Voce Capital Management LLC (“Voce”) announces today it has filed its
definitive proxy statement for the nomination of three independent
directors – James W. Green, CEO of Analogic (Nasdaq: ALOG); Joshua H.
Levine, CEO of Accuray (Nasdaq: ARAY); and J. Daniel Plants, Managing
Partner of Voce – for election to the Board of Directors of CONMED
Corporation (“ConMed” or the “Company”) (Nasdaq:CNMD) at the Company's
2014 annual meeting, now scheduled for September 10, 2014.
Voce also mailed a letter to its fellow shareholders today articulating
its view of the incumbent Board’s deficits of skill and independence.
ConMed shareholders are well aware that Voce has waged a multi-month
campaign to unlock shareholder value at ConMed, beginning in November
2013. Even the Board has conceded that many of the reforms called for by
Voce and secured for shareholders during this time have been
“extraordinary positive changes for ConMed.”
Yet despite its slew of recent announcements, in the Board’s own words
on August 11 “ConMed’s strategy, execution and performance culture must
change.” Voce couldn’t agree more and cites, among other issues, the
following areas of ongoing concern:
-
ConMed’s legacy directors still wield enormous power, holding two of
the Board’s four leadership positions, including the Chairmanship;
-
The Board recently appointed one of its own as “interim” CEO (a power
grab Voce predicted in its February 27 open letter), we believe
abetted by his associate who is also a director and a member of the
CEO search committee;
-
The Board (in our view) mishandled its effort to sell the Company with
a clumsy, rushed sales process that was artificially truncated to
provide talking points for the Board in the proxy contest; and
-
The Board blatantly manipulated the electoral machinery, including a
four-month delay in the annual meeting.
The three directors Voce seeks to replace are particularly unsuited for
the mission of leading ConMed through a period that will be even more
challenging and risky than the chapter it has just closed. Not one of
the three incumbents have any medical device operating experience and
none has ever run a public company. By contrast, Voce’s nominations
supplement the Board, in a selectively targeted fashion, with directors
possessing experience, objectivity and leadership that we believe the
Board continues to lack even after its recent shake-up.
Voce’s ConMed nominees are:
-
James W. Green, the President and Chief Executive Officer, and
a director, of Analogic Corporation (Nasdaq:ALOG), a medical imaging
company, and a former senior executive with Quest Diagnostics and
Philips Medical Systems;
-
Joshua H. Levine, the President and Chief Executive Officer of
Accuray (Nasdaq:ARAY), and the previous CEO of publicly-traded Immucor
and Mentor, each of which were sold for substantial premiums; and
-
J. Daniel Plants, Managing Partner of Voce and a former
investment banking executive at Goldman Sachs and JPMorgan Chase, who
has successfully advised dozens of companies (many of which had
multi-billion dollar market capitalizations) through strategic review
processes and change of control transactions.
All three are ConMed stockholders. Complete biographical details of
Voce’s nominees are contained within Voce’s proxy statement.
J. Daniel Plants, Voce’s Managing Partner, said: “Our independent
nominees, each of whom is currently a Chief Executive Officer of a
publicly-traded medical device company, are superb in every respect. Jim
Green brings a strong and extensive medical technology background with
deep operational expertise; Josh Levine is an outstanding sales and
marketing executive with a track record of unlocking strategic value
multiple times. Each is a highly respected business leader and ConMed
will greatly benefit from the experience, insights and personal
credibility they bring.”
Voce’s shareholder letter concludes: “Fixing ConMed will not be easy.
That’s why the choice of directors to lead the Company through this
period is crucial and the upcoming annual meeting will be, by far,
the most important election in ConMed’s history.”
Voce encourages its fellow shareholders to execute and return the WHITE
proxy card. Voce will utilize the WHITE
proxy card to vote for its three nominees and all ConMed nominees except
for Jo Ann Golden, Jerome J. Lande and Stephen M. Mandia.
About Voce Capital Management
Voce Capital Management LLC (“Voce”) is an employee-owned investment
manager and the advisor to Voce Catalyst Partners LP, a private
investment partnership. Voce employs a value-driven, governance-focused
investment strategy and is based in San Francisco, California.
The full text of Voce’s letter follows:
August 14, 2014
Dear Fellow Shareholders:
We are long-term investors alongside you in CONMED Corporation (“ConMed”
or the “Company”) and intend to remain involved in ConMed’s future as we
continue to increase our ownership in the Company. Until just last
month, ConMed’s founding family, the Corasantis, had dominated the
Company for the better part of four decades, running it for the personal
benefit of their clan and delivering years of poor performance without
any accountability, in our view. Were it not for Voce Capital, we
believe this would still be the case today.
