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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
SCHEDULE
13D
THE
SECURITIES EXCHANGE ACT OF 1934
(Amendment
No. 4)
MDS
Inc.
|
(Name of
Issuer)
|
Common
Shares
,
no par
value
|
(Title of Class of
Securities)
|
Obrem Capital Management,
LLC
733 3rd Avenue
11th Floor
New York, New York
10017
Telephone
-
(646)
454-5311
|
(Name, Address and Telephone
Number of Person
Authorized to Receive
Notices and
Communications)
|
October 3
0
, 2008
|
(Date of Event Which Requires
Filing of this Statement)
|
If the filing person has
previously filed a statement on Schedule 13G to report the acquisition
that is the sub
ject
of this Schedule 13D, and is filing this schedule because of
ss.240.13D-1(e), 240.13d-1(f) or 240.13d-
1(g), check the following box
[
].
|
|
Note: Schedules filed
in paper format shall include a signed original and five copies of the
schedule, includ
ing
all exhibits. See §
240.13d-7 for other parties to
whom copies are to be sent.
|
|
|
* The remainder
of this cover page shall be filled out for a reporting person's initial
filing on this form with respect to the subject class of securities, and
for a
ny subsequent
amendment containing information which would alter disclosures provided in
a prior cover page.
|
The information required on the
remainder of this cover page shall not be deemed to be "filed" for the
purpose of Section 18 of the Securities
Exchange Act of 1934 ("Act") or
otherwise subject to the liabilities of that section of the Act but shall
be subject to all other provisions of the Act (however, see the
Notes).
|
1.
|
NAME OF REPORTING
PERSONS
|
|
|
I.R.S. IDENTIFICA
TION NOS. OF ABOVE PERSONS
(ENTITIES ONLY)
|
|
|
|
|
|
Obrem Capital Management,
LLC
|
|
2.
|
CHECK THE APPROPRIATE BOX IF A
MEMBER OF A GROUP*
|
|
|
(a)
|
[_]
|
|
|
(b)
|
[
_
]
|
5.
|
CHECK BOX IF DISCLOSURE OF
LEG
AL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e)
|
|
[_]
|
|
|
|
6.
|
CITIZENSHIP OR PLACE OF
ORGANIZATION
|
|
|
|
|
|
Delaware
|
|
NUMBER OF SHARES BENEFICIALLY
OWNED BY EACH REPORTING PERSON
WITH
|
8.
|
SHARED VOTING
POWER
|
|
|
|
|
|
7,804,800
|
|
9.
|
SOLE DISPOSITIVE
POWER
|
|
|
|
|
0
|
|
10.
|
SHARE
D
DISPOSITIVE
POWER
|
|
|
|
|
|
|
7,804,800
|
|
11.
|
AGGREGATE AMOUNT BENEFICIALLY
OWNED BY EACH REPORTING
|
|
|
PERSON
|
|
|
|
|
|
7,804,800
|
|
12.
|
CHECK BOX IF THE AGGREGATE AMOUNT
IN ROW (11) E
XCLUDES
|
|
|
CERTAIN
SHARES*
|
|
[_]
|
13.
|
PERCENT OF CLASS REPRESENTED BY
AMOUNT IN ROW (11)
|
|
|
|
|
|
6.5
%
|
|
14.
|
TYPE OF REPORTING
PERSON
|
|
|
|
|
|
OO
|
|
1.
|
NAME OF REPORTING
PERSONS
|
|
|
I.R.S. IDENTIFICATION NOS. OF
ABOVE PERSONS
(ENTITIES ONLY)
|
|
|
|
|
|
Obrem Capital (GP),
LLC
|
|
2.
|
CHECK THE APPROPRIATE BOX IF A
MEMBER OF A GROUP*
|
|
|
(a)
|
[_]
|
|
|
(b)
|
[
_
]
|
5.
