Lakeview Investment Group & Trading Company, LLC, which
beneficially owns 1,031,591 shares of common stock of TESSCO
Technologies Incorporated (NasdaqGS: TESS) (“Tessco” or the
“Company”), making it Tessco’s second largest stockholder, today
issued a letter to the Board of Directors of the Company calling
upon the Board to retain a reputable investment bank to run a full
and fair process to sell the Company. The full text of the letter
is included below:
Board of DirectorsTESSCO Technologies
Incorporated11126 McCormick RoadHunt Valley, Maryland 21031
Dear Members of the Board,
Lakeview Investment Group & Trading Company,
LLC (“Lakeview”) owns 1,031,591 shares of TESSCO Technologies
Incorporated (“Tessco” or the “Company”), representing
approximately 11.6% of the outstanding shares, making Lakeview the
Company’s second largest stockholder. We are writing today to
express our view that Tessco retain a reputable investment bank to
run a full and fair process to sell the Company.
We have followed the Company closely for two
decades, from the relatively early days of the cellular wireless
industry. After a long history of profitability, the past five
years have seen the Company’s profit turn increasingly negative, as
can be seen in the chart below:1
A photo accompanying this announcement is available at
https://www.globenewswire.com/NewsRoom/AttachmentNg/5a502fd5-56bc-4fb3-8709-956ecf971ddf
After our initial discussions with CEO Sandip
Mukerjee not long after he was hired in 2019, we were hopeful that
a turnaround would occur, but in recent quarters, any confidence we
had has dissipated. Mukerjee has now been with the Company for two
years, during which time there has been more value destruction (as
measured by profitability) than any two-year period in the
Company’s nearly 30-year history as a public company. Under his
leadership, the Company has consistently overpromised and
underdelivered, guiding toward breakeven in recent quarters, but
has completely missed the mark and lost approximately $15.6 million
from continuing operations before taxes (or roughly $1.80 per
share) in the past year alone (not including an astounding $2.6
million spent to oppose founder and largest stockholder Robert
Barnhill’s consent solicitation process). Furthermore, at a run
rate of approximately $85.5 million of selling, general, and
administrative expenses, or approximately 22.9% of sales, the
Company is spending stockholder capital at an unsustainable rate.
The Company also appears to be losing significant market share, as
the revamp of the Company’s sales team, highlighted by the hiring
of Senior Vice President of Commercial Sales Eddie Franklin, who
was brought on in April 2020 following Mukerjee’s hiring but who
left the Company just over a year later, has clearly fallen well
short of expectations.
Although the Company continues to try to spin
its recent performance in a positive light, its financial and stock
performance indicate the opposite, particularly when viewed in
comparison to other companies that Tessco identifies as its peers.
(It is worth noting that the Company, in its most recent Form 10-K,
includes only two publicly traded comparable companies, down from
four just a year ago, as Anixter International Inc. and Tech Data
Corp. were both recently acquired, evidence that the industry is
ripe for further consolidation.) Although the Company has blamed in
part the impact of COVID-19 for its recent underperformance, the
pandemic does not explain the continued margin deterioration it has
experienced over the last few years, whereas both of its public
competitors have seen margins recover after a brief COVID-19
related dip. This discrepancy in financial performance is borne out
in the chart below, included in the Company’s most recent Form
10-K, comparing Tessco’s stock performance against its
self-identified competitors as well as the Russell 2000. In the
face of a rising bull market overall, and strong performance by the
Company’s self-selected peers, Tessco has destroyed tremendous
stockholder value.
A photo accompanying this announcement is available at
https://www.globenewswire.com/NewsRoom/AttachmentNg/5fed8235-4892-463a-a081-ad12eb461ab2
While management claims to have a turnaround
plan and preaches patience, no guidance has been forthcoming from
the Company and the details of that plan remain vague.
Undertaking a turnaround in the glare of the public markets is
fraught with execution risk and will require proper management
overnight (which we believe current leadership has failed to
demonstrate) and substantial time and expense to reverse the
Company’s mounting losses and bloated cost structure, all for a
highly uncertain future. Therefore, we strongly believe that a sale
of the Company is the optimal outcome for stockholders.
Tessco is at a major inflection point, and if
the Company does not expeditiously pursue a bona fide sale process,
we fear that considerably more value will be destroyed for
stockholders. Tessco trades below its net asset value and has
sufficient liquidity available on its line of credit, plus
unencumbered real estate that our due diligence suggests is worth
at least $30 million and for which the public markets do not give
it credit. However, we are highly concerned that as the Company
continues to lose money, the debt will continue to build, the net
asset value will continue to decline, and the stock price will
follow. As a nano-cap public company with extremely low trading
volume, minimal analyst coverage, consistently poor performance in
recent years, and inflated public company costs, we believe there
is no justification for Tessco to remain public.
We believe there are a number of strategic and
financial buyers who would have a genuine interest in pursuing a
transaction with the Company, and are in fact aware of the
Company’s refusal to engage with potentially interested parties on
more than one occasion, in an apparent dereliction of the Board’s
fiduciary duties to stockholders. As we have done, we urge the
Board to assess the risk-adjusted long-term value that might be
realized in the future by executing management’s plan and weigh
this against the value that is realizable in the near-term through
a sale of the Company.
In addition, we have serious concerns with the
role that CEO Sandip Mukerjee and Chairman Paul Gaffney, the
Company’s longest-tenured continuing director, have played in
overseeing the Company’s declining financial and stock price
performance and implementing a number of stockholder-adverse
corporate governance actions (including increasing the share
ownership requirement from 25% to 50% for stockholders to call a
special meeting, which was voted down by stockholders as part of
Mr. Barnhill’s consent solicitation process, and implementing a
mandatory director retirement age that appeared to be designed to
force the Company’s largest stockholder off the Board). For
these reasons, we intend to express our dissatisfaction with
Messrs. Mukerjee and Gaffney by WITHHOLDING AUTHORITY to vote our
shares with respect to their election as directors at the Company’s
upcoming 2021 annual meeting of stockholders.
We look forward to having a direct and
constructive engagement with the Board to ensure that the Company
pursues a full and fair sale process with the singular goal of
maximizing value for stockholders.
Sincerely,
/s/ Ari B. Levy
Ari B. LevyManager
About Lakeview Investment
Group
Lakeview Investment Group is a Chicago-based
investment manager, founded in 2004, with a focus on small- and
mid-cap companies. Lakeview’s strategy focuses primarily on
long-term investments in companies trading at significant discounts
to its estimate of intrinsic value. On select occasions,
Lakeview engages directly with company management to help drive
shareholder value.
Media and Investor Contact
Lakeview Investment Group & Trading Company,
LLCAri Levy, ari@lakeviewig.comTim Won, twon@lakeviewig.com(312)
245-2910
_______________1 Excluding goodwill impairment
and restructuring charges.
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