On November 4, 2013 we sent a detailed open letter to the Board of
Directors (the “Board”) which summarized months of research and set in
motion many of the Board and management changes that have resulted. Our
original letter was the first time that anyone had openly challenged
ConMed’s Board. It began as follows:
ConMed is a strategically attractive asset trapped within a
dysfunctional public vehicle that will never achieve its potential in
current form. Your shareholders have witnessed years of sub-par
operational performance, lethargic leadership and missed opportunities.
Serial acquisitions have obscured weak organic growth and provided cover
for poor execution. As a result, ConMed today is an overly complex,
subscale player surrounded by much larger and more successful
competitors. Its margins and returns are comparatively weak and in
long-term decline.
Perhaps most disturbing, ConMed suffers from a culture of nepotism,
patronage and dystopian corporate governance that would be corrosive in
a closely-held corporation but which is utterly corrupting in a public
company. And therein lies the wellspring for so many of ConMed’s
failures: ConMed is unquestionably family-run – the Corasanti clan
members pull all the strings and pamper themselves royally – yet it’s
not family-owned, as they hold very little of its stock. Their hegemony
over ConMed could have never occurred without the docile cooperation of
the very fiduciaries who were elected to protect shareholder interests:
You, its Board of Directors.
The reverberations from that letter, and our subsequent efforts on
behalf of ConMed shareholders, are still being felt. The Corasanti
family has exited and the Board has seen some turnover. Predictably, the
Board now hopes that shareholders will feel that it has done enough and
that no further change is warranted. The reality is much more nuanced.
While it’s true the Board has made some long overdue changes in response
to our demands, ConMed’s old guard remains well-represented. The legacy
directors still wield enormous power, holding two of the Board’s four
leadership positions, including the Chairmanship. The Board’s collective
self-preservation instinct is also clear from several dubious decisions
in recent weeks. These include appointing one of its own as “interim”
CEO (a power grab we publicly predicted in February); mishandling an
effort to sell the Company with a clumsy, rushed sales process that we
believe was artificially truncated to provide talking points for the
Company in the proxy contest; and manipulating the electoral machinery,
including a four-month delay in the annual meeting.
Most importantly, despite the recent changes ConMed’s largest challenges
remain in front of, rather than behind, it. In the Board’s own
words just this week, “ConMed’s strategy, execution and performance
culture must change.” We couldn’t agree more. The key question for
shareholders is whether the existing Board is appropriately constituted
to accomplish the task as ConMed now enters a period that will be even
riskier than the chapter it has just closed. As fellow shareholders, our
collective success or failure will depend upon:
-
Selecting a permanent CEO with the experience to address ConMed’s
specific and immediate needs;
-
Arresting the business’ decline and then returning it to growth;
-
Restoring trust and credibility with investors; and
-
Ultimately revisiting a sale of ConMed as the most logical eventual
exit.
In our view, the current Board has neither the expertise nor objectivity
to succeed at these critical tasks, and the three directors that we are
seeking to replace are particularly unsuited for the mission. We are
therefore soliciting your support to assist us in enhancing the value of
ConMed for all shareholders by electing three new independent nominees
(the “Nominees”) who bring substantial experience and bona fides
directly relevant to the work to be done. Our outstanding Nominees are:
-
James W. Green, the President and Chief Executive Officer, and
a director, of Analogic Corporation (Nasdaq:ALOG), a medical imaging
company, and a former senior executive with Quest Diagnostics and
Philips Medical Systems;
-
Joshua H. Levine, the President and Chief Executive Officer of
Accuray (Nasdaq:ARAY), and the previous CEO of publicly-traded Immucor
and Mentor, each of which were sold for substantial premiums; and
-
J. Daniel Plants, Managing Partner of Voce and a former
investment banking executive at Goldman Sachs and JPMorgan Chase, who
has successfully advised dozens of companies (many of which had
multi-billion dollar market capitalizations) through strategic review
processes and change of control transactions. Voce has an unbroken
string of success in four previous investments such as ConMed, with an
average return to shareholders of 60%, and an IRR of 85%, from Voce’s
efforts.
Messrs. Green and Levine are independent of one another and of Voce;
neither is an investor in or advisor to anyone affiliated with Voce nor
will they receive any compensation from Voce for agreeing to serve on
its slate. They were selected exclusively for the operational
experience, industry backgrounds, credibility and strong leadership they
will bring to ConMed’s Board. If elected their sole loyalties
will be to ConMed’s shareholders and, in fact, each of them have already
purchased ConMed stock with their own capital, demonstrating their
conviction that a substantial opportunity exists to create value for all
shareholders.
Fixing ConMed won’t be easy. That’s why the choice of directors to lead
the Company through this period is crucial and the upcoming annual
meeting will be, by far, the most important election in ConMed’s history.
