Monday, June 29, 2009

MUST READ --Ramius versus CPI (CPY)

(I call this a MUST-READ because it's a great example of the ongoing debate about whether "shareholder activism" is good or bad for a company.)

AlphaNinja - It's like passing notes between middle school classes. This is a true lovers' quarrel, and I'd venture to say the lawyers and PR experts are the true winners. Various funds affiliated with Ramius LLC own about 23% of CPI Corp. (CPY).

Ramius has been a shareholder for five years, and has engaged in a campaign to broaden the board of directors. A big concern of Ramius' is the influence on the board of Knightspoint Partners, who is only a 3.5% shareholder, yet has one of the six board seats, and possibly more influence. (Board members are elected by shareholders, so one could make a point that a 3.5% shareholder should not have more board influence than a 23% holder).

"Ramius’s only desire throughout this contest is to create a more balanced, independent, and experienced Board that is free from the undue influence of Knightspoint Partners. The changes to the Board that Ramius has proposed would create a Board comprised of four independent directors, three of whom have relevant retail experience; one direct Knightspoint representative; and one direct Ramius representative.

On the other hand, Knightspoint has continued to assert additional influence on the Board of CPI. The Company’s proposed Board includes five out of six directors that are either directly affiliated with Knightspoint or previously recommended by Knightspoint, despite their only owning 3.5% of the Company, and only two directors with any retail experience. We believe these two directors would not have been added to the Board without our outspoken concerns on the failure of the Board to address this obvious weakness.

In addition, over the past two years, both Mr. Meyer and Mr. Koeneke have received compensation totaling over $2.2 million for providing part-time consulting “services”, while the stock declined by 74%. This pay package represents almost as much as the CEO, CFO, and all other board members earned combined. Stockholders need to seriously question Knightspoint’s influence over CPI."

While Ramius makes good points, the company has accused them of being off the mark both in their criticisms of CPI's directors, and the qualifications of Ramius' nominees to the board. The company correctly points out that the stock price has performed well under the current board, and has increased appreciably from levels at which Ramius was endorsing an outright sale...

Some of CPI's points, filed today:

And more CPI comments today, a bit more "confrontational" if you will...

I almost ALWAYS side with shareholders - no matter what their intentions are, they are the true OWNERS of the company -->>if the company and management don't like that then they should have stayed private. Ramius doesn't seem to be nominating great people, but it is their right to attempt to gain better board representation. In addition, CPI does not get much respect in terms of valuation, with a Price-to_sales of just .29, and forward PE (probably unreliable estimates) of 5.5 -->>that might be Ramius' best argument for change. Can't we all just get along?

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