Aircraft leases lucrative to Semitool chairman
Tuesday March 11, 8:09 am ET
By Daniel Sorid
NEW YORK, March 11 (Reuters) - Getting to Semitool Inc. (NasdaqNM:SMTL - News) headquarters in northwest Montana isn't easy, so the maker of semiconductor production tools leases two aircraft to shuttle in customers and send its sales staff to more populous parts of the country.
The arrangement has almost certainly delivered new business to the company -- but it has also proved a boon for the company's founder and chairman, whose aircraft the company leases. Raymon Thompson has received $9.6 million from Semitool over the past seven years for his aircraft.
Business arrangements such as this, between a company and its insiders, rankle corporate governance experts, who question whether such deals come at the expense of shareholder interests.
"They're usually a big red flag for other governance problems and perhaps even broader problems," said Patrick McGurn, vice president and special counsel at Institutional Shareholder Services, which advises shareholders on corporate issues.
It is not the only business deal linking Thompson and Semitool. In 2001, Semitool sold 20 acres of farm land and buildings near the company's headquarters to Thompson for $369,500. Also, a business in which Thompson had a 74 percent stake sold $1.8 million worth of equipment to Semitool from 1996 to 1998.
Thompson, who with his wife owns 42 percent of Semitool, declined to comment. Semitool Chief Financial Officer William Freeman, however, said the company relies on aircraft as a business tool to keep in touch with customers. "We've explored all the alternatives" to leasing directly from the company's chairman, Freeman said.
Also, in regulatory filings, Semitool has insisted that its insider deals have been on terms that are no less favorable than if they were with unrelated parties.
Shareholder activists generally dislike private business deals between a company and an executive or manager, in part because of the risk that the insider will get sweetened deals that are not in the interest of the company as a whole or its shareholders.
Kalispell, Montana, where Semitool is based, is Thompson's boyhood home, Freeman said.
Locating the company in a place better known for snowcapped peaks than semiconductors has its consequences on business, among them the ability to meet with customers in person.
Some analysts defended Semitool's actions, if only because there are few alternatives for commercial aircraft service. Semitool, according to its latest annual report, brought in more than 60 percent of its revenue from international customers, primarily in Europe, Asia and Japan.
"I don't think there's another business up there at the Kalispell airport that has the muscle to have the kind of planes that he leases out," said Daniel Nelson, an analyst with Ragen MacKenzie, a division of Wells Fargo Investments LLC.
As for why Semitool doesn't just pack up and move to California to be closer to customers and a large international airport, Semitool's Freeman said the company saves labor and other costs by avoiding such places.
But McGurn, the corporate governance advisor, said locating a business where access to aircraft or other assets is limited brings up a red flag.
"That raises the issue about did you put your company intentionally someplace off the beaten path, with knowledge that there wouldn't be the ability to get the goods and services that you need?" he said. |
