Imation shareholders facing proxy FUD-flinging war at AGM

Activist investor and board set to throw brown smelly stuff at each other

Proxy FUD poo is being thrown around at Imation. Activist investor The Clinton Group has its hooks into Imation and the Imation board is pleading with shareholders to reject Clinton's candidates at the May 20 AGM.

The Clinton Group thinks five years of declining revenues and losses under CEO Mark Lucas and the current board is enough.

It reckons the board and Lucas' team haven't done enough to pull Imation out from catastrophic declines in optical and tape media. Buying storage array maker Nexsan and going into the Ironkey security business haven't been effective moves in terms of reversing Imation's revenue slump.

In November Clinton proposed three of its own favoured directors for election by shareholders to Imation's board:

  • Joseph A De Perio, senior portfolio manager, public equity and private at Clinton Group
  • Robert B Fernander, veteran executive in technology space with domain expertise in, among other things, data storage
  • Barry L Kasoff, president of Realization Services, a full-service management consulting firm specialising in assisting companies and capital stakeholders in troubled business environments

In February, Imation said it was evaluating "certain strategic options to maximise the value of each business unit" with strategic financial firm Houlihan Lokey, hinting at partial or full business unit sell-offs.

The Clinton Group filed proxy materials supporting its directorial trio in March, with De Perio saying:

We would support a change of control transaction at Imation at a premium stock price acceptable to all shareholders recognising the years of fatigue and losses. However, we are curious if now is the right time to maximise value in a sale given the ongoing proxy contest, poor recent financial performance, the lack of profitability, the year over year declines in Nexsan revenue under Imation's ownership, and the lack of scale of the Nexsan Assureon and IronKey Workspace product lines. A sale today also foregoes any value from the employment of Imation's $732 million in federal and state net operating losses.

Now Imation's board has replied, with its message to shareholders openly attacking the Clinton Group:

It is critical not to allow the considerable progress your Company has achieved over the past three years to be destroyed by nearsighted individuals with self-serving interests who offer NO SPECIFIC PLAN for Imation’s future or any way to create value for shareholders other than The Clinton Group (“Clinton”) and its affiliates.

The text capitalisation was provided by the Imation board, by the way.

The letter suggests that: "It appears that Clinton may be seeking to use Imation as its acquisition roll-up vehicle."

It says Clinton has provided no details of this, adding: "We find it very troubling that Clinton will only do its due diligence on the Company after it obtains control of the Board."

Then the letter reveals it "offered Clinton the opportunity to enter into a customary confidentiality agreement without any standstill provisions that would allow Clinton to more fully understand the complexities of the Company and the benefits of the Board’s strategic plan, but Clinton refused".

Its own nominees for directors are:

  • Mark E Lucas, CEO
  • White Matthews, III
  • David B Stevens

The letter says the board and management want Imation to become a pure-play, global leader in data storage and security solutions, with its Tiered Storage and Security (TSS) and Consumer Storage and Accessories (CSA) business units. It reiterates it is working with Houlihan Lokey "to explore additional options to unlock value embedded within our TSS and Consumer Storage and Accessories business units. Once the process is complete, we look forward to sharing the results and our recommendations with you".

The writers pour on the anti-Clinton FUD: "Despite repeated requests, Clinton has failed to offer any compelling insights or recommendations as to how it intends to increase shareholder value."

Stick with us, they say, we know what we are doing and have been making progress.

"Huh," you can hear Clinton Group saying. Its proxy letter points out: "Since Mark E Lucas was named president and CEO on March 18, 2010, the stock price of Imation is down 69.9 per cent, or a negative compound annual decline rate of 22.4 per cent."

It's a proxy war alright. Has Clinton Group done enough to convince shareholders that Imation's board and CEO are duds? Has the board spread enough FUD to make shareholders wrinkle their noses at the Clinton Group? All will be revealed on May 20 at the AGM. ®


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