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Crescendo Partners Sends Letter To Board Of Directors Of Michael Baker Corporation
Urges Board to Pursue a Sale of the Company
By: PR Newswire
Dec. 26, 2012 04:00 PM
NEW YORK, Dec. 26, 2012 /PRNewswire/ -- Crescendo Partners, a shareholder of Michael Baker Corporation (the "Company") (NYSE: BKR), today announced that it has delivered a letter to the Board of Directors of the Company.
In the letter, Crescendo Partners urges the Board of Directors of the Company to pursue a sale of the Company in light of the recent departure of the Company's CEO and the offer from DC Capital Partners to acquire the Company. Crescendo believes a sale of the Company at this time would be the most prudent and effective way to deliver maximum value to shareholders on a risk-adjusted basis for both the short- and long-term.
The full text of the letter follows:
December 26, 2012
Members of the Board of Directors
Dear Board Members:
Crescendo Partners is a shareholder of Michael Baker Corporation ("BKR" or the "Company"). We invested in BKR because of the strength of its engineering franchise, its strong free cash flow generation, and its very low valuation. We are writing to recommend that the Board of Directors of the Company (the "Board") pursue a sale of the Company in light of the recent departure of the Company's CEO and the offer from DC Capital Partners, LLC ("DC Capital") to acquire the Company for $24.25 per share. We believe a sale of the Company at this time would be the most prudent and effective way to deliver maximum value to shareholders on a risk-adjusted basis for both the short- and long-term. Accordingly, we strongly urge the Board to initiate a process to sell the Company. We believe that numerous parties would be interested in the Company and we are confident that a strategic buyer interested in purchasing the Company at a significant premium could be found.
Given the small size of the Company, the fiscal uncertainty affecting many of BKR's clients (which could persist for years), and the limited organic growth opportunities available to the Company at this time, we believe that BKR will remain significantly undervalued as long as it remains a stand-alone public company. We think that many of BKR's other shareholders, who are also frustrated by the Company's poor performance, agree with us and think that a sale of the Company at this time would be the most effective way to maximize value for shareholders. In fact, an analyst on the recent Q3 earnings call went so far as to ask the CEO whether the Company should be sold ("Does it make sense for small companies such as yourself to be independent?" from Tahira Afzal at KeyBanc Capital Markets). The recent departure of the CEO further complicates any turnaround efforts of the Company and increases execution risks. Also, in our experience a turnaround of BKR is likely to be more successful in a private setting without the short-term pressure and the quarterly disclosures required in the public arena.
We also believe a sale of the Company would be in the best interests of all of the Company's stakeholders. Those include the employees who could become part of a larger, faster growing, and more vibrant company with significantly more opportunities and the customers who could be served by a larger company with more offerings.
Based on our knowledge of the industry, we are confident that the Company could be sold for 6 to 7 times normalized EBITDA. Using consensus analyst expectations for the next fiscal year ($34.2 million) and the Company's current cash balance, these multiples would imply a sale price between $28 and $32 per share. Further, in light of the Company's announced cost-cutting plan, this EBITDA number could prove conservative. Additionally, a strategic buyer should be able to extract additional costs. Given the likely large number of interested parties, we believe the Company could hold a robust auction process, increasing the likelihood that the Company would receive credit for future cost-cutting opportunities without having to incur any of the execution risk. In conclusion, in our opinion there is a strong possibility the Company could be sold at more than $30 per share.
We are concerned that the Company may argue that now is not the right time to sell because it is in the middle of a turnaround and more value could be created over the long term by keeping the Company public. We strongly disagree. Now is the time to sell the Company because:
While we believe that the $24.25 per share offer from DC Capital is low and that the Board has a fiduciary duty to engage with DC Capital to ascertain the maximum price it would be willing to pay for the Company, this offer should serve as an impetus for the Board to engage in a sale and price discovery process and to begin contacting other interested parties. The offer from DC Capital should give confidence to the Board that there are likely other interested parties in acquiring the Company and provide a floor to a sales process.
We also request that the Board establish a special committee consisting only of independent members of the Board to explore the sale of the Company. We and all of your shareholders expect proper corporate governance to be followed.
We hope that the Company will do the right thing and take the needed steps to maximize value for shareholders. We intend to nominate a slate of directors for election at the Company's upcoming annual meeting if the Company has not taken the necessary steps in furtherance of consummating a value maximizing transaction.
Very truly yours,
SOURCE Crescendo Partners
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