NEW YORK, April 16, 2012 /PRNewswire/ -- Cadian
Capital Management, LLC (together with its affiliates, "Cadian
Capital"), today announced that it has delivered a letter to the
Board of Directors (the "Board") of Comverse Technology, Inc.
(NASDAQ: CMVT) (the "Company") in which it expressed its concerns
about the strategic direction of the Company and the continued
decline in shareholder value. Cadian Capital beneficially
owns 4,186,158 shares of common stock of the Company.
The full text of the letter is as follows:
CADIAN CAPITAL MANAGEMENT, LLC
535 MADISON AVENUE, 36th FLOOR
NEW YORK, NY 10022
April 16, 2012
VIA HAND DELIVERY AND CERTIFIED MAIL
Board of Directors
c/o Corporate Secretary
Comverse Technology, Inc.
810 Seventh Avenue
New York, NY 10012
Dear Members of the Board:
Cadian Capital Management, LLC, together with its affiliates
(collectively, "Cadian Capital"), beneficially owns 4,186,158
shares of common stock of Comverse Technology, Inc. (the
"Company"). Cadian Capital has been a shareholder of the
Company since February 2008. We, like many other
shareholders, have significant concerns about the lack of progress
the Company has made under the current Board of Directors (the
"Board") over the past several years. In the Fall of 2011, we
conducted a successful "Vote No" campaign against several of the
directors nominated for re-election at the 2011 annual meeting of
shareholders (the "2011 Annual Meeting"). At the time of the
2011 Annual Meeting, we decided against seeking a more dramatic
overhaul of the Board because we felt the Vote No campaign would
send a message of accountability, which we hoped the Board would
clearly hear. Unfortunately, our message has fallen on deaf
ears.
Since the 2011 Annual Meeting, we believe the Board has
continued to pursue several misguided and/or ill-executed
strategies that have continued to prevent the Company from
realizing value for shareholders. Earlier this month, the
Company reported disappointing operating metrics for the Comverse
Network Systems (CNS) business, which further underscores the
effect of this Board's failure to attract and retain world-class
senior management, and the disruptive effects of a quality asset
held in strategic limbo in a market with substantial opportunities
for revenue growth and margin expansion. While three recent
acquisitions in the CNS space have been completed (or announced and
are in the process of being completed) (Convergys Corporation,
Intec Telecom Systems, and AsiaInfo Linkage, Inc.), the Board is
currently pursuing what we believe is a sub-optimal strategy of
'spinning' CNS into a stand-alone, publicly-traded entity. We
do not believe this Board, as currently constituted, is capable of
effectively running CNS and/or unlocking shareholder value in the
Company in the short or long run. We believe a majority of
new directors should be nominated for the 2012 annual meeting of
shareholders (the "2012 Annual Meeting").
The impact of the Board's failure can be seen very clearly in
the Company's stock price. Since January 1, 2007, the Company's stock price has
declined by nearly 70% and since its relisting on the NASDAQ Global
Market in September 2011, the
Company's stock price has declined by more than 10%. By
contrast, since January 1, 2007, the
S&P 500 is down by only 4%, and since September 2011, is up by more than 20%.
Moreover, since its relisting on the NASDAQ Global Market in
July 2010, the stock price of the
Company's majority-owned subsidiary, Verint Systems Inc., has
increased by approximately 30% and is relatively close to its price
of $34 on January 1, 2007, clearly demonstrating that the
predominant cause of the Company's continued underperformance is
its CNS business and the dissipation of its
cash.
We believe the Company's massive underperformance can be
attributed to a number of factors, including failed hiring
decisions, failed and misguided strategic planning, poor
execution of the CNS business, and a poorly managed re-statement
process. These problems have occurred under this Board's
supervision and have resulted in the destruction of over
$2.0 billion of shareholder
value.
Lack of Proper Senior Officer Hires. One of the major
issues raised as part of the Vote No campaign was the lack of a
permanent and well-qualified CEO and CFO for the CNS
business. For the past 14 months (in the case of the CEO) and
18 months (in the case of the CFO), each of these roles have been
filled on (what was supposed to be) an interim basis by individuals
we believe are not properly qualified to hold such positions.
This has clearly directly impacted the performance of the CNS
business since that time (as evidenced, most recently, by the
Company's very poor performance in Q4 2011, as well as its own
admission in its Annual Report for fiscal 2011 that it continues to
have material weaknesses in its internal controls over financial
reporting), as well as this Board's ability to unlock shareholder
value with respect to the CNS business. Five months after the
2011 Annual Meeting (and more than 14 months since the departure of
the prior CEO and CFO), these positions remain inadequately
filled. This situation must be solved immediately.
