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Gold/Mining/Energy : Star Data Systems Inc. (STY,T) -- Ignore unavailable to you. Want to Upgrade?

To: kingfisher who wrote (169)	3/25/1999 12:45:00 PM
From: Martin Marino	Read Replies (1) \| Respond to of 267

Open letter to Mr. Doherty, Chairman March 25, 1999 Star Data Systems Inc. Commerce Court South, 30 Wellington Street West Suite 300 Toronto, Ontario M5L 1G1 Attention: Mr. P Doherty Chairman Dear Mr. Doherty I have carefully reviewed the contents of your letter to shareholders dated March 9, 1999. Your tendency to disparage those who would seek liquidity is of significant concern to me. I have long held the belief that a director of a small cap public company who owns few or no shares in the company, is by such circumstance rendered a poor spokesperson for the interests of the shareholders. The contents of your letter simply reinforce this belief. Shareholder Value Maximization Your letter contains several assertions that there were no offers to purchase the entire company, while conspicuously omitting any statement as to whether there were any offers for any parts of the company. One would not need to contemplate for long to realize that only another company with the same two distinct business operations would be willing to pay full value for both. Realistically, shareholder value can only be maximized if the Star Data businesses are dealt with separately, since as you correctly stated, "significant operational synergies are still not fully in evidence". If the Special Committee of the Board did not approach its task with an open mind as to the possibility of severing the operating businesses, then any favourable result was sabotaged from the outset. Clearly, the Committee should have recognized that transaction processing companies often trade at values based on multiples of revenue, which implies a much higher value for Star Data's transaction processing business, if taken outside of the present structure and treated as a "pure play". Divergence of Interests There is growing evidence of substantial divergence of interests between many individual Star Data shareholders and a few institutional shareholders. For example, I hold what for me is a very substantial position in the company, which I have accumulated over a period of two years. While I was not drawn into the investment specifically due to takeover rumours, it was my opinion that at a $6 to $7 share price, the company had a realizable value much higher than its trading value. My objective from the outset was to buy an undervalued asset with an opportunity to capitalize on it when fairly valued. I learned that there were other similarly minded shareholders and I developed an expectation that true value could be realized within a reasonable period of time. I neither characterize myself as an active trader, nor a speculator. Like most individual shareholders I invest opportunistically, acquiring undervalued assets with a view to maximizing value. After a period of time in an investment, liquidity becomes my primary focus. Just as in your letter you described the comments of one significant shareholder, I too have other uses for my money. Herein lies the divergence of interests. The Board is dominated by representation on behalf of Canadian General Capital Limited, whose 30% interest in the company appears quite happy to wait long term to correct the disparity between trading value and realizable value, notwithstanding that shareholders representing some 40% of shares held in the company, independently retained Kensington Partners last October to assist in the efforts to maximize shareholder value. In fact, if you exclude the CGC share block, in the order of 60% of all remaining shareholders supported the effort, without even accounting for those shareholders who could not practically have been added to the group due to size of holdings or disparate location. Yet in your letter you make the assertion that the interests of CGC are "absolutely aligned with those of every other shareholder". For you to continue to hold this belief and to allow it to cloud your judgment is to flirt with negligence. To be effective at corporate governance, the Board must seek to understand the interests of a majority of its constituents and not just the interests of a powerful minority. The Board must realize that most individual shareholders are far more concerned about investment liquidity and value, than they are about maintaining long term employment for management, irrespective of the accolades you heap upon them. Finally, I note your opinion that you did not in recent months consider that the timing was appropriate for a value crystaliszation initiative and that in your personal view, better timing is still ahead. Your view is predicated on the fact that Star Data has been a business in transition, particularly over the last year. While your observations may be correct from the perspective of the current state of company operations, perhaps a more important value determinant is the state of the market. In other words, prudence dictates that value optimization should take place in a bull market and given the maturity of this bull market, one should not delay. Normal Course Issuers Bid While you state that Star Data's current value is not adequately reflected in recent share price, failure of the company to intervene in the market after announcing a normal course issuers bid is somewhat disingenuous. One can only surmise that the company's delay in entering the market is calculated to punish those shareholders whom you characterize as "speculators", until after the period in which all of their margin calls have crystallized. Mr. Doherty, just as you have never felt the necessity in past to communicate directly with all shareholders, I have never before felt as I do today, the need to become an activist shareholder. Quite frankly, I found your communication to be intolerably patronizing toward individual shareholders and moreover to display a bias toward the institutional shareholder you represent. I don't know where exactly we go from here, but I encourage you to revisit with the Board, the responsibility you hold to all shareholders. Sincerely, Martin A. Marino cc The Board of Directors (As a courtesy, I would ask you to circulate the letter on my behalf. Thank you.)