NEW YORK, March 28, 2011 /PRNewswire/ -- MMI Investments,
L.P. today announced that it has filed a definitive proxy statement
with the Securities and Exchange Commission and issued a letter to
shareholders of EMS Technologies, Inc. (Nasdaq: ELMG) in connection
with the Company's 2011 annual meeting of shareholders scheduled
for May 12, 2011.
The full text of the letter follows:
ELECT MMI'S SUPERIOR DIRECTOR NOMINEES TO BRING SHAREHOLDER
ALIGNMENT AND STRATEGIC CREDENTIALS TO THE EMS BOARD
VOTE YOUR GOLD PROXY CARD TODAY
March 28, 2011
Dear Fellow EMS Shareholder:
MMI Investments, L.P., a long-only investment fund and owner of
7.8% of the outstanding shares of EMS Technologies, Inc. ("EMS" or
the "Company"), is seeking your support for change at EMS,
beginning with the election of four highly qualified, independent
and experienced director candidates (the "MMI Nominees") for
election to EMS' ten-member board at the 2011 annual meeting of
shareholders scheduled to be held on May 12,
2011 (the "Annual Meeting"). The MMI Nominees are
Samme L. Thompson, Theodore E. Martin, Carroll R. Wetzel, Jr. and Jerome J. Lande. We are soliciting proxies
on the GOLD proxy card to elect not only the four MMI
Nominees, but also the candidates who have been nominated by EMS
other than John B. Mowell,
Norman E. Thagard, Bradford W. Parkinson and Hermann Buerger.
CHANGE IS NEEDED AT EMS
EMS stock has underperformed its peers and major indices over
the short and long-term.
As of March 22, 2011, the
Company's cumulative total return has underperformed the cumulative
total return of the Russell 2000® Index over an eighteen month, two
year, three year, four year, five year and ten year time horizon.
The underperformance of the Company's shares averaged a
stunning -47.6% over those periods. The Company's cumulative
total return has also underperformed the S&P Aerospace &
Defense Select Index over each of those periods. The
underperformance of the Company's shares vs. the S&P Aerospace
& Defense Select Index averaged -76.7%.
The Board's
Claim:
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"Since we began making the
changes in 2009 and 2010, EMS has outperformed its peers and the
broader market . . ."
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The Reality:
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The Board's measurement period
conveniently begins 16 months ago – exactly after EMS lost its
largest contract, reported disastrous earnings and lowered its
full-year EPS forecast by 35% (with only 9 weeks left in the year),
causing the stock to plummet 40%. In fact, EMS stock is
roughly unchanged from 18 months ago and lags both the Russell
2000® Index and the S&P Aerospace & Defense Select Index by
over 35% over this period.
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(Photo:
http://photos.prnewswire.com/prnh/20110328/NY72143-a )
EMS operations have been weak and erratic.
EMS' margins have consistently lagged its peers in its various
businesses. While we believe mismanagement has been a major
contributor to this poor performance, EMS' lack of scale
(particularly when compared to its larger competitors) has been a
key obstacle as well and is a principal reason we believe EMS'
value may be best realized through the pursuit of all strategic
alternatives, including the potential sale of the Company, in whole
or in parts. EMS has fallen short of its initial annual
earnings guidance six times in the last ten years, missing the
mid-point of its annual guidance by an average of over 26% in those
years. Earnings fell short of the mid-point by more than 20%
in five of these six times, and by more than 35% twice.
The Board's
Claim:
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"We recently announced record
2010 revenues and profits . . ."
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The Reality:
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2010 Adjusted EPS is the lowest
it has been in four years. 2010 revenue was approximately 10%
below 2008 levels (adjusted for acquisitions based on our estimates
using Company disclosure) and 18% below expected levels in 2009
(from guidance issued in March 2009). 2010 Adjusted EBITDA
was approximately 13% below 2008 levels (adjusted for acquisitions
based on our estimates using Company disclosure) and 23% below 2009
guidance. Earlier this month EMS released 2011 revenue and
Adjusted EBITDA guidance which, even if achieved, would only get
back to the aforementioned 2008 levels and would still be well
below 2009 guidance.
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(Photo:
http://photos.prnewswire.com/prnh/20110328/NY72143-b )
(Photo:
http://photos.prnewswire.com/prnh/20110328/NY72143-c )
The Board's
Claim:
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"MMI's proposals do not take
into consideration our company's positive momentum resulting from
the strategic realignment of our business units and other actions
taken in 2009 and 2010 to drive growth and
efficiency."