|
CHECK BOX IF DISCLOSURE OF LEGAL
PROCEEDINGS IS REQUIRED PURSU
ANT TO ITEMS 2(d) OR
2(e)
|
|
[_]
|
|
|
|
6.
|
CITIZENSHIP OR PLACE OF
ORGANIZATION
|
|
|
|
|
|
Delaware
|
|
NUMBER OF SHARES BENEFICIALLY
OWNED BY EACH REPORTING PERSON
WITH
|
8.
|
SHARED VOTING
POWER
|
|
|
|
|
|
7,804,800
|
|
9.
|
SOL
E DISPOSITIVE
POWER
|
|
|
|
|
0
|
|
10.
|
SHARE
D
DISPOSITIVE
POWER
|
|
|
|
|
|
|
7,804,800
|
|
11.
|
AGGREGATE AMOUNT BENEFICIALLY
OWNED BY EACH REPORTING
|
|
|
PERSON
|
|
|
|
|
|
7,804,800
|
|
12.
|
CHECK BOX IF THE AGGREGATE AMOUNT
IN ROW (11) EXCLUDES
|
|
|
CERTAIN
SHARES*
|
|
[_]
|
|
|
|
13.
|
PERCENT OF CLASS REPRESENTED BY
AMOUNT IN ROW (11)
|
|
|
|
|
|
6.5
%
|
|
14.
|
TYPE OF REPORTING
PERSON
|
|
|
|
|
|
OO
|
|
1.
|
NAME
OF REPORTING PERSONS
|
|
|
I.R.S.
IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
|
|
|
|
|
|
Andrew
Rechtschaffen
|
|
2.
|
CHECK
THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
|
|
|
(a)
|
[_]
|
|
|
(b)
|
[_]
|
5.
|
CHECK
BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d)
OR 2(e)
|
|
[_]
|
|
|
|
|
|
|
6.
|
CITIZENSHIP
OR PLACE OF ORGANIZATION
|
|
|
|
|
|
United
States of America
|
|
NUMBER
OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON
WITH
|
|
|
|
8.
|
SHARED
VOTING POWER
|
|
|
|
|
|
7,804,800
|
|
9.
|
SOLE
DISPOSITIVE POWER
|
|
|
|
|
0
|
|
10.
|
SHARED
DISPOSITIVE POWER
|
|
|
|
|
|
|
7,804,800
|
|
11.
|
AGGREGATE
AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
|
|
|
PERSON
|
|
|
|
|
|
7,804,800
|
|
12.
|
CHECK
BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
|
|
|
CERTAIN
SHARES*
|
|
[_]
|
|
|
|
13.
|
PERCENT
OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
|
|
|
|
|
|
6.5%
|
|
14.
|
TYPE
OF REPORTING PERSON
|
|
|
|
|
|
IN
|
|
1.
|
NAME
OF REPORTING PERSONS
|
|
|
I.R.S.
IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
|
|
|
|
|
|
Obrem
Capital Offshore Master, L.P.
|
|
2.
|
CHECK
THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
|
|
|
(a)
|
[_]
|
|
|
(b)
|
[_]
|
5.
|
CHECK
BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d)
OR 2(e)
|
|
[_]
|
|
|
|
6.
|
CITIZENSHIP
OR PLACE OF ORGANIZATION
|
|
|
|
|
|
Cayman
Islands
|
|
NUMBER
OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON
WITH
|
8.
|
SHARED
VOTING POWER
|
|
|
|
|
|
4,468,590
|
|
9.
|
SOLE
DISPOSITIVE POWER
|
|
|
|
|
0
|
|
10.
|
SHARED
DISPOSITIVE POWER
|
|
|
|
|
|
|
4,468,590
|
|
11.
|
AGGREGATE
AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
|
|
|
PERSON
|
|
|
|
|
|
4,468,590
|
|
12.
|
CHECK
BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
|
|
|
CERTAIN
SHARES*
|
|
[_]
|
|
|
|
13.
|
PERCENT
OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
|
|
|
|
|
|
3.7%
|
|
14.
|
TYPE
OF REPORTING PERSON
|
|
|
|
|
|
PN
|
|
1.
|
NAME
OF REPORTING PERSONS
|
|
|
I.R.S.
IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
|
|
|
|
|
|
Obrem
Capital (QP), L.P.
|
|
2.
|
CHECK
THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
|
|
|
(a)
|
[_]
|
|
|
(b)
|
[_]
|
5.
|
CHECK
BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d)
OR 2(e)
|
|
[_]
|
|
|
|
6.
|
CITIZENSHIP
OR PLACE OF ORGANIZATION
|
|
|
|
|
|
Delaware
|
|
NUMBER
OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON
WITH
|
|
|
|
8.
|
SHARED
VOTING POWER
|
|
|
|
|
|
3,336,210
|
|
9.
|
SOLE
DISPOSITIVE POWER
|
|
|
|
|
0
|
|
10.
|
SHARED
DISPOSITIVE POWER
|
|
|
|
|
|
|
3,336,210
|
|
11.
|
AGGREGATE
AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
|
|
|
PERSON
|
|
|
|
|
|
3,336,210
|
|
12.
|
CHECK
BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
|
|
|
CERTAIN
SHARES*
|
|
[_]
|
|
|
|
13.
|
PERCENT
OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
|
|
|
|
|
|
2.8%
|
|
14.
|
TYPE
OF REPORTING PERSON
|
|
|
|
|
|
PN
|
|
Item
1.
|
Security
and Issuer.
No
change.
|
|
Item
2.
|
Identity
and Background.
No
change.
|
|
Item
3.
|
Source
and Amount of Funds or Other Consideration.
|
|
|
The
funds for the purchase of the Shares beneficially owned by the Reporting
Persons came from the working capital of the private investment vehicles
managed by the Reporting Persons.
The total cost for the Shares that
Obrem Capital
Offshore Master, L.P.
may be deem
ed to beneficially own is
$
78,803,068
(CAD)
.
The total cost for the Shares that
Obrem Capital
(QP)
, L.P.
may be deemed to beneficially own
is $
58,899,934
(CAD)
.
No
borrowed funds were used to purchase the Shares, other than any borrowed
funds used for working capital purposes (including certain leverage
arrangements) in the ordinary course of business.
|
|
Item
4.
|
Purpose
of Transaction.
|
|
|
|
The
Reporting Persons purchased the Shares based on the Reporting Persons'
belief that the Shares, when purchased, were undervalued and represented
an attractive investment opportunity. Depending upon overall
market conditions, other investment opportunities available to the
Reporting Persons, and the availability of Shares at prices that would
make the purchase of additional Shares desirable, the Reporting Persons
may endeavor to increase their position in the Issuer through, among other
things, the purchase of Shares on the open market or in private
transactions or otherwise, on such terms and at such times as the
Reporting Persons may deem advisable.
On
April 9, 2008, the Reporting Persons delivered a letter to the Issuer’s
Board of Directors (the “Board”) expressing the Reporting Persons' desire
to discuss the Issuer’s business, other strategic and financial
considerations and the Reporting Persons’ recommendations to increase
permanent shareholder value.
|
|
|
|
On
May 15, 2008, the Reporting Persons met with the Board and discussed the
Reporting Persons’ view that shares of the Issuer remain significantly
undervalued and near-term steps that the Reporting Persons believe should
be taken in order to create permanent shareholder value.
On
June 25, 2008, the Reporting Persons delivered a letter to the Board
expressing the Reporting Persons' desire to maintain a dialogue with the
Board and calling on the Issuer to increase shareholder
value. The June 25, 2008 letter also set forth specific actions
that the Reporting Persons believed the Issuer and its Board should
consider in order to increase shareholder value. As described
in detail in the June 25, 2008 letter, (i) the Reporting Persons believed
the Issuer should partially or fully separate its business segments; (ii)
the Reporting Persons believed the Issuer should undertake a large share
repurchase program while Shares trade at current levels; and (iii) the
Reporting Persons called on members of management and the Board to
increase their personal holdings of Shares in order to align their
interests more closely with those of other shareholders.