* * *
Even after the recent changes ConMed’s Board is still led by long
serving legacy directors with deep ties to its small hometown and to the
Corasanti family. The Chairman, Mr. Tryniski, whose long relationship
with ConMed goes back at least to the time he was a partner at ConMed’s
accounting firm in the early 2000s, has been a director since 2007. He
was the “Lead Independent Director” prior to becoming Chairman,
including during a long period of time where the Board turned a blind
eye to the conflicts of interest, cronyism and operational ineptitude
that defined ConMed prior to November 2013. Jo Ann Golden, who is
retired and, like Mr. Tryniski, is also a former accountant and a
current director of a community bank in Utica, is now in her eleventh
year on ConMed’s Board and chairs the audit committee. Stephen Mandia,
formerly a Utica-based olive oil importer and long-time Corasanti friend
and confidante, is seeking reelection to a twelfth term. As we discuss
below, we are seeking to replace Ms. Golden and Mr. Mandia as there are
serious questions about the fitness of each individual to serve on
ConMed’s Board and the relevance of each’s experience to ConMed’s
specific needs. Despite their efforts to suddenly disavow it, these
three directors fully own ConMed’s long-term record of failure and
infamous corporate culture.1
The current Board’s ongoing misalignment of interests with shareholders
can be seen in many other ways.
A shotgun marriage. On February 11, 2014 we announced our
intention to nominate four directors and on February 19 filed our
preliminary proxy statement. To our surprise, on February 25 ConMed
announced a settlement agreement with Coppersmith Capital, Jerome Lande
and his associate, Curt Hartman. Despite the fact that we had just
formally nominated four directors – three of whom are current or were
former medical device CEOs – ConMed appointed Messrs. Hartman and Lande
to its Board without evaluating our candidates. Coppersmith’s 13-D
revealed that it hadn’t even begun purchasing shares until December 30,
2013, well after our November letter, and that it hadn’t previously
owned ConMed during the preceding 24 months.
On February 27, we wrote to ConMed’s Board to express our misgivings
about these appointments. After noting that “[o]ne cannot help but
notice that ConMed’s newest pair of directors also tried to engineer
their way onto the Board of Alere Corporation” in August 2013, we went
on to “question the wisdom of each of these choices, albeit for
different reasons. . . . [T]heir appointment to the ConMed Board in
reaction to our nominations casts significant doubt . . . as to whether
this was the result of a genuine assessment of the quality and fitness
of the new designees or simply an effort by the Board to depict itself
as responsive to shareholder concerns while attempting to insulate
itself from the possible election of our nominees.” Finally, we demanded
that the ConMed Board explain to shareholders the rationale and process
for the appointments:
Given the grave concerns that were raised, and the conclusion by Alere’s
Board and ultimately by Alere’s shareholders that each was unfit to
serve on its Board, it is incumbent on ConMed to justify to shareholders
why it believes the designees are appropriate choices to serve on
ConMed’s Board and to explain the specific steps the Board took to
investigate these issues, and what it learned, prior to appointing them.
We received no response.
The moving target. After announcing the Coppersmith
settlement on February 25, the Board moved quickly to close ranks by
announcing on February 28 that the annual meeting would take place on
May 22. Receiving no response to our letter expressing concern with the
appointment of Messrs. Hartman and Lande, we added another nominee to
our slate and resubmitted our nomination notice on March 12. Within two
days, late on a Friday evening, ConMed quietly postponed the annual
meeting it had just scheduled. It promised shareholders, however, that
it still intended to hold the meeting “no later than July 31, 2014.”
Disturbed by this development, we wrote privately to the Board on March
24:
The postponement of the Annual Meeting of Shareholders is indefensible
and shameful. As the name implies, this forum occurs but once a year.
The shareholders, not the Board, are the owners of ConMed and it is
essential that they be allowed to express their opinion, through the
exercise of the shareholder franchise, on the job that their Board and
management representatives is doing. Your announcement offered no other
explanation for the delay beyond the concurrent acknowledgement of
receipt of our nomination notice. The risk that your reelection might
not be automatic again this year hardly justifies your manipulation of
the electoral machinery.
Once again, the Board never responded. So we wrote to it again on May
23: “Today marks the one-year anniversary of ConMed’s last annual
meeting of shareholders. . . . Two months have passed since our letter
and, not only have we received no response, you have taken no steps to
reschedule the meeting. This evasion of accountability is particularly
objectionable given the various Board maneuvers you have undertaken to
try to deflect shareholder criticism and quell dissatisfaction with
ConMed’s weak results.” Yet again, we received no response.
The Board ultimately scheduled the annual meeting, but not until
September 10, significantly beyond the July 31 deadline it had committed
to in March. What’s more, the Company then set the record date for July
22 – one day prior to the release of its 2Q14 results and the
raft of announcements regarding board and management changes and the
failed auction. In so doing, the Board deprived a large number of
shareholders, many of whom came into ConMed in the mayhem following
these announcements, of the ability to express their opinions on these
critical matters by electing directors that represent their views.
