It is Time to Restore Credibility to Enzo’s
Boardroom and End Culture of Value Destruction, Entrenchment and
Broken Promises
All Three Leading Independent Proxy Advisory
Firms – ISS, Glass Lewis and Egan Jones – Have Recommended that
Shareholders Support HDF’s Case for Change at Enzo by Voting on the
Blue Proxy Card
HDF Warns Company Not to Take Any Actions that
Would Disenfranchise Shareholders and Prevent a Free and Fair Vote
on Scheduled Annual Meeting Date
Urges Enzo Shareholders to Vote FOR HDF’s
Highly-Qualified Independent Nominees Fabian Blank and Peter
Clemens on the BLUE Proxy Card Today
Harbert Discovery Fund, LP and Harbert Discovery Co-Investment
Fund I, LP (collectively “HDF”), the beneficial owners of more than
11.8% of the outstanding shares of Enzo Biochem, Inc. (NYSE: ENZ)
(“Enzo” or the “Company”), today sent a letter to shareholders in
connection with its efforts 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
(the “Annual Meeting”), which will be held on January 31, 2020.
The full text of the letter follows and is available at
https://cureenzo.com/:
January 27, 2020
Dear Fellow Shareholders,
With the Enzo Annual Meeting quickly approaching, you have a
very important choice to make. Will you allow the Company to
continue on its current path, which has been defined by broken
promises, value destruction and disregard for the views of its
shareholders? Or will you vote to elect two experienced fresh
voices to join the five-person Board, so that your best interests
will be effectively represented and Enzo can be put on the path to
value creation?
As you think through this decision, we urge you to consider the
following points:
Enzo’s Drastic
Underperformance is Undeniable
Enzo has indisputably destroyed value for its shareholders. As
proxy advisory firm Glass, Lewis & Co. (“Glass Lewis”), stated
in its report, “The Company has underperformed every benchmark over
every period.” It does not get simpler than that, as the below
table of the Company’s total shareholder return (TSR)
illustrates:
-14%*
-61%*
-42%*
49%*
1 Year TSR
3 Year TSR
5 Year TSR
10 Year TSR
*Note: Market data as of November
30, 2019
*Source: Bloomberg
Enzo’s story is one of promises without progress. In this
campaign the Company has simply recycled the same excuses and
reassurances it has used for years without giving investors any
reason to trust that things will be different this time around.
Enzo’s narrative is that success and value creation is always
“just around the corner.” Unfortunately, this story has become a
broken record. In its 2015 presentation – issued in the context of
a proxy fight with another investor – Enzo said that it was
“positioned…to thrive.” The Company’s presentation issued earlier
this month claimed that “Enzo is well-positioned to succeed…”
Shareholders could be forgiven for thinking that Enzo’s strategy is
more about tired repetition than successful execution.
Institutional Shareholder Services Inc. (“ISS”), had this to say
about Enzo’s lack of strategic direction and chronic
underperformance1:
- “[Harbert] has made a compelling case
that board change is warranted, as evidenced by operational
deterioration, prolonged absolute and relative TSR
underperformance, and substandard corporate governance.”
- “[T]here are no clear signs of
recovery in share price or operating performance to provide
shareholders with confidence that the turnaround strategy is taking
root or that the market has been receptive to its chances of
success.”
Glass Lewis noted the following:
- “Disconcertingly, investors hoping to see a bold response
steeped in critical measures of operational progress have instead
been greeted by what we consider to be a fairly loosely structured narrative functionally ripped
from Enzo's last battle, including rehashed promises of pending
value generation.”
- Glass Lewis cites “entirely legitimate
concerns around strategy and shareholder value, as well as
the board's failure to produce
arguments that meaningfully update its own dated case from late
2015.”
Clearly, change is needed. Otherwise the broken record of
unfulfilled promises will continue to repeat at Enzo.