On
October 30, 2008, the Reporting Persons delivered a letter to the Board
setting forth its position regarding the strategic direction it believes
the Issuer and the Board should take and specific recommendations that the
Reporting Persons believe the Issuer and its Board should consider in
order to increase shareholder value. A copy of the letter sent
to the Board dated October 30, 2008 is attached hereto as Exhibit
B.
The
Reporting Persons continue to believe the Shares are undervalued and that
proactive steps are needed in order to allow the trading price of Shares
to reflect the fair market value of the Issuer’s business
segments.
In
addition to the actions set forth above, in connection with their
investment in the Shares, the Reporting Persons may engage in additional
communications with members of management and the board of directors of
the Issuer, other current or prospective shareholders, industry analysts,
existing or potential strategic partners or competitors, investment and
financing professionals, sources of credit and other investors with
respect to the types of corporate action that may be covered in paragraphs
(a) through (j) of Item 4 of Schedule 13D. The Reporting
Persons intend to review their investment in the Issuer on a continuing
basis. Depending on various factors including, without
limitation, the Issuer's financial position and investment strategy, the
price levels of the Shares, conditions in the securities markets and
general economic and industry conditions, the Reporting Persons may in the
future take such actions with respect to their investment in the Issuer as
they deem appropriate including, without limitation, seeking board
representation, making proposals to the Issuer concerning changes to the
capitalization, ownership structure or operations of the Issuer,
purchasing additional Shares, selling some or all of their Shares,
engaging in short selling of, or any hedging or similar transaction with
respect to, the Shares or changing their intention with respect to any and
all matters referred to in this Item 4.
|
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Item
5.
|
Interest
in Securities of the Issuer.
|
|
|
(a)-(e)
|
As of the
date hereof,
Obrem Capital Management,
LLC
, Obrem Capital
(GP), LLC
and Andrew
Rechtschaffen
may be deemed to be the beneficial
owner of
7,804,800
Shares
or
6.5
% of the Shares of the Issuer,
based upon the
12
1
,
0
93
,
73
0
Shares outstanding as of
July 31
, 2008
, according to the Issuer's most
recent
Interim
Report
.
As of the date hereof, Obrem
Capital
Offshore
Master, L.P. may be deemed to be the beneficial own
er of
4,468,590
Shares or
3.7
% of the Shares of the
Issuer.
As of the date hereof,
Obrem Capital (QP),
L.P. may be deemed to be the beneficial owner of
3,336,210
Shares or
2.8
% of the Shares of the
Issuer.
Each of
Obrem Capital Management,
LLC
, Obrem
Cap
ital (GP),
LLC
and Andrew
Rechtschaffen
has the sole power to vote or
direct the
vote of 0
Shares and the shared power to vote or direct the vote of
7,804,800
Shares.
Obrem Capital Offshore Master,
L.P. has the sole power to vote or direct the vote of 0 S
hares and the shared power to vote
or direct the vote of
4,468,590
Shares.
Obrem Capital (QP), L.P. has the
sole power to vote or direct the vote of 0 Shares and the shared power to
vote or direct the vote of
3,336,210
Shares.
Each of
Obrem Capital Manag
ement, LLC
, Obrem Capital (GP),
LLC
and Andrew
Rechtschaffen
has the sole power to dispose or
direct the disposition of 0 Shares and the shared power to dispose or
direct the disposition
of
7,804,800
Shares.
Obrem Capital Offshore Master,
L.P. has the sol
e
power to dispose or direct the disposition of 0 Shares and the shared
power to dispose or direct the disposition of
4,468,590
Shares.
