Cannell Capital LLC Dispatches Letter to Alliance Semiconductor Corp.'s Board of Directors
SAN FRANCISCO--(BUSINESS WIRE)--Oct. 25, 2001--Cannell Capital LLC, which advises funds that own approximately 2.3% of the common shares of Alliance Semiconductor Corp. (Nasdaq:ALSC), announced today that it sent the following letter on Friday, October 19, 2001 to the company's Board of Directors:
*T CANNELL CAPITAL LLC 150 California Street San Francisco, CA 94111
October 19, 2001
N. Damodar Reddy Chairman, President & Chief Executive Officer Alliance Semiconductor 2575 Augustine Drive Santa Clara, CA 95054
Dear Mr. Reddy:
This is to follow up on my August 15, 2001, letter to you in which I express our concern about ways in which we believe the board of Alliance Semiconductor (the "Company") is conducting certain affairs of corporate finance.
Treasury Shares
As we discussed in July 2001 in your office, we urge you to recommend to the Company's Board of Directors implementation of a 60-day, $60,000,000 "Dutch Auction" tender. This method is less expensive and less restrictive than a conventional share buy back which occurs in the "open" market. Another advantage of the Dutch Tender is that the Company purchases start with the cheapest stock tendered and then work up until the maximum level is reached. For example, first the Company would purchase all of the $10 stock tendered, then purchase the shares tendered at $10.01 and so forth. This is better for all shareholders. Please implement.
Although we appreciate your continuing commitment to invest in Tower Semiconductor, as well as the Company's desire to pursue attractive venture capital opportunities, we believe that the best investment is the Company's own stock. Why does the Company not immediately seek permission from United Microelectronics and the Taiwan Securities and Futures Commission to convert a portion of the Company's local share holdings into American Depository Receipts ("ADRs") in order to take advantage of the significant depositary share premium?
The Company should liquidate its captive investment portfolio and buy back its own shares. Please implement this. According to our calculation of the liquidation value of the portfolio, this would be like buying $20 for $11. Cannell Capital, like you, represents some of the largest shareholders of the Company. How can you and we not be interested in buying $20 for $11?
Alliance Venture Management
In the summer, I interviewed you on the nature of Alliance Ventures. I asked you to confirm that no entities or individuals other than the Company benefit from gains reaped by Alliance Ventures' venture investments. Recently I reviewed the 2001 Proxy Statement of Alliance Semiconductor, and the details contained there regarding this matter do not appear to be consistent with the representations made to me.
Specifically, according to the Company's recent filings, certain of the Company's officers have formed private venture funds, which invest in some of the same investments as the Company. Additionally, filings with the Securities and Exchange Commission disclose that an outside venture fund has been formed by Alliance Semiconductor wherein certain of the Company's officers and employees, as well as the Company itself, have made similar venture investments, including investments in some of the same companies as Alliance Ventures. This apparent conflict of interest greatly troubles us.
We find it objectionable that Company's management is able to piggyback Company investments. We particularly take issue with the management fee that Alliance Ventures management takes out of the net profits of the Alliance Ventures' investment funds. We understand that the management company structure was created to provide incentives to the individuals who participate in the management of the five investment funds but we also believe that the fee of 15%-16% of the profits is an excessive "incentive." We ask you to list three of the 13,000 corporations that file with the Securities and Exchange Commission that provides for similar side benefits to its management from such private equity speculation.
These types of insider arrangement are shortsighted, in my opinion. In the eyes of this institution, these actions are very troublesome. You and we will both prosper from the appreciation of the Company's stock price if these arrangements are abolished. Please implement.
We would be pleased to discuss with you the implementation of a Dutch tender as well as other strategies. In this regard, please reply to my letter of last summer. I can be reached at (415) 835-8300.
Sincerely,
Managing Member
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CONTACT:
Cannell Capital LLC
J. Carlo Cannell, 415/835-8300 |
