Further Highlights the Case for Change at Enzo,
Including its History of Failed Oversight and Significant
Underperformance
HDF Sets the Record Straight Regarding Enzo’s
Ongoing Campaign of Misinformation
HDF’s Independent Director Candidates – Fabian
Blank and Peter Clemens – Have a Proven History of Value Creation
and HDF Believes Both Candidates Will Create Substantial Value for
All Enzo Shareholders
Encourages Fellow Enzo Shareholders to Vote
FOR HDF’s Nominees on the
BLUE proxy card today.
Harbert Discovery Fund, LP and Harbert Discovery Co-Investment
Fund I, LP (collectively “HDF”), the beneficial owner of more than
11.8% of the outstanding shares of Enzo Biochem, Inc. (NYSE: ENZ)
(“Enzo” or the “Company”), sent a detailed letter to shareholders
today highlighting HDF’s case for change at Enzo, including the
opportunity for shareholders to elect two highly-qualified, fresh
voices – Fabian Blank and Peter Clemens – to the Company’s Board of
Directors (the “Board”) at its 2019 Annual Meeting of Shareholders,
which will be held on January 31, 2020.
The full text of the letter follows and is available at
https://cureenzo.com/:
December 30, 2019
Dear Fellow Shareholders,
We are writing you to further elaborate on our case for change
at Enzo Biochem, Inc. (NYSE: ENZ) (“Enzo” or the “Company). As a
reminder, Harbert Discovery Fund, LP and Harbert Discovery
Co-Investment Fund I, LP (collectively “HDF”) currently own
approximately 11.8% of the outstanding shares of Enzo, making us
the Company’s largest shareholder.
A History of Failed Oversight and
Significant Underperformance
We continue to believe Enzo is deeply undervalued, and that this
valuation gap is directly attributable to a glaring failure of
oversight. The Company’s current Board of Directors (the “Board”)
has simply abdicated its responsibility to hold either themselves
or the management team accountable for a repeated inability to
execute Enzo’s stated strategy, deliver profitable growth, or
generate acceptable shareholder returns.
For decades, we believe the priority of Enzo’s management team
has not been shareholders, but instead its own personal and
financial interests. As a result, shareholders have suffered while
Enzo’s executives have made millions – all while the Board stood by
and watched.
Enzo’s underperformance is irrefutable, as exemplified by the
fact that the Company has drastically underperformed the Russell
2000 by nearly 1,250% over the last 30 years. We believe it is
extremely telling that in its recent more than 2,500-word letter to
shareholders, the only mention of, or attempt to explain, the
Company’s atrocious stock price performance is a single sentence
noting that the Board and management, “(S)hare in your
disappointment in the recent performance of our equity.” There is
simply no adequate defense to justify Enzo’s performance.
Clearly, it is time for change.
Enzo’s Campaign of
Misinformation
In the absence of any viable defense for its own poor track
record and litany of strategic missteps, Enzo’s Board has elected
to criticize HDF and our independent nominees.
Enzo has tried to claim that we are short-term activists. This
could not be further from the truth. At our other portfolio
companies where we have board representation, we have been
long-term shareholders, our director designees have served for two
years or more, and in each instance, our fund has increased its
investment during their tenures. The reality is that we are
committed to the long-term success of these companies – just as we
are with Enzo.
We have significant experience working constructively and
collaboratively with the boards and management teams of our
portfolio companies in order to create value. In many instances
beyond those where we have sought board representation, we have
engaged with boards and management teams out of the public realm to
help improve governance, corporate strategy, capital allocation,
and operations. We know what it looks like when a company is open
to hearing from shareholders.
Almost immediately after we began attempting to engage with
Barry Weiner (“Mr. Weiner”), it became readily apparent that Enzo
was not one of those companies. From day one, the Board and
management team have been more interested in gamesmanship than
constructive dialogue. Now they are mischaracterizing our attempts
at engagement in an effort to distract shareholders from Enzo’s
history of revenue declines, deteriorating profitability, and
decades of massive value destruction.
Enzo has also miscast our goal to create long-term value for all
shareholders, claiming we are seeking a “fire sale” of the Company.
In reality, our interests could not be more aligned with
shareholders. We own 11.8% of the Company, more than the two Enzo
co-founders, the entire Board, and management team combined –
despite the co-founders over 40-year tenure and compensation
practices that they claim are designed to align their interests
with shareholders’.
The Opportunity to Add
Highly-Qualified, Fresh Voices to the Board
We have nominated two highly-qualified Board candidates – Fabian
Blank and Peter Clemens – for election at the 2019 Annual Meeting
of Shareholders (the “Annual Meeting”). We nominated these
independent candidates for their deep operational, financial and
strategic experience within the healthcare industry. While Mr.
