Moab Partners Highlights Grave Corporate Governance Issues at EnerCare
21 Luglio 2014 - 4:00PM
Moab Capital Partners, LLC ("Moab Capital") has sent the following
letter to the Board of Directors of EnerCare, Inc. (TSX:ECI) to
express its grave concerns regarding a pattern of actions that
appears to prioritize their own entrenchment above outside
interests. Moab Capital is the investment manager of various
entities that beneficially own over 5% of EnerCare's outstanding
shares. Entities managed by Moab Capital have been
shareholders of EnerCare for four years and, based on publicly
available information, we believe we are EnerCare's second largest
shareholder today.
Moab Capital Partners, LLC 15 East 62nd Street
New York, NY 10065
July 21, 2014
Mr. Jim Pantelidis Mr. John A Macdonald Ms. Grace M. Palombo Mr.
Jerry Patava Mr. Roy J. Pearce Mr. Michael Rousseau Mr. William M.
Wells Ms. Lisa de Wilde
To the Board of Directors of EnerCare:
Last week, we witnessed governance concerns at EnerCare, Inc.
("EnerCare" or the "Company") rise to the forefront once again as
TPG Special Situations Partners, LLC ("TSSP"), an affiliate of
EnerCare's largest shareholder, shared with the public their saga
of your repeated efforts to thwart the due diligence process which
would have allowed them to prepare a premium acquisition proposal
for the shareholders. In this case, a highly regarded and
well-capitalized institution like TPG simply seeks access to
conduct due diligence and line up financing but you have denied
such access. According to TPG's website, TSSP and affiliates
have lead or co-lead 165 investments as a principal, investing $45
billion of equity capital. We do not understand any good
reason why this Board would not engage TSSP in price negotiations
or allow TSSP to conduct its due diligence other than
self-interested entrenchment, bypassing its fiduciary duties.
Sadly, these recent events are not the first time we have seen
this Board ignore good corporate governance practices. In
2012, this Board, under the leadership of current Chairman Jim
Pantelidis, resorted to outrageous tactics to oppose another
shareholder's effort to supplement the Board with credible
shareholder representative nominees. This Board approved the
expenditure of $1.7 million of the Company's cash on hand, most of
which was paid in the form of a $0.05 payment per share to buy the
votes of any shareholder who would support them. Additionally,
as a last minute tactic in the 2012 proxy campaign, this Board
unilaterally expanded its size from six to eight directors by
adding two self-appointed directors without a shareholder vote, in
an effort to dilute the interests of the activist shareholder.
TPG's publicly disclosed letter to shareholders makes numerous
valid points as to why the Board should engage a broad strategic
alternatives process. EnerCare's sub-metering business has
vastly increased the complexity of the business and management's
execution to-date has been inconsistent at best, yielding minimal
profits to date. Additionally, while shareholders may never
complain about the healthy dividend EnerCare pays, we believe it is
reasonable to ask if paying the dividend has come at the expense of
future growth opportunities. We have ourselves pressed
management over the years to very aggressively direct capital
towards the highly attractive and very long-term contracts
available today in the sub-metering business because we believe the
large initial investments will eventually yield profitable and
attractive long-term returns as tenants turn over and become our
customers. This of course assumes we can execute.
Similarly, we hear that larger water heater and HVAC rental
opportunities have become available to the Company but these
opportunities also require large initial capital
deployments. Again, perhaps the dividend policy is not as wise
as it seems for long-term value creation.
Shareholders may well be rewarded if TSSP or another potential
buyer can pay us for the large growth opportunities in EnerCare's
core businesses rather than remaining a public company overseen by
this Board. Based on analyst reports and trading levels,
it seems that EnerCare's stock price is largely determined by the
dividend, which is based on trailing cash flows, or the attrition
of the rental portfolio. We have only seen one publishing analyst
separately value our growing sub-metering segment in a sum of the
parts analysis. A strategic alternatives process can deliver
shareholders optimal value for each segment.
Your letter to shareholders on July 17th was incomplete. A
Board which rejects a premium offer on the grounds that the offer
is inadequate ought to explore its strategic alternatives to
maximize value or demonstrate why EnerCare is worth more as a
stand-alone company than TSSP is willing to pay. You offered
us nothing, which we can only assume is because you are putting
your personal interests above your fiduciary responsibilities.
We urge you to exercise your fiduciary responsibility and engage
a financial advisor to explore EnerCare's strategic alternatives
now.
Regards,
Moab Capital Partners, LLC
About Moab Capital Partners, LLC
Moab Capital is an SEC-registered independent investment advisor
founded in 2006 and is located in New York, NY.
CONTACT: Michael M. Rothenberg, Moab Capital Partners, LLC
212-981-2647
mr@moabpartners.com
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