Obrem Capital (QP),
L.P.
has the sole
power to dispose or direct the disposition of 0 Shares and the shared
power to di
spose or
direct the disposition of
3,336,210
Shares.
The trading date, number of
Shares
purchased and
the price per share for all transactions in the Shares during the past 60
days by the Reporting Persons are set forth in Exhibit
C
and were effected in o
pen market
transactions.
The Shares were acquired for
investment purposes.
Obrem Capital Management,
LLC
, Obrem Capital
(GP), LLC
,
Andrew Rechtschaffen
,
Obrem Capital Offshore Master,
L.P.
and Obrem
Capital (QP), L.P.
may acquire additional Shares,
dispo
se of all or
some of these Shares from time to time, in each case in open market or
private transactions, block sales or purchases or otherwise, or may
continue to hold the Shares.
The
Reporting Persons specifically disclaim beneficial ownership in the Shares
reported herein except to the extent of their pecuniary interest
therein.
|
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|
Item
6.
|
Contracts,
Arrangements, Understandings or Relationships with Respect
|
|
|
to
Securities of the Issuer.
|
|
|
The
Reporting Persons have entered into agreements with several credit
counterparties relating to cash settled equity swaps (the “Swap
Agreements”) relating to the Issuer’s common shares. The Swap
Agreements provide the Reporting Persons with economic exposure to
approximately 1.3% of the Issuers’ issued and outstanding common
shares. These agreements do not confer on the reporting persons
any direct or indirect voting or dispositive control of any of the
Issuer’s common shares. The Reporting Person disclaim any
beneficial ownership over any of the Issuer’s common shares as a result of
being party the Swap Agreements.
|
|
|
|
|
Item
7.
|
Material
to be Filed as Exhibits.
|
|
|
A. An
agreement relating to the filing of a joint statement as required by Rule
13d-1(f) under the Securities Exchange Act of 1934 is filed herewith as
Exhibit A.
B. The
October 30, 2008 letter to the Board of Directors of the Issuer is filed
herewith as Exhibit B.
C. A
description of the transactions in the Shares that were effected by the
Reporting Persons during the past 60 days is filed herewith as Exhibit
C.
|
|
SIGNATURE
After
reasonable inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and
correct.
|
|
Obrem
Capital Management, LLC
|
|
|
|
|
|
By:
|
/s/
Andrew Rechtschaffen
|
|
|
|
Andrew
Rechtschaffen, Managing Member
|
|
|
|
|
|
|
|
|
Obrem
Capital (GP), LLC
|
|
|
|
|
|
By:
|
/s/
Andrew Rechtschaffen
|
|
|
|
Andrew
Rechtschaffen, Managing Member
|
|
|
|
|
|
|
|
|
Andrew
Rechtschaffen
|
|
|
|
|
|
/s/
Andrew Rechtschaffen
|
|
|
|
|
|
|
|
|
Obrem
Capital Offshore Master, L.P.
|
|
|
By:
Obrem Capital (GP), LLC, its general partner
|
|
|
|
|
|
By:
|
/s/
Andrew Rechtschaffen
|
|
|
|
Andrew
Rechtschaffen, Managing Member
|
|
|
|
|
|
|
|
|
Obrem
Capital (QP), L.P.
|
|
|
By:
Obrem Capital (GP), LLC, its general partner
|
|
|
|
|
|
By:
|
/s/
Andrew Rechtschaffen
|
|
|
|
Andrew
Rechtschaffen, Managing Member
|
|
|
|
|
|
|
Attention: Intentional
misstatements or omissions of fact constitute Federal criminal violations (see
18 U.S.C. 1001).
Exhibit A
AGREEMENT
The undersigned agree that this amended
Schedule 13D dated October 31, 2008, relating to the Common Shares, no par
value, of MDS Inc. shall be filed on behalf of the undersigned.