Weiner and Bruce Hanna’s tenures at Enzo have resulted in
significant shareholder losses, Peter Clemens and Fabian Blank have
a proven history of value creation, and we believe they can create
substantial value for all Enzo shareholders.
Enzo’s Board lacks business acumen, strategic direction, and
accountability to shareholders. We believe our candidates can
immediately address these deficiencies by leveraging their broad
range of experiences within the healthcare industry to improve
Enzo’s operations, hold management accountable for performance, and
drive consistent, profitable growth over the long-term. Value
creation is the express purpose for which we nominated Fabian Blank
and Peter Clemens.
Empty Promises and History
Repeating
Despite its history of failing to deliver, Enzo continues to
point to its strategy, which it claims will unlock deep value in
the future.
Instead of more empty rhetoric and mischaracterizations, we
challenge Enzo to address the significant issues it failed to cover
in its recent shareholder communications:
- After seven years of touting the AmpiProbe platform as one of
the keys behind the lab-to-lab business model, AmpiProbe was not
mentioned in the Company’s recent December 5, 2019 shareholder
letter, the Q1 press release, or on the Q1 earnings call. We
challenge Enzo to inform shareholders when the Company
realistically expects to receive FDA approval for AmpiProbe, and
when AmpiProbe will start to drive the growth and profitability at
Enzo that shareholders have been told to expect.
- In June of 2019, when Enzo announced its three-prong strategy
they stated: “Enzo is in active discussions with several leading
global life sciences and medical device companies […] The
discussions involve developing long-term relationships in
automation and manufacturing, distribution and marketing and
product sales. Enzo’s goal is to announce at least one of these
relationships by the end of calendar 2019.” In its December 5, 2019
letter to shareholders Enzo stated: “Enzo is in active discussions
with several leading global life sciences and medical device
companies […] The discussions involve developing long-term
relationships in automation and manufacturing, distribution and
marketing and product sales.” In its most recent communication Enzo
has omitted its goal to “announce at least one of these
relationships by the end of calendar 2019.” We challenge Enzo to
update shareholders on the status of these “active
discussions.”
- In June of 2019, when Enzo announced its three-prong strategy,
it stated the Company expected to return to operating profitability
in the lab segment in early calendar 2020. In its December 5, 2019
letter to shareholders, it omitted the expectation to achieve
profitability in the lab segment in early calendar 2020. We
challenge Enzo to revisit this topic and communicate to
shareholders when it will achieve operating profitability in the
lab segment. Further, we also challenge Enzo to let shareholders
know whether management compensation is tied to achieving operating
segment profitability.
Elazar Rabbani and Mr. Weiner, the two co-founders and
brothers-in-law, have been in control of Enzo for over 40 years.
They should be able to point to tangible results that have created
value for shareholders. Instead, they continue to claim that they
are on the right track and that value creation is right around the
corner. This was their stance in 2015, which was the last time a
shareholder attempted to upgrade the Board, and consider that since
that time Enzo has achieved a TSR of -43%, revenues have declined
-18%, and adjusted EBITDA has deteriorated from -$8.0 million to
-$24.7 million.
Without changes to the Board, we believe history will repeat
itself and management will continue to benefit as shareholders
continue to suffer. This is why we are asking you to support our
highly-qualified candidates for election to the Board at the 2019
Annual Meeting of Shareholders by voting on the BLUE card today. Please visit our website at
www.cureenzo.com to learn more.
Your vote matters – please consider supporting the case for
change at Enzo.
Vote FOR HDF’s nominees on
the BLUE proxy card today.
Sincerely,
Harbert Discovery Fund, LP
Harbert Discovery Co-Investment Fund I, LP
Kenan Lucas, Managing Director and Portfolio Manager of Harbert
Discovery Fund GP, LLC and Harbert Discovery Co-Investment Fund I
GP, LLC
Harbert Discovery Fund, LP (“Harbert Discovery”), Harbert
Discovery Fund GP, LLC (“Harbert Discovery
GP”), Harbert Discovery Co-Investment Fund I, LP (“Harbert
Discovery Co-Investment” and together with Harbert Discovery, the
“Discovery Funds”), Harbert Discovery Co-Investment Fund I GP, LLC
(“Harbert Discovery Co-Investment GP”), Harbert Fund Advisors, Inc.
(“HFA”), Harbert Management Corporation (“HMC”), Jack Bryant (“Mr.
Bryant”), Raymond Harbert (“Mr. Harbert”) and Kenan Lucas (“Mr.
