Saturday, April 11, 2009

Shareholder Proposals

During the last several years of following the company, there have been many suggestions/comments by shareholders on how to turn around the company and enhance shareholder value.

The positive actions from the company such as resolving their investigations/filing their quarterly/yearly reports, selling non-core operations (such as PCD), selling investments (Gemdale, Infinera), cutting expenses, settling the convertible bond, controlling executive compensation (Barton's compensation) have been touted by the company as examples of their progress and sense of urgency. All of the above actions, however, were recommended by shareholders long before the actions were initiated or completed. These "common sense" actions that shareholders (with much less information than the company) have proposed shows the company has been several steps behind and really have no sense of urgency.

The current stock price shows that the market feels the company is still very much behind in terms of their cost basis, corporate governance and having a viable business plan to enhance shareholder value.

Here is a list of items to discuss with management and/or file as formal proposals (yes, its that time of the year where the management/board actually have to consider that they are a public company and at least pretend to address shareholder concerns and run through the obligatory procedures to be compliant with the minimum requirements).

Leadership position - Blackmore is the official CEO but has the former CEO/chairman of the board/founder Hong Lu drawing CEO compensation and leading the efforts in China, the company's main market. This is on top of the new China CEO that they hired and other new executives. I have discussed this issue in previous postings in painstaking detail but is a very important point that have major implications in the performance of the company in China and who is really in charge?

Corporate governance - When the company performance/stock has been so bad for so long, you might expect a signficant change to the board or an outright clean up. Nope, instead insiders have continuously been promoted. Ying Wu, the one significant person let go, was probably the best hope for the company in solidifying their China position. Letting Wu go sent a bad signal on UTs committment to the China market. Having a board/leadership team made up of non-Chinese is also illogical. Having no major outside shareholder (someone that actually paid for their stock positions) is also a terrible situation. The company has to include members of the board with significant share holdings for it to have credibility. At the same time, they need to allow the board to come up for re-election EVERY year.

Compensation - Executives are still reaping bonuses like it was 1999. I think it is clear to everyone that compensation packages developed during the bull market days are outdated and again illogical. Any bonus should be tied to real accomplishments above and beyond their normal already compensated duties. Barton was a single example of how ridiculous the compensation had gotten at UTStarcom. Today's situation with Lu is another. Shouldn't compensation that was tied to revenue metrics when UT still had the PCD (that was stupid to begin with) be scaled back. Shouldn't compensation be tied to profitability at the very least? Why should bonuses be tied to normally compensated job functions? Ridiculous. Some have mentioned this has been criminal and clawbacks have to be pursued. I don't disagree but at the bare minumum, the compensation system at UT has to revamped completely.

Expenses - The company has to further cut costs based on their expected realistic revenue/margin stream. At the same time the company talks about their leadership position in technology areas, they cannot justify all the future expenses when their customers are simply not purchasing or regulatory issues are clouded at best. As I said in many recent postings after their last cc, how can the company come into 2009 (with all the uncertainty and environment that goes with 2008/2009) with a budget of losing $150m?

Strategic Options - Share buybacks, M&A, viability, future revenues, expenses, and others are all tied to the strategic options the company has. With the low stock price (compared to current tangible book value/cash, and future expectations), the company should at the very least explore strategic options to enhance shareholder value. It makes absolutely no sense for the company to explore strategic options in 2006 and not do one now (for a ton of reasons). The 2006 strategic options study in 2006 was a joke because of all the issues the company had at the time and was primarily used to set up Wu for failure and buy the current leadership more time.

There are probably a lot more other items that can be proposed but the above are issues the company should address or shareholders should pursue at a minimum.

I will send an email to Peter Blackmore to get more background and his thoughts on the above topics. I'd also like to get shareholder feedback on what other proposals and/or how to go about this current proxy season.

Have a good weekend everyone.