Finally, by announcing all of its bad news and changes at the end of
July, the Company has squeezed the most consequential meeting in its
history into a narrow timeframe, including the dog days of August when
it may be difficult to engage ConMed’s shareholders on these important
issues. This electoral mischief is an affront to shareholders and belies
the Board’s attempt to portray itself as a trustworthy agent of change.
A botched sales process. On account of its perennially
poor performance, ConMed has been suggested as a take-out candidate for
quite some time. There have been persistent rumors that has ConMed
walked down the aisle several times with a variety of strategic
acquirors over the years, only to jilt them at the last minute when the
prospect of ceding control became a realistic possibility.
Last July, on ConMed’s 2Q13 earnings call, the Company’s third largest
shareholder at the time asked the following question: “But I just wonder
why it’s not in the shareholders’ best interest to maybe, hire a bank
and see whether a strategic might surface that would rectify the 50% or
greater discount the company is currently bearing in the public markets
versus what the private markets might bear?” We posed the same question
in our November 4 letter, as have others over the years.
For reasons known only to the Board, it suddenly decided in February of
this year to finally make a formal attempt to sell ConMed. Could it have
been a coincidence that it chose to do so right after the February 11,
2014 announcement of our intent to nominate four directors at this
year’s annual meeting, and the February 19 filing of our preliminary
proxy statement? Impossible to say, but we do know this for sure: The
resulting effort by ConMed was not only an embarrassment but a
significant setback for shareholders.
The Board’s chosen time to seek a sale was most inauspicious, as a
number of potential acquirors decided to undertake deals of their own,
in some cases with one another.2 The Board’s management of
the process was also extremely unprofessional in our view. Despite the
fact that it was ostensibly a confidential process (the Board never
announced the retention of bankers or the evaluation of strategic
alternatives), the auction leaked like a sieve.3 The Board
also allowed J. Corasanti, the CEO at the time, to propagate the idea
that he was seeking acquisitions, including large ones;4
this cognitive dissonance likely confused, and may have dissuaded,
potential buyers. Deeply worried the Board was going to muff the
auction, damaging the business in the process, we wrote privately to the
Board on May 23:
[T]he public “table talk” is most distasteful. The very specific
information disclosed in the press stories covering ConMed’s auction –
the retention and identity of multiple investment bankers, names of the
parties contacted, price talk and specific transactional challenges –
suggests to us at best a lack of discretion. . . . It’s one of the
poorest-kept secrets in the industry that ConMed’s on the block, yet the
auction’s pseudo-public nature leaves ConMed far worse off than if the
Board had simply announced its intention to review strategic
alternatives. It appears that the process is being manipulated by
participants who are unwilling or unable to keep mum, yet your official
“no comment” posture has neutered your ability to reassert control. You
therefore lack the benefits of a broad public auction, such as
maximizing competition and clear and consistent messaging to buyers; yet
you enjoy none of the cover of a quiet solicitation, such as
confidentiality and plausible deniability in the event you fail.
We concluded: “This year’s annual meeting will be a referendum on the
Board’s myriad failures. Among them are ConMed’s long-term
underperformance and shoddy corporate governance, including the recent
appointment of questionable new directors . . . Should this auction fail
your management of it will also be high on the list, as the Board bears
ultimate responsibility as the overseer of this process. The likely
destruction of shareholder value and the damage to ConMed’s franchise in
that event will be exclusively on your hands, and you can expect
shareholders to hold you fully accountable.” Once again, we received no
response.
The sudden termination of the “strategic alternatives” process on July
23 was quite disconcerting. While companies often disclose they are
exploring strategic alternatives, there are sound reasons for a public
company not to do so, such as concern about the lingering effect on
employees and customers if a sale doesn’t result. That said, we cannot
think of a single valid reason that the Board rushed to disclose, after
the fact, that it had in fact been conducting a sales process, and
that it was a bust.
Furthermore, the Board’s timing in ending its process was as suspicious
as its timing in commencing it. Why was the Board in such a hurry to
abort its process at the end of July? If the best buyers were busy with
other deals, couldn’t the bankers have been told to put it on the back
burner for a few weeks? Maybe check back later in the fall? We are aware
of many transactions that have taken much longer than six months to
germinate, and have personally been involved in successful strategic
assignments lasting several years. Like the decision to broadcast the
auction’s failure, other than posturing for the looming proxy contest
and trying to pin its failure on us – responsibility for which lies
exclusively with the Board – what shareholder interest was served by
these actions by the Board?
