Steel
Partners Comments on Lengthy Record of Value Destruction at
Adaptec under CEO
S. "Sundi" Sundaresh
Asks
Stockholders to Consider Whether Mr. Sundaresh Has Earned the Right to Continue
to Run and Control Adaptec
Urges
Stockholders to Consider Mr. Sundaresh’s Substantial Value Destruction at
Adaptec,
His Long History of Failures Elsewhere and His Empty
Promises
NEW
YORK--(BUSINESS WIRE)--Steel Partners II, L.P. (“Steel Partners”) announced
today that it has issued the following statement to stockholders of Adaptec,
Inc. (“Adaptec” or the “Company”) (NASDAQ:ADPT)
in which it details the record of substantial value destruction at Adaptec under
CEO S. “Sundi” Sundaresh, his long history of failures elsewhere and his empty
promises. Steel
Partners urged stockholders to put aside all of the Company’s propaganda and to
focus squarely on the single most important issue facing stockholders in this
consent solicitation -- whether Mr. Sundaresh has earned the right to continue
to run and control Adaptec.
In
deciding whether Mr. Sundaresh has earned this right, his failed record speaks
for itself.
Over four
years ago, Mr. Sundaresh was brought in to lead a turnaround aimed at refocusing
and rebuilding Adaptec’s business. In that time, the undisputed facts
are:
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The
Company’s Enterprise Value has steeply declined from approximately $200
million to below zero.
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The
Company has spent over $200 million in R&D, yet revenues have sharply
fallen from $344 million in FY 2006 to $115 million in FY 2009, a 67%
decline.
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The
Company has lost money from operations every single year, with $270
million of total losses from operations, approximately $17 million in
losses from the recent Aristos acquisition and $116 million in losses from
prior acquisitions.
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The
stock has underperformed its “peer group index” (as provided by the
Company’s independent financial advisor) by approximately
100%.
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Though
they try, there is absolutely no way the Company can defend Mr. Sundaresh’s
horrendous track record of stockholder value destruction. As Glass Lewis
recently noted: “Overall, we believe the Company’s ever-worsening financial
results and underperformance relative to its peers in various areas warrant a
change to the Company’s current board and/or management team.” Removing Mr.
Sundaresh from the Board is the change that is needed!
In
deciding whether Mr. Sundaresh has any chance of success at Adaptec, you should
be aware of his horrendous history of failures elsewhere:
A look at
Mr. Sundaresh’s resume over the past decade reveals an alarming pattern of
failures and value destruction. Two companies where Mr. Sundaresh previously
served as President and CEO, Jetstream Communications and Candera Inc., were
each forced to shut down as a result of his failed leadership.
Jetstream
Communications
Mr.
Sundaresh served as President and CEO of Jetstream Communications,
Inc. from July 1998 to April 2002. Frighteningly, his time at Jetstream
bears striking similarities to his time at Adaptec. Like Adaptec, Mr. Sundaresh
was brought in as CEO shortly after the company refocused its business
objectives. His biggest concern was “making sure that [Jetstream] was well
capitalized to take advantage of growth ahead” and his stated goals were to
“drive growth” and “expand internationally.” On April 15, 2002, Jetstream
announced it could not continue operating as a stand-alone business.
After three years under Mr. Sundaresh’s leadership, Jetstream lost all the
backing of its venture capitalists and was forced to halt operations. Least
surprising of all, about the time Jetstream’s assets were being sold, Mr.
Sundaresh had already moved on to his next “opportunity,” Candera,
Inc.
Candera
Inc: Different Company, Same Story
On
September 30, 2002, Candera Inc., a developer of next-generation network-based
storage management platforms, appointed Sundaresh as president and chief
executive officer. In November 2003, Mr. Sundaresh stated, “You always want to
align your business plan with your capital....We're putting all our efforts on
two things: market expansion and development of our networking storage
controller and beyond.” Less
than one year later, Candera closed its doors having gone through nearly $60
million in funding with nothing to show for it. According to one analyst,
“the problem was a) they didn't get much sales traction;
and b) they didn't get any major OEM deals. It was really the lack of OEM deals
that killed them.” Yet another seemingly scary similarity to
Adaptec!
Mr.
Sundaresh says his turnaround plan at Adaptec is gaining “traction”. Apparently
his business plan wasn’t able to gain any “traction” at Candera. Why should we
believe this now at Adaptec when there is no evidence to support it? Don’t let Candera happen to
Adaptec!