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The Reality:
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2010 revenue actually DECLINED
1% from 2009. EMS' core operations (everything excluding LXE)
revenue and Adjusted EBITDA BOTH DECLINED in 2010, by 15% and 26%,
respectively. 2010 recovery in total Adjusted EBITDA was
driven entirely by the LXE segment, which like many capital goods
suppliers to warehouses and ports has benefited from a robust
cyclical recovery from its collapse during the recession.
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(Photo:
http://photos.prnewswire.com/prnh/20110328/NY72143-d )
(Photo:
http://photos.prnewswire.com/prnh/20110328/NY72143-e )
We believe the EMS Board should be held accountable for this
poor performance as well as for failing to actively engage with
potential acquirers.
The EMS Board has a long track record of failing to attract and
retain qualified executives, in its acquisition program and in
seriously evaluating strategic alternatives to maximize shareholder
value. Since 2001, EMS has had four different CEOs, including
current CEO Neil MacKay, an 18-year
veteran of the Company who was repeatedly passed over for the CEO
position before being promoted at age 68. Dr. MacKay was
promoted to CEO 16 months ago following the aforementioned earnings
disaster, which we note he presided over as COO. Notably,
during this entire period, EMS has had the same Chairman,
Jack Mowell, who has served on the
Board for 27 years and whom we seek to replace. Since 2008,
EMS has spent over $130 million on
acquisitions while still reporting less in operating income and
adjusted EPS in 2010 than in 2007. At the same time, while
the Board has been burning money on acquisitions that have not
generated earnings growth, it has failed to pursue numerous
inquiries from strategic and financial buyers interested in
acquiring EMS or its subsidiaries at a substantial premium to their
current value. We strongly believe that a sale of EMS may be
the best means to maximize shareholder value, but we know for a
certainty that the Board has a responsibility to seriously explore
such inquiries, consistent with their fiduciary duties to
shareholders.
The Board's
Claim:
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"Our Board nominees are truly
accomplished executives and experts in their fields, and they are
fully committed to acting in your best interests."
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The Reality:
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Despite their seven-year average
tenure, as of March 1, 2011, the entire EMS Board collectively
owned outright less than 0.8% of the outstanding shares, or roughly
one-tenth the amount owned by the MMI group (counting shares owned
directly as opposed to Company-granted shares issuable upon the
exercise of stock options and represented by deferred share units).
Ask yourself, what level of commitment does that demonstrate,
and might it be the reason the Board has been unresponsive to
inbound interest in acquiring EMS and profligate with acquisitions
that have not generated earnings growth? The Board's
interests are not aligned with those of EMS
shareholders.
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THE MMI NOMINEES HAVE A TRACK RECORD OF VALUE CREATION AND
WILL PROVIDE THE SHAREHOLDER ALIGNMENT, OPERATIONAL ACUMEN AND
STRATEGY EXPERTISE THAT THE BOARD LACKS
The EMS track record of weakness in operational performance,
corporate development, strategy and shareholder value creation in
our opinion reflects the shortcomings of the current Board, half of
whom spent their careers principally in academia or government.
For this reason, the MMI Nominees were carefully selected for
their expertise and success in aerospace & wireless
communications operations, strategic planning, corporate
development and shareholder value maximization. The MMI
Nominees are independent, committed only to the maximization of
shareholder value and far more accomplished in our view than the
incumbent directors we oppose. They are:
Samme L. Thompson – Former
Senior Vice President, Global Strategy and Corporate Business
Development, of Motorola Corporation; Former Manager and Director,
Corporate Strategy, of AT&T Information Systems; Member of the
Board: American Tower Corporation (NYSE: AMT), a leading wireless
and broadcast communications infrastructure company, and USA
Mobility, Inc. (Nasdaq: USMO), a leading provider of reliable and
affordable wireless communications solutions;
Theodore E. Martin –
Former CEO of Barnes Group Inc. (NYSE: B), a $1 billion manufacturer and distributor of
componentry for aerospace and industrial markets; Member of the
Board: Ingersoll-Rand plc (NYSE: IR), a global diversified
manufacturing company, and C. R. Bard Corporation (NYSE: BCR), a
leading multi-national medical products company;
Carroll R. Wetzel, Jr. –
Former Co-Head of the M&A Group of Chase Manhattan Bank; Member
of the Board: Exide Technologies (Nasdaq: XIDE), a leading
manufacturer of batteries for transportation and industrial
markets, and PHH Corporation (NYSE: PHH), a leading provider of
mortgage and fleet management services. Former Non-Executive
Chairman of the Board of Safety Components International, Inc.