Finally, the Company’s cryptic and selective disclosure of the auction’s
results raises more questions than answers. The Board stated that “the
various strategic alternatives available at this time do not adequately
reflect the intrinsic value of the Company or its future growth
prospects.” What does that mean? Did ConMed actually receive any offers?
Who submitted them – strategic buyers or financial bidders? Was it the
price or did the Board not like the other proposed terms? If price, what
growth prospects did the Board take into account in light of the
Company’s multiyear negative revenue trajectory? Were the offers
preliminary or final, indicative or binding? Would the passage of more
time, or the provision of further due diligence, have allowed the
acquirors to provide additional value to ConMed shareholders? Could
waiting a little longer have drawn additional bidders and generated more
competition?
Public shareholders have no visibility into any of this. They are being
asked to blindly trust the process and that ultimately comes down to the
qualifications and incentives of the people – the Board – who overaw it.5
Should ConMed’s shareholders be so trusting? As we explain below, one
clue may lie in the Board’s statement afterwards that it “has determined
to terminate the process and work with management to focus on
further developing and executing CONMED's strategic plan.”
Our “interim” CEO. On July 23, ConMed also confirmed what
we correctly anticipated months ago: That recently added Board member
Curt Hartman was joining ConMed’s management, becoming CEO on an
“interim” basis – at least for now. We refer to our public statement on
February 27, 2014:
Voce interviewed Mr. Hartman as a potential nominee for our slate of
directors and passed him over for the role. . . . Mr. Hartman, who has
been unemployed since his termination from Stryker in October 2012, made
clear to us that he was pursuing board seats as a source of income and
was interested in being appointed as ConMed’s CEO if we were successful
in electing directors. We felt it would be a conflict of interest to
nominate a director whose personal agenda differed from that of the
shareholders’; specifically, we feared that Mr. Hartman’s focus on
long-term board service, and his hopes of landing a lucrative senior
management role, might compromise his independent judgment in evaluating
various strategic alternatives, including a potential sale of the
Company, even if the latter might maximize shareholder value; and we
were concerned that his evaluation of potential management changes might
also be colored by his own desires or needs.
Mr. Hartman’s appointment raises many serious questions about not just
his plans and fitness for the role but about the Board’s process in
choosing him and the legitimacy of the search effort for a permanent
CEO. First, given that J. Corasanti’s employment agreement would have
expired at the end of 2014, was it in shareholders’ best interests that
Mr. Hartman not wait a mere five more months to get the post we believe
he so eagerly craved? Mr. Corasanti’s firing cost shareholders
approximately $5,000,000 in severance and other benefits triggered by
the early termination of his employment agreement. As with the premature
cessation of the strategic review, we wonder whether this timing was
driven more by the Board’s tactical preparation for the annual meeting
rather than shareholders’ best interests.
Second, we do not believe it’s credible for Mr. Hartman to claim, as he
attempted to do on the earnings call and in subsequent conversations
with shareholders, that he doesn’t even know whether he’s interested in
the permanent CEO role. On that call, Mr. Hartman sounded to us like
anything but a stop-gap manager, speaking several times of pursuing
acquisitions to restart ConMed’s growth.6 To be clear, our
concern is not that Mr. Hartman is being coy but that everyone in the
industry already believes that Mr. Hartman’s permanent appointment is a fait
accompli. We worry this may deter other potential candidates from
applying, a perception only furthered by the presence of his associate,
Mr. Lande, on the search committee. Many skilled orthopedic and medical
device executives are currently in transition as a result of the
industry consolidation taking place; it would be a shame if ConMed’s
shareholders were denied the opportunity to have their choice of the
best available talent due to a commitment – implied or perceived – to
give Mr. Hartman the permanent nod.
Third, we remain unconvinced that Mr. Hartman is the right person to
lead ConMed as it appears to us that his skills do not match well with
the Company’s current needs. Mr. Hartman’s primary achievements at
Stryker were as the corporate CFO. Financial reporting skills are hardly
in short supply at ConMed; as many have noted, ConMed was founded and
run by accountants, with a Board that remains heavily represented by
CPAs and financial types. Mr. Hartman lauded his own “well-respected
track record” in the recent shareholder letter he sent, but here is how
Alere Corporation, and its PR firm Joele Frank (ironically, the same one
advising ConMed now), summarized its research on Mr. Hartman when it
successfully opposed his election to the Alere Board in August 2013:
“Senior executive experience mostly as a financial officer, with CEO
operating experience limited to eight months as interim CEO, no public
company board service.” And: “After 22-year track record with Stryker,
and eight months as interim CEO, Stryker board passed over Hartman for
full-time job in favor of another internal candidate with 18 months
tenure at Stryker.”7
What ConMed desperately needs is sales and marketing expertise and deep
operational experience. ConMed has failed, year in and year out, to grow
its top line (recall that it has missed its own revenue guidance six
years running, and 2014 will likely mark the second straight year that
sales have fallen). ConMed’s shrinking revenue while the industry around
it grows is particularly concerning. This is due to its weak execution
and horrific track record of developing new products and getting them
into the hands of customers. Time and again, manufacturing, regulatory
and commercial errors have doomed the new products it has touted.
