During the upcoming shareholder meeting, I would like to discuss the letter I am planning to send on behalf of the group. Please read and comment during the shareholder meeting.
Being a long time shareholder, I have seen the tremendous potential of the technology and markets that UTStarcom is involved with. However, this has not translated into a profitable company and has resulted in a collapse in the share price over the last few years. Recently, I have formed an exploratory group to discuss ways to unlock and enhance shareholder value. I realize that this is also the stated goal of management and the Board of Directors. While management has outlined specific turnaround targets and a commitment to profitability by late 2008/early 2009, there are too many unresolved issues and no major results as of yet. From discussions with fellow shareholders (both retail/institution), there are numerous items to be concerned with such as:
-Viability of sustainable profitability in light of the current bloated expense structure.
-The company has not taken concrete steps to defend the stock price.
-Management has continued to increase their own compensation during this time.
-Management has ignored investor suggestions in meeting with shareholders/discussion of alternatives to resolve the convertible bond.
-The company has not given updates on important issues such as the sale of investments, resolution of the convertible bond, information on OEMs, and other cash saving/generating measures that it has discussed over two months ago.
The shareholders appreciate the information provided in the last earnings call but need tangible results. Based on the company’s history of underperformance, weak internal controls, miscellaneous write downs, missing estimates wildly and other catastrophic bad news, it has become necessary to form this exploratory group in order to track management’s progress, to instill a sense of urgency to management and enhance shareholder value.
Currently, the exploratory group has received inquiries from people representing about 20.5 million shares or 18.5% of the total outstanding shares. The fact that a significant number of shareholders have shown interest in a very short period shows the frustration of the shareholders and their demand for management/company to perform. On Saturday, Feb. 2, 2008, we held the group’s first shareholder meeting. The results of the meeting were to develop the group’s initiatives and plan a path forward.
The goal of this group is to simply to unlock/enhance shareholder value. There are two basic plans or phases to achieve this goal.
“Plan A”: Pro-actively “support” and monitor the management during this turnaround phase. This involves:
· Organizing and maintaining retail/institutional shareholder base to discuss the progress of the company.
· Communicating as a group with management through emails.
· Meeting with management (as needed) to discuss various issues such as compensation, operating expenses, profitability and other strategic initiatives.
· Using the resources of the group to disseminate information to the group’s members and other (existing/potential) shareholders. (via blog/email base, letter campaign to other news organizations such as Businessweek, Lightreading, gathering of information in China/other parts of the world)
· Reinforce sense of urgency to management/BOD by being prepared to implement “Plan B” quickly.
“Plan B”: Seek change in management and/or a sale of the company. This involves:
· Meeting with management/BOD to discuss sale of company.
· Letter campaign to other institutional shareholders to join this group (activist group at this point)
· Proposing management changes and putting up slate of directors that will make significant operational changes or seek a sale of the company.
· Court potential suitors for the company.
The exploratory group is in process of filing paperwork and formalizing the group to be in proper compliance with SEC rules on disclosure. It is also actively courting the other hundred or so institutional shareholders that may wish to join the group.
For the upcoming earnings call, the group expects the management to resolve the convertible bond in a way that benefits the existing shareholders (no dilution) as it has mentioned previously, impose strict expense controls/discipline, significantly improve cash generation/reduce cash burn, and accelerate the timeframe for profitability. The current hope of the exploratory group is that the initiatives under Plan A will be sufficient to achieve its goal. To that end we would like to meet with management after this upcoming earnings call to discuss specific issues that will lead to enhanced shareholder value.
We look forward to hearing from management and meeting with them in Alameda after the earnings call and quarterly filings are completed.