Elazar Rabbani, Dov Perlysky, Rebecca
Fischer,
We are writing to demand Elazar Rabbani
immediately resign as CEO and from the Board of Directors (the
“Board”) of Enzo Biochem, Inc. (NYSE: ENZ) (“Enzo” or the
“Company”). Harbert Discovery Fund, LP and Harbert Discovery
Co-Investment Fund I, LP (collectively “HDF”) currently own
approximately 11.74% of the outstanding shares of Enzo, making us
the Company’s largest shareholder.
As you will recall, despite your attempts to
further entrench the Board during the last proxy campaign,
shareholders overwhelmingly voted to elect Fabian Blank and Pete
Clemens as directors on February 25, 2020 largely because of their
desire to see change at Enzo. Shareholders voted for Pete and
Fabian because of the Company’s long history of underperformance,
significant share price declines, and disillusionment with a
management team that clearly places its own interests ahead of
shareholders. It is no surprise that the fundamental results began
to improve after Pete and Fabian joined the Board. Based on the
timing and unexpected nature of Fabian and Pete’s resignations, it
appears that Chairman and CEO Rabbani has created such an extremely
hostile environment that Pete and Fabian found their position
untenable as minority members in opposition to Mr. Rabbani’s
continued mismanagement.
Upon disclosing the resignations of Pete and
Fabian, Enzo announced that preliminary revenue for fiscal Q1
exceeded $27 million, the highest revenue quarter the Company has
achieved in years. Enzo is clearly benefitting from the increased
demand for COVID-19 testing, and we expect this dynamic to
continue. It speaks volumes that despite the positive revenue news,
shares traded down around 2.5%.
This trading behavior clearly reflects
shareholders’ fundamental distrust and frustration with management
and the remaining directors. This decline extended the shares
year-to-date declines to -25%. Conversely, other public companies
benefitting from COVID-19 testing have generated outsized
shareholder returns in 2020. Opko, LabCorp, and Quest Diagnostics
generated 2020 year-to-date shareholder returns of 169%, 21%, and
19%, respectively. For Enzo, 2020 is a continuation of a
long-history of dramatic underperformance.
|
Total
Shareholder Return |
|
YTD |
1
Year |
3
Year |
5
Year |
10
Year |
20
Year |
LabCorp |
21.0 |
% |
19.4 |
% |
36.2 |
% |
65.9 |
% |
151.7 |
% |
448.8 |
% |
Quest |
18.6 |
% |
21.5 |
% |
41.9 |
% |
101.7 |
% |
195.5 |
% |
490.9 |
% |
Opko |
169.4 |
% |
165.8 |
% |
(16.6 |
%) |
(63.2 |
%) |
37.6 |
% |
(50.2 |
%) |
Average |
69.7 |
% |
68.9 |
% |
20.5 |
% |
34.8 |
% |
128.2 |
% |
296.5 |
% |
|
|
|
|
|
|
|
Enzo |
(24.7 |
%) |
(31.7 |
%) |
(78.5 |
%) |
(56.0 |
%) |
(52.7 |
%) |
(93.7 |
%) |
Note: Data per Bloomberg as of
November 17, 2020.
Elazar Rabbani has controlled and mismanaged
Enzo for over 40 years. He has consistently paid himself bonuses in
spite of negative shareholder returns, he has overseen numerous
conflicts of interest, and he has failed to create shareholder
value. We have spoken with numerous former employees and not a
single one has anything positive to say about his leadership or
character. There is a consistent theme that he cares more about
maintaining control of the Company than supporting his employees,
or creating value for shareholders.
Enough is enough. It is time for the remaining
“independent” directors to demand Elazar’s immediate resignation.
Upon his resignation, the Company should immediately pursue a sale.
M&A multiples are increasing, based on the current demand for
lab assets. We believe at a minimum the Company could realize 2x
revenues in a sale. Based on recently announced run-rate Q1 fiscal
2021 revenue, that would result in $5.51 per share, or 178% upside
from current levels. This is clearly a better option for
shareholders than continuing with the current status quo, where
even positive fundamental results send the stock down as a result
of the extreme and justified distrust of Elazar Rabbani. It is
worth noting that the Company has not updated shareholders on the
status of its engagement with Lazard since January of 2020. We
believe they deserve an update.
Investors are left to ponder what independent
directors Perlysky and Fischer stand to benefit from Elazar’s
continued entrenchment. Evidently, they have placed their own
interest in furthering Elazar’s unscrupulous behavior and
self-dealing ways ahead of thousands of individual and
institutional investors.
We hope that recently added director Mary
Tagliaferri is truly independent and capable of an unbiased
assessment of Enzo’s management. Time will tell.
Should directors Perlysky and Fischer refuse to
recognize the mandate for change from shareholders and exhibit a
preference for systemic cronyism, then at a minimum we request that
the Board hire an independent, reputable law firm to investigate
Elazar’s various conflicts.
Shareholders deserve better. You can do better.
It is a shame and blight on your and Enzo’s reputations that you
won’t.
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 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 $7.4 billion in regulatory assets under management as
of October 31, 2020. HMC currently sponsors eight distinct
investment strategies with dedicated investment teams. Additional
information about HMC can be found at www.harbert.net.
Contact: HMC Investor RelationsTelephone:
205.987.5500E-mail: irelations@harbert.net
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