(formerly Nasdaq: SAFY); Former Vice Chairman and Lead Independent
Director of Arch Wireless, Inc. (formerly Nasdaq: AWIN); and
Jerome J. Lande – Partner
of MCM Capital Management, LLC, the general partner of MMI
Investments, L.P., the third largest shareholder of EMS and a
deep-value, small-cap investment fund where Mr. Lande is
responsible for all areas of portfolio management; Former Corporate
Development Officer of Key Components, Inc., a global diversified
industrial manufacturer (formerly an SEC reporting company) that
was acquired by Actuant Corporation (NYSE: ATU).
WE BELIEVE THE RIGHT LEADERSHIP CAN VASTLY IMPROVE EMS
SHAREHOLDER VALUE
In December 2010, EMS released
five-year financial goals for 2010-2014 compound annual growth in
revenue and Adjusted EBITDA of 15% and 17.5%, at their respective
midpoints. We note that in 2010, EMS fell short of both
goals, with revenue growth actually negative, despite the
aforementioned 2009 weakness. Earlier this month, EMS
released 2011 guidance which fails to meet these goals by 25% on
revenue and 35% on Adjusted EBITDA. At no time in the last
three years has EMS performed at the level of these financial goals
on an organic basis (based on our estimates using Company
disclosure). In fact, EMS' organic compound annual growth
rates from 2008 through 2011 (giving EMS the benefit of 2011
guidance) are 0% for revenue and -1% for Adjusted EBITDA.
We believe that this long-term underperformance demonstrates
that EMS has remained on the wrong track strategically for a very
long time, too often letting legacy technology drive strategy
rather than customer needs. Unfortunately, the Company's
"Strategic Realignment" around Global Resource Management and Aero
Connectivity appears to be more of the same. We believe this
consistent strategic weakness is a key contributor to EMS'
continued undervaluation relative to its peers, and is unlikely to
change unless EMS' Board is reconstituted. We are highly
confident that the MMI Nominees can improve upon the incumbent
Board's performance, but we also believe that shareholder value
will likely be maximized through an exploration of strategic
alternatives because of EMS' lack of scale relative to competitors,
highly and increasingly competitive industry and the presently
robust M&A environment, particularly in aerospace & defense
electronics.
Because EMS has consistently failed to meet its goals we believe
that the most important question for the Board in considering how
to maximize shareholder value is what risk adjustment they apply to
management's long-term goals. We note that if one assumes a
range of achievement of 50% to 75% of management's growth targets
(still far in excess of historical organic growth rates), a
conservative net present value analysis (using the Company's
current LTM EBITDA multiple and its weighted average cost of
capital according to Bloomberg, L.P.) yields a current range of
values for EMS stock of $23 to $26
per share. If one assumes instead that the Company achieves
the aforementioned compound annual organic growth rates from 2008
through 2011 this net present value is only $17. By contrast, we believe the value
achievable by EMS in a sale on the basis of comparable historical
transactions is $27 to $29 TODAY, AND
WITHOUT OPERATIONAL RISK.
DO NOT BE FOOLED BY THE STATUS QUO LABELED AS CHANGE – ACT
NOW
The EMS Board has labeled our efforts in this election contest
as "potentially destructive" and "short-sighted" – a criticism we
find ironic given that their self-serving measure of historical
performance only begins 16 months ago, after their last period of
significant value destruction. The Chairman and CEO have been
with EMS for 27 years and 18 years, respectively, and would have
you ignore the persistent failures the Company has endured during
their tenure. We believe that if one can achieve a higher
value in a shorter timeframe on a less risky basis than a lower
value over a longer timeframe with significantly more risk, the
choice should be obvious. Nonetheless, this eludes EMS'
Board, which has failed to engage with serious potential acquirers
willing to pay a premium for the Company or its subsidiaries.
We believe shareholders deserve better.
We greatly appreciate the tremendous outpouring of support we
have received from our fellow shareholders and strongly urge all
shareholders to support the MMI Nominees and change at EMS by
signing, dating and returning the enclosed GOLD proxy card
today.
Sincerely,
MMI Investments, L.P.
If you have any questions, require assistance in voting
your GOLD proxy card, or need additional
copies of MMI's proxy materials, please call MacKenzie Partners,
Inc. at the phone numbers or email listed below.
MacKenzie Partners,
Inc.
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105 Madison
Avenue
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New York, New York
10016
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(212) 929-5500 (Call
Collect)
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proxy@mackenziepartners.com
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CALL TOLL FREE (800)
322-2885
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SOURCE MMI Investments, L.P.