Enzo’s Current Board
Has a Credibility Problem
In the context of this proxy campaign, the tactics Enzo’s Board
has resorted to in order to obfuscate, confuse, and distract
shareholders are concerning, as well as disappointing. As Glass
Lewis notes, the evidence, suggests “there may be some foundational
and atypical disconnect between the Company and investors.”
First, Enzo has only addressed corporate governance issues
when forced to do so. Nearly every single governance
“improvement” the Company cites occurred after public pressure from
Harbert and other investors in the context of proxy campaigns. This
includes the appointment of Rebecca Fischer to the Board on
December 31, 2019 months after HDF launched its campaign and Barry
Weiner stepping down as CFO so that he would not continue serving
in that role while also being on the Board – a move Glass Lewis
described as nothing more than “another low risk, high optical
upside modification intended to cultivate a more favorable
impression of Enzo's governance.”
Additionally, a close study of Enzo’s filings reveals that the
Company has only mentioned Board refreshment when under public
pressure from shareholders. Enzo’s “proactive engagement process”
with shareholders and the institution of a “diversity policy,” as
well as a proposed bylaw change to a majority voting standard, were
first mentioned in December 2019, well after Harbert had gone
public with its concerns.
These facts demonstrate that the current Board does not take
proactive, positive actions with regard to corporate governance
unless it faces public criticism from large shareholders. That is
at the root of the problem within this Company’s boardroom.
ISS notes the following on this subject:
- “ENZ also missed the opportunity to
enhance its governance structure in the immediate aftermath of the
2015 proxy contest, instead waiting until recently to
appoint the first woman to its board, strengthen the lead
independent director role, and propose a majority voting standard
for uncontested director elections.”
- “Although the board states that it has integrated shareholder
feedback into its governance improvements, such feedback
did not translate into changes until
recently.”
Second, Enzo has repeatedly attempted to distract investors
by attacking Harbert and our independent nominees. The Company
seemingly misses the point that this campaign is not about Harbert.
It is about the need for fresh, independent voices with exceptional
track records of value creation in the healthcare industry on the
Board. Our nominees are completely independent of Harbert and we
believe they would be strong advocates for the best interests of
all Enzo shareholders.
In its investor presentation, Enzo notes roughly six times that
a company on whose board our nominee Fabian Blank sits is based in
what they persistently describe as “Georgia (former Soviet
Republic).” Rebuking Enzo for this odd tactic, Glass Lewis notes,
“In contrast, the board's criticism of Mr. Blank -- which
highlights GHG's microcap status despite the fact that it is worth
nearly twice as much as Enzo and seemingly
pleads for guilt by association by repeatedly referencing a
thirty-years out-of-date association between Georgia and the former
Soviet Union -- is, in our view, entirely
unconvincing.”
We believe this type of behavior is simply not the approach of a
professional, objective board that prioritizes what is best for
investors over what is best towards maintaining the status quo.
Third, Enzo troublingly mischaracterizes ISS’s report in
the Company’s January 17, 2020 press release. Enzo states, “ISS
highlights the dissident’s puzzling unwillingness to engage in
constructive discussions with the Board, recognizes the significant
refresh of Enzo’s Board over the last four years and highlights the
meaningful improvements in a number of corporate governance
areas…”
In reality, ISS’s analysis says nothing of the sort. These
points only appear in the section of the ISS report that summarizes
Enzo’s position – which is standard in every ISS report. It is
deeply troubling that Enzo would so blatantly mislead investors
about ISS’s position.
Fourth, the incumbent Board is clearly divorced from
reality. The ISS report highlighted perplexing comments from
Enzo nominee Dr. Bruce Hanna regarding CEO Elazar Rabbani, further
calling into question the Board’s independence and judgement:
- “When asked by ISS how he was recruited to the board in 2016,
director Hanna replied that he has been familiar with ENZ for almost 40 years, having
served as a consultant to ENZ in the late 1980's, and that he has
been a longtime associate of CEO
Rabbani.”