Failure to Realize Value in the CNS Business. In the past
18 months, there have been three separate deals announced for
companies comparable to the CNS business: Convergys Corporation
just announced it is selling its Information Management business to
NEC Corporation; CSG Systems International purchased Intec Telecom
Systems; and AsiaInfo Linkage, Inc. is going private. In each
case, the relevant CNS-comparable businesses were valued at between
1.0 – 1.4x trailing twelve month revenue. The CNS business
would be a prime candidate for a similar sale (either in whole or
in multiple parts), but for a number of actions we believe this
Board has failed to complete, including hiring a permanent
operating CEO and CFO (discussed above), having separate financials
for the BSS and VAS business units, and correcting the
organization's internal controls. The press has reported that
the Board has retained Goldman Sachs and Rothschild to explore
strategic alternatives for the CNS business, including multiple
attempts to purportedly sell the CNS business. We believe
these efforts have not yet been successful because of the Board's
failure to execute these steps.
Misguided Spin-Off Plan. The Board has announced it
intends to try to spin-off the CNS business later this year.
We think that is a fundamentally flawed strategy. We believe
a spin-off would be very costly and likely require large amounts of
the Company's cash. Furthermore, based on recent comparable
acquisitions in this space, the CNS stand-alone entity would likely
provide an unattractive subscale publicly-traded vehicle with weak
financial processes. We believe the Board should instead
focus on hiring an appropriate CEO (one with substantial operating
and relevant industry experience) and CFO, and then working to
improve the business's operations and internal controls, and
preparing it for sale (including having complete separate
financials for the BSS and VAS business units). As noted
above, there is substantial interest in the market for an asset
like CNS, and if the business unit's executive leadership (and
subsequently operating issues) can be addressed, we believe a sale
can be achieved in a much more efficient (and cash-generating,
rather than cash-consuming) way.
Failure to Address the Holding Company Structure. We
believe the Company's current "holding company" structure has
created a substantial drag on its stock price (as well as on the
stock price of its most valuable assets, its majority interest in
Verint Systems Inc.) for several years. Nevertheless, the
Board has only recently indicated it intends to dissolve the
structure, and only if/when it is able to complete a spin-off of
the CNS business. We believe the Board should work to
collapse its current holding company structure as soon as possible,
and irrespective of whether/when a spin-off is completed.
Continued Poor Operating Performance of the CNS Business.
As the Company's most recent quarterly reporting confirms, the CNS
business continues to disappoint. There was a surprising
decline in both revenue and bookings, signaling underperformance
relative to the Board's prior commitments to investors and relative
to the rest of the industry.
All of the members of this Board have served for at least three
years, and all but one Board member for five or more years.
We believe this Board, as currently constituted, has categorically
failed in its duties to create value for shareholders.
Immediate change at the Board level is necessary to end the erosion
of shareholder value and to realize the core value of the Company's
assets. We believe a reconstituted Board with a majority of
new, highly-qualified directors focused on reviewing all strategic
options, with a skill set designed to allow for better execution on
such options, is the best way to create value going forward.
We have lost confidence in this Board's ability to make and execute
on the wide range of important actions that need to be taken.
Moreover, both Institutional Shareholder Services ("ISS") and Glass
Lewis & Co. ("Glass Lewis"), two of
the leading independent proxy voting advisory firms, agreed with
Cadian Capital that change was needed on the Board at the 2011
Annual Meeting. ISS recommended a vote against two directors
and Glass Lewis recommended a vote against five directors.
Ultimately, two directors were forced to resign from the Board for
failing to receive a majority of votes cast. We believe
further change is warranted to restore shareholder value.
Since the Board currently has six members, we have nominated a
slate of four new directors (a copy of their biographies was
previously sent to you but is attached hereto for your
convenience). We have not nominated a full slate of six new
directors because we believe a newly constituted Board should
retain some historical/institutional knowledge by having some of
the current directors remain. In our view, the members of the
Strategic Committee (August Oliver
(Board member since May 2007),
Theodore Schell (Board member since
December 2006), and Mark Terrell (Board Member since July 2006)), as well as Robert Dubner (Board member since January 2009, and whom, along with Mr. Oliver and
Mr. Terrell, is a member of the Audit Committee), are most
responsible for the failings of the Board and should not be
nominated for re-election at the 2012 Annual Meeting.
As shown on the attached biographies, the four nominees we have
proposed have the extensive range of relevant operating expertise
and quality industry experience necessary to address the difficult
challenges currently facing the Company, and are well equipped to
both evaluate and execute the strategic steps necessary to improve
shareholder value. These nominees should be much more
effective at (i) seeking, attracting and hiring quality executive
personnel (most importantly, a new CEO and CFO), (ii) working with
such senior officers to help address the various issues causing
CNS's continuing poor operating performance, and (iii) preparing
for and executing an effective sales process with respect to the
CNS business (either in whole or in parts).