(Altrus, anyone? How about ECOM? Or Sequent?) Operationally, ConMed’s
margins significantly trail its competitors and, despite the
never-ending reclassifications and earnings adjustments, its
long-promised 14% operating margin is little more than a distant dream.
Arresting these many failures is a daunting task and there may well be
other candidates better qualified to tackle it.
Equally troubling are Mr. Hartman’s instincts, as revealed on the
earnings call, to try to rebuild ConMed through acquisitions. For
example: “[S]trategic M&A is part of how this industry was built. . . .
We’re not going to stop running the business because of an interim CEO.
We’re not going to stop running the business because of what the company
undertook in the last six months. . . . [W]e’re going to find some
strategic options here to continue to move the company forward.” These
are hardly the words of an interim CEO. This also strikes us as a
particularly dangerous idea for a company that cannot even maintain its
own revenues, let alone grow them. ConMed has no business undertaking
the financial and operational risks of an acquisition program at this
time. The M&A playbook – which may have worked at Stryker – also
suggests that Mr. Hartman does not appreciate the differences in
resources and capabilities between a large industry leader such as
Stryker and a small, struggling company such as ConMed.
Phantom “negotiations”. The Board seems so set on a PR
strategy designed to make us look unreasonable that it’s willing to
mislead shareholders about our interactions with them. Its claim that
the Board “offered settlement negotiations to Voce five months ago” is
utterly false. ConMed’s law firm requested that we sign a
confidentiality agreement in case at some undetermined point in the
future the parties decided to entertain such negotiations, which ConMed
made clear it was not proposing at that time; we simply asked to defer
considering such an agreement until such time as the Company actually
wanted to discuss settlement. The Board finally did propose a limited
settlement in July, although not until it had already made and announced
all of its recent decisions. Nonetheless, we considered the Board’s
proposal and tried to negotiate it in good faith. The Board responded by
insisting its initial proposal was “best and final” and “not negotiable”
and that if we didn’t accept it “by the close of the markets today”
ConMed would “move forward with a contested shareholder meeting.” It
quickly issued a canned press release trumpeting our supposed
recalcitrance. Shareholders ought to be skeptical of a Board that is
willing to resort to such cheap gimmicks.
* * *
ConMed now enters a period of transition that will be even riskier for
shareholders than the chapter it has just closed. With a sale off the
table – at least for now – the Board must select, and be equipped to
assist, a new CEO who can resuscitate the Company’s prospects and
rejuvenate its growth and product pipeline. Finally, the Board must
rebuild trust and credibility with shareholders.
We believe the three directors we seek to replace are unsuited for this
mission. None possess relevant skills and each carries significant
baggage that we believe will disserve the Board and shareholders as we
navigate this crucial passage. Our nominees, by contrast, were
specifically selected to address the Board’s deficiencies – particularly
in sales and marketing, operations, strategic analysis and corporate
governance – and are significantly more qualified than the three
incumbents we’ve targeted for replacement.
Who’d you rather? It’s interesting to compare the
qualifications of our nominees with those of the Company’s directors we
seek to replace.
James W. Green is the President, Chief Executive Officer and a
Director of Analogic Corporation (Nasdaq: ALOG), a publicly traded
manufacturer of advanced medical imaging and security systems, since May
2007. From 2005 to 2007, Mr. Green was Regional Vice President,
California Division, of Quest Diagnostics Incorporated, a publicly
traded provider of diagnostic testing, information, and services. From
2001 to 2005, Mr. Green served as Senior Vice President & General
Manager of Computed Tomography for Philips Medical Systems, a publicly
traded provider of medical computed tomography systems. Prior to
Philips, Mr. Green was Senior Vice President, Product Development, at
Marconi Medical, a medical device company, which was acquired by Philips
in 2001. Mr. Green also sits on the board of directors of the
Massachusetts High Tech Council.
Compare Mr. Green to Jo Ann Golden, a retired accountant from
Utica, New York. Ms. Golden is 67 years old and has been on the Board
since 2003. Despite her long tenure we cannot find any public evidence
that she has ever purchased a single share of ConMed in the open market
and, indeed, she has repeatedly sold ConMed shares.
