERP system, we
question (i) how much capital will be necessary to make these
projects viable, (ii) the length of time it will take for these
investments to return a value above the cost of capital, and (iii)
what the ultimate return on these investments is expected to
be.
Unfortunately for Pulse shareholders, the Pulse Board has a
lackluster track record of managing investments. Over the past five
years, Pulse spent approximately $480 million on acquisitions (a
total of approximately $590 million including the LK Products
acquisition in September 2005) and an additional $180 million on
Research and Development, with very little to show for it. During
this same period, Pulse's revenue declined 31% from approximately
$627 million in FY2006 to approximately $432 million in FY2010,
while income from continuing operations fell from approximately $46
million in FY2006 to a loss of approximately $28 million in FY2010.
The Board's poor investment record is also reflected in the
significant goodwill and intangible asset write-downs, which are
primarily related to these failed acquisitions, totaling
approximately $411 million from FY2006-FY2010.
Consequently, shareholders have lost more than $750 million in
market value from December 31, 2006 to December 31, 2010, while
Pulse's stock performed poorly relative to Bel's stock and other
benchmark indices, as illustrated in the graph below.
In our opinion, Pulse shareholders deserve better.
Adding insult to injury, while Pulse shareholders suffered a
precipitous decline in ownership value, the Pulse Board doled out
millions of dollars in excessive compensation and fringe benefits
to a select few senior managers.
For example, from 2006 to 2009, the Pulse Board rewarded the CEO
and the CFO with approximately $14.5 million in salary, stock
awards, tax gross ups, social club memberships and other perks.
What is even more appalling is that, as part of this compensation,
in June 2009 these two individuals collected one-time
change-in-control payments totaling more than $4.0 million
following the sale of Pulse's Medtech subsidiary, a business
acquired under the same management team less than 18 months
earlier. In addition, eight other present and former employees
received lump sum payments as a result of this transaction. Soon
after these windfall payments were made, the CEO retired (on April
2, 2010) while the CFO continued to earn the same generous salary
as before, despite having responsibilities today for a much smaller
business.
It appears that corporate governance experts have been equally
concerned about Pulse's poor performance, declining shareholder
returns and troubling pay practices. In 2009, ISS, a leading
corporate governance and proxy vote advisory firm, recommended
shareholders withhold voting their shares for the election of the
Company's three director nominees because of "multiple problematic
governance provisions," including entering into new employment
agreements with senior managers which contained excise tax
gross-ups. As a result, shareholders representing 44% of the shares
voted in the election of directors at the annual meeting did not
support these candidates' re-election, forcing the Company to take
corrective action for some of these governance deficiencies the
following year.
Clearly, the status quo is unacceptable.
While we continue to hope that the Pulse Board will work with us
to structure a transaction that enables shareholders to receive a
full and fair value for their investment, we have found no evidence
to suggest this will occur under the stewardship of this current
Board of Directors. Therefore, we intend to solicit proxies to
elect two highly qualified, independent candidates to the Pulse
Board at the upcoming annual meeting. If elected, these new
Directors will represent a minority of the Pulse Board and are
committed to working constructively with the other members of the
Board to ensure that the interests of all shareholders are
protected. Specifically, if elected, our candidates intend to urge
the other members of the Pulse Board to conduct a comprehensive
examination of all strategic alternatives - including a complete
sale of the business to the highest and most qualified bidder.
Ralph, let me reemphasize what we have said to you and other
members of the Pulse Board in the past. Bel has a strong balance
sheet representing over $85 million in cash and no debt; we are
ready and willing to negotiate a transaction that makes the most
sense for your shareholders, including a revised offer to reflect
any incremental value you can demonstrate.
We implore the Pulse Board to do what is in the best interest of
shareholders.
Sincerely,
Daniel BernsteinDirector, President and CEO
AttachmentCc: Pulse Electronics Board of Directors
ABOUT BEL FUSE INC
Bel (www.belfuse.com) and its
divisions are primarily engaged in the design, manufacture, and
sale of products used in networking, telecommunications, high-speed
data transmission, commercial aerospace, military, transportation,
and consumer electronics. Products include magnetics (discrete
components, power transformers and MagJack7 connectors with
integrated magnetics), modules (DC-DC converters, integrated analog
front-end modules and custom designs), circuit protection
(miniature, micro and surface mount fuses) and interconnect devices
(micro, circular and filtered D-Sub connectors, passive jacks,
plugs and high-speed cable assemblies). Bel operates facilities
around the world.
ADDITIONAL INFORMATION
This communication does not constitute an offer to buy or
solicitation of an offer to sell any securities. No tender offer
for the shares of Pulse Electronics Corporation ("Pulse
Electronics") has commenced at this time. In connection with the
proposed transaction, Bel may file tender offer documents with the
U.S. Securities and Exchange Commission ("SEC"). Any definitive
tender offer documents will be mailed to shareholders of Pulse
Electronics. INVESTORS AND SECURITY HOLDERS OF PULSE ELECTRONICS
ARE URGED TO READ THESE AND OTHER DOCUMENTS FILED WITH THE SEC
CAREFULLY IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY
WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED
TRANSACTION. Investors and security holders will be able to
obtain free copies of these documents (if and when available) and
other documents filed with the SEC by Bel through the web site
maintained by the SEC at http://www.sec.gov.
CERTAIN INFORMATION CONCERNING THE PARTICIPANTS
Bel, together with the other Participants (as defined below),
intends to make a preliminary filing with the SEC of a proxy
statement and accompanying proxy card to be used to solicit proxies
for the election of its slate of director nominees at the 2011
annual meeting of shareholders of Pulse Electronics.
BEL STRONGLY ADVISES ALL SHAREHOLDERS OF PULSE ELECTRONICS TO
READ THE PROXY STATEMENT WHEN IT IS AVAILABLE BECAUSE IT WILL
CONTAIN IMPORTANT INFORMATION. SUCH PROXY STATEMENT ANG GOLD PROXY
CARD WILL BE AVAILABLE AT NO CHARGE ON THE SEC'S WEBSITE AT
HTTP://WWW.SEC.GOV. IN ADDITION, THE PARTICIPANTS IN THE
SOLICITATION WILL PROVIDE COPIES OF THE PROXY STATEMENT WITHOUT
CHARGE UPON REQUEST.
The Participants in the proxy solicitation are anticipated to be
Bel, Bel Ventures Inc. ("Bel Ventures"), Timothy E. Brog, James
Dennedy, Melvin L. Keating and Mark B. Segall (collectively, the
"Participants"). As of the date hereof, the Participants
collectively own an aggregate of 341,725 shares of Pulse
Electronics Common Stock, consisting of the following: (1) 368
shares owned directly by Bel and (2) 341,357 shares owned directly
by Bel Ventures.
FORWARD-LOOKING STATEMENTS
Except for historical information contained in this news
release, the matters discussed in this press release are
forward-looking statements that involve risks and uncertainties.
Among the factors that could cause actual results to differ
materially from such statements are: the market concerns facing our
customers; the continuing viability of sectors that rely on our
products; the effects of business and economic conditions; capacity
and supply constraints or difficulties; product development,
commercializing or technological difficulties; the regulatory and
trade environment; risks associated with foreign currencies;
uncertainties associated with legal proceedings; the market's
acceptance of Bel's new products and competitive responses to those
new products; and the risk factors detailed from time to time in
Bel's SEC reports. In light of the risks and uncertainties, there
can be no assurance that any forward-looking statement will in fact
prove to be correct. We undertake no obligation to update or revise
any forward-looking statements.
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