We also wish to note that none of the directors we have
nominated have any ties to Cadian Capital, other than with respect
to our having nominated them to serve as directors of the
Company. We have gotten to know these proposed directors over
the past several months as we became increasingly disillusioned
with the current Board's performance and sought new qualified
leadership.
It is ultimately in the best interests of shareholders to avoid
a disruption and expense of a protracted proxy fight.
Therefore, we urge the Board to engage in discussions with us
regarding the composition of the Board in hopes of ultimately
reaching a mutually agreeable resolution that will serve the best
interests of all shareholders.
Sincerely,
Eric Bannasch
Managing Member
Cadian Capital Management, LLC
Biographies of Cadian Capital Nominees
Stephen Andrews, age 54,
has been an independent Technology, Media & Telecommunications
advisor and investor at AbbeyBarn Communications Limited since
June 2009 and in such capacity has
served as the Chairman of a Global TelCo Consortia (TelCo Futures
Forum), sponsored by Deutsche Telekom and Swisscom. During
this time he has also been an Executive Advisor to companies such
as: Microsoft (UK), Qsensei (Germany/USA),
Mimedia (USA), Aap3
(UK/USA), and Elinia (UK).
From 2003 to April 2009, Mr. Andrews
served as the Group Managing Director of BT Mobility &
Convergence and Managing Director of Strategy and Products at BT
Retail, a division of BT Group plc, a global communications
services provider, where he supervised approximately 500 employees
and executives. From 2000 to 2003, Mr. Andrews was the
President of the International Carrier and Networks Business of BT
Global Services, a division of BT Group plc. From 1996 to
2000, Mr. Andrews was a Director of European Alliances responsible
for investments in joint ventures and 100% owned TMT companies at
BT Europe, a division of BT Group plc. Mr. Andrews holds a
Full Technological Certificate in Advanced Telecommunications from
Bristol College (UK) and a
Certificate in Industrial Management from Kingston upon Thames Management College.
James Budge, age 45, has
served as the Chief Financial Officer of Rovi Corporation
(NASDAQ:ROVI), a global provider of digital entertainment
technology solutions, since September
2005 and as its Chief Financial Officer and Chief Operating
Officer since February 2012. Mr. Budge served as Chief
Financial Officer of Trados, Inc., an enterprise management
software provider, from January 2004
until its merger with SDL International in August 2005. From August 2002 until joining Trados, Inc., Mr. Budge
served as Chief Financial Officer of Sendmail, Inc., a secure email
provider, and from April 1999 until
its merger with IBM in January 2002,
Mr. Budge served as Chief Financial Officer of CrossWorlds
Software, Inc., a provider of business infrastructure
software. Mr. Budge holds a B.S. in Accounting from
Brigham Young University and is a
Certified Public Accountant.
Doron Inbar, age 62, has
been a Venture Partner at Carmel Ventures, an Israeli-based venture
capital firm that invests primarily in early stage companies in the
fields of Software, Communications, Semiconductors, Internet,
Media, and Consumer Electronics, since 2006. Previously, Mr.
Inbar served as the President of ECI Telecom Ltd., a global telecom
networking infrastructure provider, from November 1999 to December
2005 and its Chief Executive Officer from February 2000 to December
2005. Mr. Inbar joined ECI Telecom Ltd. in 1983
and during his first eleven years with the company, served in
various positions at its wholly-owned U.S. subsidiary, ECI Telecom,
Inc., in the U.S., including Executive Vice President and General
Manager. In July 1994,
Mr. Inbar returned to Israel
to become Vice President, Corporate Budget, Control and
Subsidiaries of ECI Telecom Ltd. In June 1996, Mr. Inbar was appointed Senior
Vice President and Chief Financial Officer of ECI Telecom Ltd., and
he became Executive Vice President of ECI Telecom Ltd. in January
1999. Mr. Inbar has served on the board of directors of
Alvarion Ltd. (NASDAQ: ALVR), a company that designs and sells
broadband wireless and Wi-Fi products, since September 2009 and is a member of its audit
committee. Mr. Inbar also serves on the board of directors of
SolarEdge Technologies Inc., an innovative start up in the
photovoltaic industry, as Chairman of the Board of Archimedes
Global Ltd., a company which provides health insurance
and health provision in East
Europe, and on the board of directors of Maccabi dent Ltd.,
the largest chain of dental service clinics in Israel.
Previously, Mr. Inbar served as Chairman of the Board of C-nario
Ltd., a global provider of digital signage software solutions,
Chairman of the Board of Followap Inc., which was sold to Neustar,
Inc. in November 2006, and Chairman
of the Board of Enure Networks Ltd. Mr. Inbar holds a B.A. in
Economics and Business Administration from Bar-Ilan University, Israel.