- “Further, when discussing Rabbani's performance as CEO, Hanna
offered significant praise, going so far as to liken Rabbani to
Steve Jobs (despite the TSR and operational
underperformance discussed above).”
- “These factors raise doubts for shareholders about whether
Hanna is sufficiently capable of challenging management.”
These quotes, in our view, are representative of a broader
problem in the Enzo boardroom – namely, the idolization of
management and a complete misunderstanding of the importance of
director independence.
HDF’s Nominees Would
Bring Valuable, Fresh Perspectives to Boardroom
The addition of our two independent nominees, Fabian Blank and
Peter Clemens, will provide the relevant skillsets and expertise
required to help realize Enzo’s value potential. Both Fabian’s and
Pete’s voices in the boardroom are necessary to ensure change is
truly enacted. We believe this is the first step to unlocking value
for Enzo’s shareholders.
The addition of only one of these nominees would create a
situation where that director could easily be ignored and sidelined
by the rest of the Board and would limit that individual’s ability
to stimulate fair debate. It is critical that that situation be
avoided by electing both of our independent nominees.
Both Glass Lewis and ISS have positive things to say about our
nominees. Glass Lewis states:
- “Speaking first to Fabian Blank, we identify a reasonable
health care services background, including what appears to be a
breadth of advisory roles spanning varying industry segments and
geographies.”
- “Peter Clemens, in turn, has a background which includes
c-suite roles at several healthcare services firms, including
Surgical Care Affiliates and Caremark Rx, Inc….The presence of this
senior executive experience at a range of larger and more complex
enterprises in the healthcare sector supports Mr. Clemens'
prospective ability to add value to a range of key strategic and
financial discussions and overrides, in our view, nominal concerns
that Mr. Clemens has not previously served on the board of a
publicly-traded firm.”
ISS notes the following:
- “Dissident nominee Blank seems qualified
to contribute industry expertise and a fresh perspective
which would be additive to the board and appears to be sufficient
to prompt the board to address performance and oversight
concerns…He currently serves on the board of Georgia Healthcare
Group plc (LSE:GHG), a similarly sized healthcare company to ENZ
based in the Republic of Georgia, experience which would be
additive to the board given that only
one other ENZ director has public board experience.”
- “[D]issident nominee Clemens' qualifications could also be additive to the board in light of his experience
as a CFO at two public healthcare companies (where he likely
would have had to work directly with each company's board on a
regular basis).”
***
Finally, we strongly urge the incumbent Board to refrain from
taking any steps in the run-up to the Annual Meeting that would
disenfranchise shareholders and / or prevent a free and fair
election of directors at the Annual Meeting scheduled for
January 31, 2020. Any last-minute attempts to do so would not be in
the long-term interests of the Company and its investors. Further,
we will not hesitate to hold individual Board members individually
responsible for any such actions.
Now is the time to vote your shares. Vote on the BLUE
proxy card FOR the election of Fabian Blank and Peter
Clemens today.
Please visit our website at www.cureenzo.com to learn more.
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
Important Information about Participants in a Proxy
Solicitation:
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”) in connection with 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, their nominees for
election to the board of directors of the Company 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.
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
$7.0 billion in regulatory assets under management as of December
31, 2019. HMC currently sponsors nine distinct investment
strategies with dedicated investment teams. Additional information
about HMC can be found at www.harbert.net.
________________________________ 1 Permission to quote third
parties was neither sought nor obtained. Emphasis added.
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version on businesswire.com: https://www.businesswire.com/news/home/20200127005284/en/
Investor Okapi Partners LLC Bruce Goldfarb / Chuck Garske
/ Jason Alexander, 212-297-0720 info@okapipartners.com
Media Sloane & Company Dan Zacchei / Joe Germani,
212-486-9500 dzacchei@sloanepr.com / jgermani@sloanepr.com
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