In
deciding whether you can trust what Mr. Sundaresh is telling you now, you should
consider his past false promises:
On the turnaround
gaining traction: As Adaptec’s revenues are in a free fall, Mr. Sundaresh
is telling you the turnaround is gaining “traction”.
The Harsh
Reality: Mr. Sundaresh’s plan is not gaining any “traction” whatsoever.
In fact, the projections he provided to the Board in August show absolutely zero
growth in revenue through Fiscal Year 2012.
On the Aristos
Logic Acquisition:
Mr. Sundaresh emphatically championed the $38 million Aristos Logic
acquisition and assured our director representatives that the revenue
projections used to justify the acquisition price were “conservative”. Those
revenue projections have since proven to be greatly inflated, indicating either
that management did a poor job in conducting due diligence or in managing
Aristos Logic after it was acquired.
The Harsh
Reality: Like
Glass Lewis, we and all stockholders should be “troubled” by Mr. Sundaresh’s
execution of the Aristos acquisition and “concerned” that the acquisition has
contributed to the Company’s recent losses. The Company paid $38 million for
Aristos and recorded approximately $17 million in losses in connection with it
the very same year in which it was acquired. Do not let Mr. Sundaresh spend your
significant cash unchecked! The Aristos acquisition was approved and conducted
under his direction, his failed diligence and his inflated revenue projections.
Ask yourself why Mr. Sundaresh won’t agree to put significant acquisitions up
for a stockholder vote. We think the answer is clear.
On Returning Cash
to Stockholders: The Company states in its press release that “It is
noteworthy that Steel, in all of its recent public comments about Adaptec, has
not
once called for the return of cash as a dividend to
stockholders.”
The Harsh
Reality: The Legacy Directors of the Company have never returned capital
to the stockholders. Mr. Sundaresh, Mr. Kennedy, and Mr. Van Houweling have been
on the Board since 2005, 2001, and 2002, respectively, and the Company has never
paid a dividend, and the only stock buybacks that were done were at the
recommendation of Mr. Howard and Mr. Quicke. Over this timeframe the Company has
made four acquisitions for over $390 million dollars. Most of this was goodwill
and intangibles that has since been written off.
Steel
Partners agrees with the Company’s independent financial advisor that the $143
million net operating loss carryforwards (NOLs) have significant value, and the
way to create the most value for stockholders is to prudently look for ways to
invest the capital that will utilize this asset.
Additionally,
as we stated in our recent presentation “We will explore ways to return capital
to the Company’s stockholders in a tax-efficient manner, including additional
stock repurchases and or dividends. Additionally, we will recommend to the
Board, as we have done in the past, to aggressively buyback shares if the stock
trades below cash value”.
If
our solicitation is not successful, Mr. Sundaresh will be permitted to continue
his value-destroying plans unimpeded.
Despite
all of his failures, Mr. Sundaresh has now proposed a Board that would be
controlled by himself, Messrs. Kennedy and Van Houweling and three directors
hand-picked by Mr. Sundaresh. There will be zero accountability and oversight at
the Company, which we believe is precisely the scenario that Mr. Sundaresh has
been seeking all along.
Voting to
remove Messrs. Sundaresh and Loarie on the WHITE consent card is the only way to
ensure a more balanced Board that will provide proper oversight and
accountability.
FORTUNATELY,
IT’S NOT TOO LATE TO SAVE ADAPTEC AND YOUR INVESTMENT!
YOU
CANNOT AFFORD TO LEAVE YOUR INVESTMENT IN MR. SUNDARESH’S HANDS.
Steel Partners recommends that all
Adaptec stockholders sign, date and return the WHITE consent card today!
We urge you not to revoke your consent by signing any gold consent revocation
card sent to you by Adaptec or otherwise, and to revoke any consent revocation
you may have already submitted to Adaptec. Follow the simple voting
instructions contained on the WHITE consent card or contact MacKenzie Partners,
Inc. at 800-322-2885 or 212-929-5500.
About
Steel Partners
Steel
Partners Holdings L.P. (“SPH”) is a global diversified holding company that owns
majority-owned subsidiaries, controlled companies and other interests in a
variety of operating assets and businesses. SPH seeks to work with the
management of these companies to increase corporate value over the long term for
all stakeholders and shareholders through growth initiatives, Steel Partners
Operational Excellence programs, the Steel Partners Purchasing Council, balance
sheet improvements and capital allocation policies.
Steel
Partners II LP is a wholly-owned subsidiary of SPH.
Contact:
Steel
Partners
Jason
Booth, 310-941-3616