Richard Nottenburg, Ph.D.,
age 58, has served as a member of the board of directors of
Aeroflex Holding Corp. (NYSE:ARX), a global provider of radio
frequency and microwave integrated circuits, components and systems
used in the design, development and maintenance of high-performance
wireless communication systems, since November 2010, and as a member of the board of
directors of PMC-Sierra, Inc. (NASDAQ:PMCS), a semiconductor
innovator transforming networks that connect, move and store
digital content, since August 2011. From June 2008 to October
2010, Dr. Nottenburg served as President, Chief Executive
Officer, and a director of Sonus Networks, Inc., a provider of
voice and multimedia infrastructure solutions. From
July 2004 until May 2008, Dr. Nottenburg was an officer with
Motorola, Inc. (now known as Motorola Solutions, Inc., "Motorola")
ultimately serving as its Executive Vice President, Chief Strategy
Officer and Chief Technology Officer. While at Motorola, Dr.
Nottenburg was responsible for shaping Motorola's overall corporate
strategy. Prior to joining Motorola as an officer in July 2004, Dr. Nottenburg was a strategic
consultant to the Company from January
2004 to July 2004. Dr. Nottenburg previously served as
a member of the Board from December
2006 to November 2011 and as a
member of the board of directors of Verint Systems, Inc. ("Verint")
from July 2011 to November
2011. Dr. Nottenburg holds a B.S. in Electrical Engineering
from Polytechnic Institute of New York,
an M.S. in Electrical Engineering from Colorado State University, and a Doctor of Science
in Electrical Engineering from the Ecole Polytechnique Federale de
Lausanne in Lausanne, Switzerland.
CERTAIN INFORMATION CONCERNING PARTICIPANTS
Cadian Capital Management, LLC, a Delaware limited liability company ("Cadian
Capital"), together with the other Participants (as defined below),
intends to make a preliminary filing with the Securities and
Exchange Commission ("SEC") of a proxy statement and accompanying
proxy card to be used to solicit proxies for the election of its
slate of director nominees at the 2012 annual meeting of
shareholders of Comverse Technology, Inc., a New York corporation (the "Company").
CADIAN CAPITAL STRONGLY ADVISES ALL SHAREHOLDERS OF THE COMPANY
TO READ THE PROXY STATEMENT AND OTHER PROXY MATERIALS AS THEY
BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT
INFORMATION. SUCH PROXY MATERIALS WILL BE AVAILABLE AT NO
CHARGE ON THE SEC'S WEB SITE AT HTTP://WWW.SEC.GOV. IN
ADDITION, THE PARTICIPANTS IN THIS PROXY SOLICITATION WILL PROVIDE
COPIES OF THE PROXY STATEMENT WITHOUT CHARGE UPON REQUEST.
REQUESTS FOR COPIES SHOULD BE DIRECTED TO THE PARTICIPANTS' PROXY
SOLICITOR, MORROW & CO., LLC, TOLL-FREE AT (800) 662-5200 or
(203) 658-9400.
The Participants in the proxy solicitation are anticipated to be
Cadian Capital, Cadian Fund LP, a Delaware limited partnership ("Cadian Fund"),
Cadian Master Fund LP, a Cayman Island exempted limited partnership
("Cadian Master"), Cadian GP, LLC, a
Delaware limited liability company
("Cadian GP"), Eric Bannasch,
Stephen Andrews, James Budge, Doron
Inbar, and Richard N.
Nottenburg (collectively, the "Participants").
As of the date hereof, the Participants collectively own an
aggregate of 4,226,158 shares of common stock of the Company,
consisting of the following: (1) 1,674,463 shares owned directly by
Cadian Fund, (2) 2,511,695 shares owned directly by Cadian Master, and (3) 40,000 shares owned
directly by Dr. Nottenburg. Cadian Management is the
investment manager of Cadian Fund and Cadian Master. Cadian GP is the general
partner of Cadian Fund and Cadian
Master. Eric Bannasch
is the managing member of Cadian Management. Accordingly,
each of Cadian Management, Cadian GP and Eric Bannasch may be deemed to beneficially own
the shares directly owned by Cadian Fund and Cadian Master.
As members of a "group" for the purposes of Rule 13d-5(b)(1) of
the Securities Exchange Act of 1934, as amended, each of the
Participants may be deemed to beneficially own the shares of common
stock of the Company owned in the aggregate by the other
Participants. Each of the Participants disclaims beneficial
ownership of such shares of common stock except to the extent of
his or its pecuniary interest therein.
Contact:
Eric Bannasch / Justin Griffith
Cadian Capital Management, LLC
(212) 792-8800
or
Tom Ball / John Ferguson
Morrow & Co., LLC
(203) 658-9400
SOURCE Cadian Capital Management, LLC