Joshua H. Levine has served as the President, Chief Executive
Officer and as a member of the board of directors of Accuray
Incorporated (Nasdaq: ARAY), a publicly traded radiation oncology
company that develops, manufactures and sells personalized treatment
solutions, since October 2012. Mr. Levine previously served as the
President and CEO and as a member of the board of directors of Immucor
Corporation, a publicly traded diagnostics manufacturer of automated
instrumentation and reagents used in transfusion medical procedures that
was acquired by TPG Capital in August 2011 for $3.2 billion. Prior to
that Mr. Levine served in several executive capacities, including as CEO
and a Director, during his 14-year tenure with Mentor Corporation, a
publicly traded medical device/surgical implant manufacturer that was
acquired by Johnson & Johnson in 2009 for $1 billion.
Stephen Mandia, on the other hand, is an olive oil importer from
Utica, New York. His primary qualification for ConMed’s Board appears to
be his close relationship with the Corasanti family. He has been on the
Board for twelve years. Mr. Mandia was the chair of the “Nominating and
Governance” committee until just last month; in that role, Mr. Mandia
had principal oversight (and thus responsibility) for the deeply flawed
corporate governance at the Company. While he has relinquished his
chairmanship he remains on the committee. As with Ms. Golden, we cannot
find any public evidence that Mr. Mandia has purchased a single share of
ConMed in the open market.
J. Daniel Plants has been the Managing Partner of Voce Capital
Management since founding the firm in 2009. Prior to Voce, he served as
a Managing Director and Head of Communications Technology and Media for
Needham & Company LLC, an investment banking and asset management firm
focused on small-capitalization companies, from 2007 through 2009. Prior
to then, Mr. Plants held a number of positions at leading Wall Street
firms, including executive positions in investment banking at Goldman
Sachs and JPMorgan Chase and as a corporate attorney with Sullivan &
Cromwell. He has previously served as a director of Volunteers of
America – Greater New York from 2002 until 2005 and the Bay Area Urban
Debate League, which he co-founded and where he served as Vice Chairman,
from 2008 until 2012.
Jerome Lande, by contrast, is the third and final incumbent we
seek to replace. His modest professional accomplishments do not compare
with those of Mr. Plants. And his lack of independence from Mr. Hartman
taints his credibility as a director and as a member of the CEO search
committee. His nomination and standstill agreement with the Company gave
him the contractual right to protect shareholder interests by forcing
ConMed to hold the annual meeting prior to June 30, but he chose not to
exercise it. As to his acumen as an investor – the Company cites his
“well-regarded investment fund”, although fails to say by whom – here is
what ConMed’s own PR firm (Joele Frank) said about Mr. Lande just last
August in successfully opposing his election to the Board of Alere:
Jerome Lande is an activist fund manager with no operating experience in
healthcare and no public company board experience, despite several
attempts to have himself elected. At his predecessor firm (the now
defunct MMI Investments), Lande obtained Board seats for its nominees at
three companies following proxy contests during or after 2008. At two of
these three companies, the stock price fell dramatically (declines of
88% and 58%, respectively) during the tenure of MMI’s director
candidates on the board. In addition, at all three of these companies,
stockholder returns during the tenure of MMI’s director candidates
underperformed the relevant market and sector indices for each company,
underperforming on average by 70% and 47%, respectively.8
What’s changed since then?
* * *
After what we have accomplished at ConMed, it would be easy to “declare
victory and move on”; that was obviously the cynical, and transparent,
motivation behind the Company’s recent invitation to settle by placing
only one of our nominees on the Board. But we do not believe that merely
adding one director to the current Board is the best answer for ConMed
shareholders, which is why we declined the Board’s gambit and why we
press forward.
It’s also worth noting that while some things have changed at ConMed,
our assessment of the Company’s needs has likewise evolved in response
to those developments. Far from conclusively resolving our concerns, the
Board’s reactive steps have raised new doubts about (i) management (due
to the interim appointment and the pending CEO search); (ii) ConMed’s
strategic positioning and value (due to the timing and outcome of the
bungled strategic alternatives process); and (iii) the existing Board’s
oversight of each of the former. In response, the size and composition
of our slate of nominees has changed to reflect these developing needs.
We’ve reduced the number of directors we are targeting for removal to
three (from five) and we’ve concentrated our slate with the nominees we
feel best address these specific issues.
We are strongly committed and solely motivated, as we have been from the
beginning, to creating increased value for all shareholders. We are long
term holders of ConMed and continue to increase our investment by
purchasing additional shares. While the Board dismisses our views,
maligns our motives and resists our ongoing involvement, it has conceded
that a large number of the issues that we surfaced, and the partial
reforms we secured, were, in their words “extraordinary positive changes
for ConMed.” One would think the Board should be more, rather than less,
willing to heed our advice and leverage our insights now given how
prescient our previous analysis has proven.
Please join with us in continuing the campaign for shareholder value
begun last year but which remains only partially completed. To do so,
please help elect our three highly qualified Nominees by executing and
returning the WHITE proxy card. If
you have any questions or require any assistance completing your proxy,
please contact Georgeson, Inc. toll free on (800) 905-7281.
