Earlier this month, the board of directors of Adaptec (NSDQ:ADPT) stripped a Steel Partners executive of his chairman title and called for a reduction in the number of board seats to seven. Warren Lichtenstein’s hedge fund responded last week by launching a proxy battle against the company’s board. Steel Partners’ proxy solicitation calls for the removal of two of Adaptec’s board members, including the company’s CEO Subramanian "Sundi" Sundaresh. Its proposal would also effectively shrink the board size to seven seats.
This week, Steel Partners' battle gained an ally, when value-oriented long/short hedge fund manager Arcadia Capital Advisors sent a letter to the board of Adaptec. In the letter the firm states that shareholders of Adaptec would prosper under a three-pronged approach: correcting irregular corporate governance actions, reorganizing the company under new leadership, and preserving cash and repurchasing stock. With two institutional investors publicly pressing for a shake-up, it is becoming evident that many shareholders are displeased with the performance of the company, which may expedite current negotiations between Steel Partners and Adaptec.
This is not the first time the Steel Partners and Adaptec have gone head to head. Two years ago Steel Partners called for a proxy battle, which saw the hedge fund gain three seats on a board of nine directors at the data storage company.
The hedge fund has highlighted two main grievances with Adaptec’s board; its inertia in selling the company to maximize shareholder value and its removal of Jack Howard, a Steel Partners executive, as chairman. Steel Partners CEO Warren Lichtenstein believes that shareholder value will be maximized by “a sale of the Company’s business operations to the highest bidder” and believes “stockholders have been harmed by the Company’s failed business strategy.” Adaptec’s board, however, rejects this notion.
Steel Partners holds an 11% stake in the company, and plans on adding more shares to its portfolio. The firm is willing to negotiate with the board and drop its shareholder vote, however it hasn’t reached any agreement to warrant its withdrawal.
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