|
|
|
October 31,
2008
|
|
|
(Date)
|
|
|
|
|
|
|
|
|
Obrem
Capital Management, LLC
|
|
|
|
|
|
By:
|
/s/
Andrew Rechtschaffen
|
|
|
|
|
Andrew
Rechtschaffen, Managing Member
|
|
|
|
|
|
|
|
|
|
|
Obrem
Capital (GP), LLC
|
|
|
|
|
|
By:
|
/s/
Andrew Rechtschaffen
|
|
|
|
|
Andrew
Rechtschaffen, Managing Member
|
|
|
|
|
|
|
|
|
|
|
Andrew
Rechtschaffen
|
|
|
|
|
|
/s/
Andrew Rechtschaffen
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obrem
Capital Offshore Master, L.P.
|
|
|
By:
Obrem Capital (GP), LLC, its general partner
|
|
|
|
|
|
By:
|
/s/
Andrew Rechtschaffen
|
|
|
|
|
Andrew
Rechtschaffen, Managing Member
|
|
|
|
|
|
|
|
|
|
|
Obrem
Capital (QP), L.P.
|
|
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By:
Obrem Capital (GP), LLC, its general partner
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By:
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/s/
Andrew Rechtschaffen
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Andrew
Rechtschaffen, Managing Member
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Exhibit
B
The
October 30, 2008 letter to the Board of Directors of the Issuer
OBREM
CAPITAL MANAGEMENT, L.L.C.
MDS
Inc.
2700
Matheson Blvd. East
Suite
300, West Tower
Mississauga,
Ontario
Canada
L4W 4V9
MDS Inc.
Management and Board of Directors, c/o:
John T.
Mayberry, Chairman of the Board
Stephen
P. DeFalco, Chief Executive Officer
October
30, 2008
Dear Sirs
and Madams:
Obrem
Capital Management, according to MDS’ (“the Company”) public filings, is among
MDS’ five largest shareholders. We acquired our stake in MDS because
we believed the Company’s shares were significantly undervalued, and that the
Company’s three distinct businesses were exposed to attractive end markets with
solid competitive positions.
In
Schedule 13Ds filed on April 9, 2008, June 26, 2008, and July 29, 2008, and in
subsequent communications with members of management and the board of directors
of MDS, we expressed our view that shares of the Company remained significantly
undervalued, and that near-term steps should be taken to create shareholder
value. Specifically, we recommended: (i) that MDS hire a financial adviser to
review what valuations could be achieved through the sale or spin-off of one or
more of its business units; (ii) that management pursue a significant share
repurchase program; and (iii) that members of management and the board of
directors increase their ownership of MDS stock to more closely align their
interests with those of other shareholders.
We have
engaged in numerous discussions with Company leadership over the past several
months. Members of management and the board of directors have always been
accessible and willing to listen to our views. They encouraged us to
be patient, offering a compelling narrative on the opportunities that lay
ahead. They also indicated they would take our recommendations under
advisement, as they, too, saw a large discrepancy between the intrinsic value of
the businesses and the then-prevailing trading price of MDS shares.
Despite
the positive tone of our interactions with management and the board of
directors, we have been disappointed with the lack of action in response to our
recommendations. We have not seen evidence of any strategic action
taken to unlock value, and we have yet to see a substantive buyback beyond the
normal course issuer bid. Moreover, we continue to be surprised that
a management and board of directors so confident in their strategy and business
outlook would choose to own so little stock, and would not purchase additional
shares at these rapidly declining prices.
MDS’
operating results have also been quite disappointing. After a surprisingly poor
second quarter result, management explained that certain unanticipated factors
had caused the Company to perform below plan, but that shareholders should
expect an improvement in the second half of the year. Following yet another
disappointing result in the third quarter, our confidence in management has
eroded further, a sentiment we believe is shared by other
shareholders. Particularly upsetting is the continued delay in the
recovery of MDS Pharma Services — the Company now says that “another couple of
quarters”
1
are needed for improvements to take shape
— and that management has lowered guidance twice since initially
giving forecasts in February. We believe that these poor results, the loss of
confidence in management’s ability to execute, and the apparent unwillingness of
the board of directors to take shareholder-friendly actions have caused the
share price to drop to levels not seen since the start of this decade, including
the period prior to present management assuming control in
mid-2005. And it is worth noting that the failure to turn around MDS
Pharma Services has taken place in an environment where other contract research
organizations have been reporting record profitability and results.
