Urges Board of Directors to expedite sale process to maximize value
for shareholders
Wintergreen Advisers, LLC (“Wintergreen”) sent the following letter to
the board of Directors of Consolidated-Tomoka Land Co. (NYSE: CTO,
“CTO”) to draw attention to what Wintergreen believes are continuing
failures by CTO to make full disclosures to its shareholders about the
financial condition of the company.
The Wintergreen letter notes that CTO’s recent announcement of a new
share repurchase program fails to mention that the company’s share count
has increased since John Albright was named CEO in August 2011,
depriving shareholders of the benefits typically associated with share
repurchases. In fact, we believe CTO’s share repurchases are being used
to make stock grants to management instead of reducing CTO’s share count
and increasing each shareholder’s equity in the company. Indeed, Mr.
Albright has been granted options for 314,000 shares of CTO stock, which
represent over 5% of the company’s outstanding shares, since he was
hired in 2011.
The Wintergreen letter adds: “We call upon the Board to expedite the
sales process and maximize value for shareholders. We believe now is the
time to act, while interest rates remain low and to realize the benefit
of the ongoing and escalating recovery of real estate values in Daytona
Beach which we believe has been the primary reason for the recent
increases in CTO’s share price.”
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January 12, 2016
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Consolidated-Tomoka Land Co.
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c/o William L. Olivari, Audit Committee Chairman
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8 Creekview Way
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Ormond Beach, FL 32174
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Memorandum to: Consolidated-Tomoka Land Co. Independent Directors
(the “Board”)
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On December 22, 2015, Consolidated-Tomoka Land Co. (“CTO” or the
“Company”) issued a press release that announced that the Company
had completed an $8 million share repurchase program and approved
a new $10 million share repurchase program. Wintergreen Advisers,
LLC (“Wintergreen”) believes that this release continues a pattern
of misleading disclosure by CTO that fails to properly convey what
is actually going on at the Company. Wintergreen believes that
truly full disclosure to all shareholders would have also included
the following material points:
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1.
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CTO’s outstanding share count has increased
since John Albright has been appointed CEO. According to the
Company’s latest Form 10-Q filing, outstanding shares have
increased by over 210,000 or 3.5% since Mr. Albright was hired in
August 2011 --- despite the ongoing share repurchases. The typical
benefit of a share repurchase program is that the outstanding
share count shrinks, increasing each shareholder’s equity in the
company. However, since CTO’s share repurchases aren’t nearly
enough to offset the shares being issued by the Company since Mr.
Albright was hired (between August 2011 and September 30, 2015 CTO
has repurchased 100,732 shares), CTO’s shareholders only see
continued dilution.
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2.
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CTO’s share counts continue to increase due in part to stock grants
to management. Since he was hired in August 2011, Mr. Albright alone
has been granted options for 314,000 shares of stock which represent
over 5% of the Company’s outstanding shares. Overall, since Mr.
Albright was hired, CTO has authorized stock grants for over 430,000
shares of stock which represents over 7.3% of the Company’s
outstanding shares. CTO has continued to transfer company assets to
what we view as an underperforming management team.
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3.
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CTO holds repurchased shares in treasury, instead of retiring them.
We believe this shows that the Company has no intention of reducing
outstanding shares and benefiting shareholders – apparently the
Board’s goal for buybacks is simply to have more shares available to
issue to management in future grants.
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Wintergreen believes that management’s goal is to extend its
tenure as long as possible, including by delaying the sale of the
Company and its assets. The longer that management can extend the
sales process, the more opportunities it will have to acquire CTO
shares via stock grants that dilute every other CTO shareholder.
We believe CTO’s management, with the Board’s approval, repeatedly
puts its personal interests ahead of shareholders. We again remind
the Board of its true constituency --- the Board works for
shareholders and not for management. We call upon the Board to
expedite the sales process and maximize value for shareholders. We
believe now is the time to act, while interest rates remain low
and to realize the benefit of the ongoing and escalating recovery
of real estate values in Daytona Beach which we believe has been
the primary reason for the recent increases in CTO’s share price.
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Management’s pattern of communicating what we view as half-truths
and misrepresentations must be immediately corrected. Shareholders
deserve a full and accurate picture of the Company – not the fairy
tale that management has published. For example, we believe the
Company intentionally misled shareholders in its November 24, 2015
press release announcing the inclusion in the Company’s proxy
materials of our shareholder proposal to hire an independent adviser
to evaluate the sale or liquidation of the Company. We had been in
contact with the Board and management during the months preceding
the submission of our shareholder proposal and had very clearly
voiced our concerns about CTO’s management and the change of the
Company’s strategic direction. Therefore, we believe that to say the
Company “appreciated Wintergreen’s support” when CTO management and
the Board were well aware of our dissatisfaction was an attempt to
intentionally mischaracterize our position in an attempt to mislead
shareholders.
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Wintergreen also calls upon the Board to provide detailed disclosure
to all shareholders about what advisors have been hired to oversee
the sales process and also the process that was undertaken to
determine the independence of these advisors. For what precise
reason has the advisory firm been hired? Is the focus on the best
interests of shareholders or of management? Are the advisors who
have been engaged to evaluate the sale of the Company also
recipients of the commissions and other fall-out benefits from the
Company’s transactions? Further, the Company has announced almost
$120 million in transactions related to income properties, loan
investments, and “venture interests” for 2015. Wintergreen believes
shareholders should be provided a full accounting of all
commissions, brokerage fees, and any other transaction related
expenses that have been incurred in conjunction with the previously
referenced $120 million in transactions, along with details as to
who is being paid. We would expect that the Board would have the
courtesy and respect for all shareholders to provide this full
disclosure ahead of the Board’s January 2016 meeting so that
shareholders have more complete information to evaluate management
and the Board.
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Recently, CTO director Jeff Fuqua stated that “the Board has been
consistently and appropriately involved in the oversight of the
Company’s management and the review of financial disclosures”.
Based on the issues we have raised to the Board’s attention over
the past few months, including granting Mr. Albright options for
over 5% of the Company’s outstanding shares, possible securities
law violations and what we view as grossly inadequate disclosure
regarding the Company’s expanded investment and derivative
portfolios, we are puzzled by Mr. Fuqua’s statement. It seems to
us that either the Board is not receiving from management the
information it needs to effectively do its job or it is
rubber-stamping whatever management puts in front of it for
approval.
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Neither option is palatable and neither sounds to us like
appropriate oversight. Mr. Fuqua also indicated that the Board and
management have worked together to “create significant shareholder
value.” Wintergreen believes that shareholders are not seeing any
benefit – all we see are increased overhead and expenses,
continued dilution as shares are gifted to management, and a
flurry of commissions and expenses that benefit the advisors and
brokers – all at the expense of shareholders.
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Regards,
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David J. Winters, CEO
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Liz Cohernour, COO
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About Wintergreen Advisers
Established in 2005, Wintergreen is an independent global money manager
that employs a research-driven value style in managing global
securities. As of December 31, 2015, Wintergreen Advisers had
approximately $950 million under management on behalf of individuals and
institutions through its mutual fund and other clients, and is based in
Mountain Lakes, New Jersey.
For further information on Wintergreen Advisers, please call
973-263-4500 or visit www.wintergreenadvisers.com.
For information, forms and documents regarding our U.S. mutual fund,
please visit www.wintergreenfund.com.
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