Respectfully yours,
VOCE CAPITAL MANAGEMENT LLC
J. Daniel Plants
Managing Partner
VOCE CATALYST PARTNERS LP, VOCE CAPITAL LLC, VOCE CAPITAL MANAGEMENT LLC
AND J. DANIEL PLANTS (COLLECTIVELY, “VOCE”) HAVE FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION (THE “SEC”) A DEFINITIVE PROXY
STATEMENT AND ACCOMPANYING PROXY CARD TO BE USED IN CONNECTION WITH THE
SOLICITATION OF PROXIES FROM STOCKHOLDERS OF CONMED CORPORATION (THE
"COMPANY") IN CONNECTION WITH THE COMPANY'S 2014 ANNUAL MEETING OF
STOCKHOLDERS. ALL STOCKHOLDERS OF THE COMPANY ARE ADVISED TO READ THE
DEFINITIVE PROXY STATEMENT AND OTHER DOCUMENTS RELATED TO THE
SOLICITATION OF PROXIES BY VOCE, JAMES W. GREEN AND JOSHUA H. LEVINE
(COLLECTIVELY, THE "PARTICIPANTS") BECAUSE THEY CONTAIN IMPORTANT
INFORMATION, INCLUDING ADDITIONAL INFORMATION RELATED TO THE
PARTICIPANTS. THE DEFINITIVE PROXY STATEMENT AND AN ACCOMPANYING PROXY
CARD HAVE BEEN OR WILL BE FURNISHED TO SOME OR ALL OF THE COMPANY'S
STOCKHOLDERS AND ARE, ALONG WITH OTHER RELEVANT DOCUMENTS, AVAILABLE AT
NO CHARGE ON THE SEC'S WEB SITE AT HTTP://WWW.SEC.GOV.
IN ADDITION, GEORGESON INC., VOCE'S PROXY SOLICITOR, WILL PROVIDE COPIES
OF THE DEFINITIVE PROXY STATEMENT AND ACCOMPANYING PROXY CARD WITHOUT
CHARGE UPON REQUEST BY CALLING TOLL-FREE AT (800) 905-7281.
INFORMATION ABOUT THE PARTICIPANTS AND A DESCRIPTION OF THEIR DIRECT OR
INDIRECT INTERESTS BY SECURITY HOLDINGS IS CONTAINED IN THE DEFINITIVE
PROXY STATEMENT ON SCHEDULE 14A FILED BY VOCE WITH THE SEC ON AUGUST 13,
2014. THIS DOCUMENT CAN BE OBTAINED FREE OF CHARGE FROM THE SOURCES
INDICATED ABOVE.
IF YOU HAVE ANY QUESTIONS ABOUT EXECUTING OR DELIVERING YOUR WHITE
PROXY CARD, NEED ADDITIONAL COPIES OF VOCE’S PROXY MATERIALS, OR
OTHERWISE REQUIRE ASSISTANCE, PLEASE CONTACT:
Georgeson
480 Washington Blvd, 26th Floor
Jersey
City, NJ 07310
(Toll Free) (800) 905-7281
Voce’s
Proxy Statement and WHITE Proxy Card are
Available at:
https://www.proxy-direct.com/vcm-25996
1 It’s interesting that the Company recently decided to adopt
term limits for directors – generally a positive step – but selected
fifteen year terms. Presumably that odd choice was designed to insulate
Ms. Golden and Mr. Mandia, whose lengthy tenures would have required
each to resign under what we view as a normal term limit regime.
2 On February 3, Smith & Nephew announced the acquisition of
ConMed competitor Arthrocare for $1.7 billion. On April 24, Zimmer
acquired Biomet and on June 16 Medtronic inverted into Covidien. Stryker
was publicly reported to be reviewing an acquisition of Smith & Nephew,
which it later acknowledged.
3 See, e.g., “Surgical device maker ConMed Corp
explores sale of company,” Reuters April 15, 2014; “ConMed sale process
encounters speed bumps, bankers say,” Deal Reporter, May 14, 2014.
4 E.g., 1Q14 Earnings call (April 24, 2014); Needham
Healthcare Conference (April 8, 2014).
5 This is not a commentary on the quality or integrity of the
investment banks that ConMed retained to advise it. The agent is only as
good as the authority granted to it by the principal; in this case,
ConMed’s Board.
6 And while we always support directors and managers buying
company stock, we found it notable that Mr. Hartman – who had never
previously purchased a single share of ConMed – bought 10,000 ConMed
shares within three days after his “interim” appointment. That seems
like an unusual step for a short-timer, in our opinion.
7 Alere Schedule 14A, July 29, 2013.
8 Alere Schedule 14A, August 2, 2013.
Copyright Business Wire 2014