To be
clear, we do not doubt the efforts and intentions of CEO Stephen
DeFalco. We believe Mr. Defalco is a genuine individual who is trying
to do what he believes is best for MDS. Unfortunately, the Company’s poor
operating performance and, more importantly, the extremely poor share price
performance during his three-year tenure speak for themselves, and indicate that
a different approach for creating shareholder value is needed. Action
must be taken before there is erosion in the intrinsic value of MDS’
assets.
Remarkably,
despite the poor execution and missed opportunities of the past several
quarters, we believe that MDS’ assets have retained their substantial
value. Conversations with industry experts, competitors, and
investment bankers have given us comfort that the Company’s divisions are
well-positioned in attractive markets. Moreover, these conversations have given
us reason to believe that multiple strategic parties have a strong interest in
acquiring specific assets of the Company. Given the strong likelihood
that there are many interested parties, we would like the board of directors to
immediately engage one or more reputable investment banking firms to help the
Company explore strategic alternatives, including divesting individual business
units. An active due diligence process for qualified buyers who
express credible interest should commence immediately.
We
believe it would be highly inappropriate for the Company to ignore prospective
bids given the sizable gap that now exists between the share price of MDS and
the fair value of its assets. It would likely be difficult to sell
the entire Company to a single strategic buyer for the simple reason that this
collection of assets does not belong together in the first instance. We do,
however, believe there are logical and well-funded buyers for the various pieces
of MDS. Our preference would be to see an expeditious sale of some combination
of the legacy Sciex business, the Molecular Devices business, and the pieces of
MDS Pharma Services, followed by a spin-off of MDS Nordion. We
strongly believe this would unlock substantial value for shareholders and allow
any remaining entity to be re-positioned as a pure play company with proper
managerial focus and a more natural shareholder base. Our belief is that the
easiest group of assets to divest would be those in MDS Analytical Technologies,
which we think would attract numerous potential buyers, including several who
already know the assets well.
Given the
disappointing operational results and the destruction of shareholder value, we
do not want to see the Company spend additional shareholder capital.
Specifically, we are opposed to the Company expanding its footprint by acquiring
the other half of the Sciex joint venture. We believe this view
is
1.
MDS
third quarter conference call transcript, September 4,
2008.
shared by
many of the Company’s shareholders. Rather, we believe that shrinking the
enterprise via appropriate sales of businesses will maximize shareholder value
and minimize additional operational risk.
Clearly,
credit markets are stressed now. However, we believe that the parties that might
be interested in MDS’ assets are strategic buyers who would not require
significant external financing in order to consummate a
transaction. These parties should be able to produce adequate bids
that do not carry financing risk. As such, the Company cannot point to the
troubled credit markets as a reason not to explore maximizing shareholder value
at the present time.
We also
believe it would be disingenuous to blame the weakness in MDS’ share price on
the current distress in the financial markets. The stock began its
precipitous decline in early summer after poor second quarter operational
results were reported, particularly in MDS Pharma Services. The
decline was further exacerbated by the disappointing third quarter operational
results. As such, there is no reason to believe that a recovery in financial
markets would necessarily lead to an improvement in the share price of
MDS.
In past
communications, we indicated we were reviewing potential courses of action,
including calling a special meeting of shareholders. Given the increased urgency
that we — and we believe many other shareholders — feel as a result of the
Company’s performance, we expect to take specific steps in short order to unlock
the value trapped inside MDS. If we do call a meeting of
shareholders, the agenda would include two specific items: first, the removal of
one or more long-standing MDS board members, who we believe have done little to
prevent significant value destruction; and second, a shareholder vote on
pursuing the actions we described above. Ultimately, the strategic direction of
this Company should be up to shareholders, whose voices we believe should be
heard more urgently,
We look
forward to a prompt response from the Company.