Lucas” and together with Harbert Discovery, Harbert Discovery GP,
Harbert Discovery Co-Investment, Harbert Discovery Co-Investment
GP, HFA, HMC and Messrs. Bryant and Harbert, the “Harbert Discovery
Parties”) (collectively, the “Participants”) have filed with the
Securities and Exchange Commission (the “SEC”) a definitive proxy
statement and accompanying form of proxy to be used in connection
with the solicitation of proxies from the shareholders of Enzo
Biochem, Inc. (the “Company”) to elect Messrs. Blank and Clemens
(the “Nominees”) at the annual meeting of shareholders of the
Company (the “Annual Meeting”). All shareholders of the Company are
advised to read the definitive proxy statement and other documents
related to the solicitation of proxies by the Participants in
respect of the Annual Meeting, as they contain important
information, including additional information related to the
Participants, the Nominees and the Annual Meeting. The definitive
proxy statement and an accompanying proxy card will be furnished to
some or all of the Company’s shareholders and are, along with other
relevant documents, available at no charge on the SEC website at
http://www.sec.gov/ and are available upon request from the
Participants’ proxy solicitor, Okapi Partners, by calling (888)
758-6707 (banks and brokers call collect (212) 297-0720).
Additional information about the Participants can be found on the
Definitive Proxy Statement filed by the Participants on December 6,
2019.
Important Disclosure
THIS STATEMENT CONTAINS OUR CURRENT VIEWS ON THE VALUE OF
SECURITIES OF ENZO BIOCHEM, INC. (“ENZO”). OUR VIEWS ARE BASED ON
OUR ANALYSIS OF PUBLICLY AVAILABLE INFORMATION AND ASSUMPTIONS WE
BELIEVE TO BE REASONABLE. THERE CAN BE NO ASSURANCE THAT THE
INFORMATION WE CONSIDERED IS ACCURATE OR COMPLETE, NOR CAN THERE BE
ANY ASSURANCE THAT OUR ASSUMPTIONS ARE CORRECT. WE DO NOT RECOMMEND
OR ADVISE, NOR DO WE INTEND TO RECOMMEND OR ADVISE, ANY PERSON TO
PURCHASE OR SELL SECURITIES AND NO ONE SHOULD RELY ON THIS
STATEMENT OR ANY ASPECT OF THIS STATEMENT TO PURCHASE OR SELL
SECURITIES OR CONSIDER PURCHASING OR SELLING SECURITIES. THIS
STATEMENT DOES NOT PURPORT TO BE, NOR SHOULD IT BE READ, AS AN
EXPRESSION OF ANY OPINION OR PREDICTION AS TO THE PRICE AT WHICH
ENZO’S SECURITIES MAY TRADE AT ANY TIME. AS NOTED, THIS STATEMENT
EXPRESSES OUR CURRENT VIEWS ON ENZO. OUR VIEWS AND OUR HOLDINGS
COULD CHANGE AT ANY TIME WITHOUT NOTICE AND WE MAKE NO COMMITMENT
TO UPDATE THIS STATEMENT IN THE EVENT OUR VIEWS OR HOLDINGS CHANGE.
INVESTORS SHOULD MAKE THEIR OWN DECISIONS REGARDING ENZO AND ITS
PROSPECTS WITHOUT RELYING ON, OR EVEN CONSIDERING, ANY OF THE
INFORMATION CONTAINED IN THIS STATEMENT.
About Harbert Discovery Fund (HDF)
HDF invests in a concentrated portfolio of publicly traded small
capitalization companies in the US and Canada. We perform
significant due diligence on each portfolio company prior to
investing. In addition to researching all publicly available
information and meeting with management, our diligence includes
substantial primary research with industry experts, consultants,
bankers, customers and competitors. We often spend months or years
researching ideas before making an investment decision and we only
invest in companies that we believe are significantly undervalued,
and where there is the potential for change to enhance or
accelerate value creation. In an effort to unlock this potential
value, we seek to work directly with the boards and management
teams of our portfolio companies privately and collaboratively,
engaging with them on a range of factors including governance,
board composition, corporate strategy, capital allocation,
strategic alternatives and operations. We have effected positive,
fundamental changes at our current and past investments through
this behind-the-scenes, constructive approach. HDF currently has
board representation at three of our portfolio companies. In each
case, changes to the board were agreed upon privately and it is our
strong preference in every investment to avoid the unnecessary
distractions and costs of a public proxy campaign.
About Harbert Management Corporation (HMC)
HMC is an alternative asset management firm with approximately
$6.7 billion in regulatory assets under management as of December
1, 2019. HMC currently sponsors nine distinct investment strategies
with dedicated investment teams. Additional information about HMC
can be found at www.harbert.net.
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version on businesswire.com: https://www.businesswire.com/news/home/20191230005176/en/
Investor Okapi Partners LLC Bruce Goldfarb / Chuck Garske
/ Jason Alexander, 212-297-0720 info@okapipartners.com
Media Sloane & Company Dan Zacchei / Sarah
Braunstein, 212-486-9500 dzacchei@sloanepr.com /
sbraunstein@sloanepr.com
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