Are earnings going to be announced tomorrow? Does anyone have the conference call number? Should be a very interesting call.
Thanks,
Rory
this was in the NY Times today:
May 11, 1999
MARKET PLACE
Successors to Michael Price Apply
Pressure, Too
By EDWARD WYATT
he spirit of Michael Price has risen, and it is hovering over Thermo
Electron Corp.
Barely six months after Price retired from active oversight of the Franklin
Mutual Series funds, a group of six mutual funds with more than $21
billion in assets, his successors are showing that they intend to continue
his practice of aggressively focusing on companies with underperforming
stocks.
Applying a brand of shareholder activism rare among fund managers,
Price made his reputation and fortune by taking big stakes in companies,
then advocating change at them -- perhaps most famously with Chase
Manhattan Corp., which ultimately merged with Chemical Bank.
Now in his successors' sights: Thermo Electron, a sprawling group of
medical equipment and industrial machinery companies based in
Waltham, Mass., whose stock price has fallen by more than 50 percent
in the last year.
Last week, the Franklin funds fired off a pointed letter to George
Hatsopoulos, Thermo's chairman and chief executive, requesting more
independent directors on the company's board, an aggressive
share-repurchase program and a restructuring of the corporation and its
23 publicly traded subsidiaries. Franklin Mutual said it owns 3.4 million
Thermo Electron shares, or about 2 percent of the total.
The letter sets the stage for a dramatic confrontation at the company's
May 27 annual meeting in Waltham.
That meeting could also be a tense debut for Richard Syron, who on
June 1 will move from chairman of the American Stock Exchange to chief
executive of Thermo Electron.
Founded in 1956 by Hatsopoulos, a Greek immigrant and mechanical
engineer who is now 72 years old, Thermo Electron develops new
technologies and then builds separate companies around them. Their
wide-ranging operations, from biomedical instruments to paper-making
and recycling equipment, fall into four business segments: measurement
and detection; biomedical technologies; energy and the environment, and
recycling and resource recovery.
In part because of its unusual strategy, Thermo Electron has achieved a
fairly high profile. Its revenue of $3.87 billion ranks No. 394 in the
Fortune 500 list of the largest companies, and as a component of the
Standard & Poor's 500-stock index, its shares are broadly owned by
mutual funds, pension funds and other institutions.
But shareholders have often complained that the spinoff strategy has
fragmented corporate resources, splintered management's attention and
weakened the parent.
After profits fell last year and the stock plummeted, Thermo Electron laid
out a plan to reduce its publicly traded subsidiaries to 16 from 23. The
company recently announced plans to repurchase $100 million in stock,
in addition to $102 million bought back this year and $28 million already
slated for repurchase.
The management, though, is apparently moving too slowly for the
Franklin fund managers. Another disgruntled contingent are investors
who paid $40.625 for Thermo Electron shares in an April 1998 stock
offering. The stock gained 87.5 cents Monday on the New York Stock
Exchange, to close at $18.3125.
"The company's stock performance over the past year -- down 60
percent, versus an increase of 18 percent for its peer group -- reflects a
failure to take full advantage of the rich hidden assets within an overly
complicated corporate structure," wrote David Marcus, a Franklin senior
vice president, and Robert Friedman, chief investment officer for the
Mutual Series funds, in a letter last week to Hatsopoulos.
"We believe this performance is unsatisfactory and should not be allowed
to continue given Thermo's rich management talent, market position and
financial flexibility," read the letter, a copy of which was provided to The
New York Times by a person sympathetic to the fund company's plans.
In an interview Monday, Friedman said that the fund company had been
in touch with Thermo Electron's management and that he expected
discussions to continue. Thermo Electron executives did not return phone
calls seeking comment. A company spokesman, who confirmed receipt
of the letter, said, "Our responsibility is to take into account all
suggestions from shareholders."
Syron, whose rich compensation package at Thermo includes three years
of guaranteed bonuses and has sparked dissension on Internet message
boards, was traveling Monday and unavailable for comment.
Under Price's guidance, the Mutual Series of funds, which includes
Mutual Shares, Mutual Qualified and Mutual Beacon, over the years
bought large stakes and then pressured a company's management for
change. Price, who sold the fund company to Franklin Resources in
1996, remains chairman of the Mutual Series funds but does not
participate in investment decisions.
His efforts often resulted in big profits for the Mutual Series funds, as well
as other shareholders. Winning investments included Storage Technology
and Sears, Roebuck & Co. Sometimes the campaign culminated in the
sale of a company, as with Price's 1995 pursuit of Chase Manhattan,
which a year later merged with Chemical Banking Corp.
But the funds have also had high-profile failures. In late 1996, the funds
bought a large stake in Cityscape Financial, a consumer finance company
that subsequently filed for bankruptcy. And its holdings of Sunbeam
Corp., though acquired for pennies a share when the company was in
bankruptcy proceedings, have lost much of their value in the last two
years amid management turmoil and accounting problems at that
company.
As part of their recommendations for Thermo Electron, the Franklin
managers requested that the company add more independent, outside
directors, preferably executives far younger than the current group of 12
members, half of whom are older than 70. Five directors have served on
the board for more than 20 years, and 10 are company officers or serve
on the board of one of Thermo's subsidiaries.
The fund managers also sought the removal from the board of John
Hatsopoulos, the chairman's brother and the company's former chief
financial officer. In the proxy statement for the upcoming annual meeting,
Thermo Electron states that it has agreed to pay him $500,000 annually
for the next five years as a consultant. In addition, he is to be
renominated to the board this year and again in 2002.
"We find this action to be irresponsible and certainly not in the best
interest of shareholders," the Franklin managers wrote. "He has had
ample time to make his fortune from Thermo Electron."
The Franklin managers also proposed that Thermo Electron further
reduce the number of its public subsidiaries, focusing "on markets where
the company holds a clear competitive advantage and market
dominance," and borrow money to pay for an "aggressive share-buyback
program."
Thermo Electron's financial condition is exactly the type that often attracts
the Franklin Mutual Series funds, which practice the "value" style of
investing, characterized by searching out underpriced assets.
While revenues have continued to rise, profits have fallen, leading the
company's share price to decline sharply. Meanwhile, Thermo Electron's
balance sheet is rich with assets, including $1.5 billion in cash -- the
equivalent of $8.50 a share.
The company also has relatively little long-term debt; it totals $2 billion,
equivalent to a third of total capitalization.
"It is our view that a buyback financed with straight debt would increase
earnings per share as well as return on equity," the fund managers wrote.
Last year, Thermo Electron earned $181.9 million, or $1.07 a share, on
revenue of $3.87 billion. Those earnings were down from $239 million,
or $1.41 a share, the previous year, despite an 8.7 percent increase in
revenues, from $3.56 billion.
The Franklin managers are not the only disgruntled shareholders. A topic
of conversation recently on Internet message boards devoted to Thermo
Electron has been the compensation package for Syron.
In addition to an annual base salary of $800,000, Syron is to receive
guaranteed minimum bonuses in each of his first three years that average
$166,667 a year. He will also receive $200,000 in Thermo Electron
shares in each of the three years and an option to buy 1 million shares
upon taking over as chief executive.
Thermo Electron has also agreed to buy Syron's house in the New York
area for $1.5 million and put it up for sale. The price paid to Syron is
subject to adjustment based on the resale value. |