Sincerely,
Andrew
Rechtschaffen
Obrem
Capital Management, LLC
Exhibit
C
Transactions
– Obrem Capital Management, LLC, Obrem Capital (GP), LLC and Andrew
Rechtschaffen
Date of
Transaction
|
Title of
Class
|
|
Number of
Shares
Purchased or
Sold
|
|
|
Price Per Share
(CAD)
|
|
9/10/2008
|
Common Stock, no par
value
|
|
|
8,410
|
|
|
|
13.66
|
|
9/10/2008
|
Common Stock, no par
value
|
|
|
11,590
|
|
|
|
13.66
|
|
9/26/2008
|
Common Stock, no par
value
|
|
|
(5,560
|
)
|
|
|
13.15
|
|
9/26/2008
|
Common Stock, no par
value
|
|
|
(7,540
|
)
|
|
|
13.15
|
|
10/10/2008
|
Common Stock, no par
value
|
|
|
42,200
|
|
|
|
11.31
|
|
10/10/2008
|
Common Stock, no par
value
|
|
|
57,800
|
|
|
|
11.31
|
|
10/14/2008
|
Common Stock, no par
value
|
|
|
41,940
|
|
|
|
11.51
|
|
10/14/2008
|
Common Stock, no par
value
|
|
|
58,060
|
|
|
|
11.51
|
|
10/15/2008
|
Common Stock, no par
value
|
|
|
41,940
|
|
|
|
11.22
|
|
10/15/2008
|
Common Stock, no par
value
|
|
|
58,060
|
|
|
|
11.22
|
|
10/16/2008
|
Common Stock, no par
value
|
|
|
27,260
|
|
|
|
11.37
|
|
10/16/2008
|
Common Stock, no par
value
|
|
|
37,340
|
|
|
|
11.37
|
|
Transactions
– Obrem Capital Offshore Master, L.P.
Date of
Transaction
|
Title of
Class
|
|
Number of
Shares
Purchased or
Sold
|
|
|
Price Per
Share
(CAD)
|
|
9/10/2008
|
Common Stock, no par
value
|
|
|
11,590
|
|
|
|
13.66
|
|
9/26/2008
|
Common Stock, no par
value
|
|
|
(7,540
|
)
|
|
|
13.15
|
|
10/10/2008
|
Common Stock, no par
value
|
|
|
57,800
|
|
|
|
11.31
|
|
10/14/2008
|
Common Stock, no par
value
|
|
|
58,060
|
|
|
|
11.51
|
|
10/15/2008
|
Common Stock, no par
value
|
|
|
58,060
|
|
|
|
11.22
|
|
10/16/2008
|
Common Stock, no par
value
|
|
|
37,340
|
|
|
|
11.37
|
|
Transactions
– Obrem Capital (QP), L.P.
Date of
Transaction
|
Title of
Class
|
|
Number of
Shares
Purchased or
Sold
|
|
|
Price Per
Share
(CAD)
|
|
9/10/2008
|
Common Stock, no par
value
|
|
|
8,410
|
|
|
|
13.66
|
|
9/26/2008
|
Common Stock, no par
value
|
|
|
(5,560
|
)
|
|
|
13.15
|
|
10/10/2008
|
Common Stock, no par
value
|
|
|
42,200
|
|
|
|
11.31
|
|
10/14/2008
|
Common Stock, no par
value
|
|
|
41,940
|
|
|
|
11.51
|
|
10/15/2008
|
Common Stock, no par
value
|
|
|
41,940
|
|
|
|
11.22
|
|
10/16/2008
|
Common Stock, no par
value
|
|
|
27,260
|
|
|
|
11.37
|
|
SK 25940 0001
933772
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