Major PCGS-parent shareholder demands sale of company
Frank Provasek
to the board of directors of Collectors Universe, Inc.:
March 6, 2009
Mr. A. Clinton Allen
Chairman of the Board
Collectors Universe, Inc.
1921 East Alton Avenue
Santa Ana, California 92705
Dear Mr. Allen:
The Shamrock Activist Value Fund (“SAVF”) currently owns 806,005
shares or 8.8% of Collectors Universe, Inc.’s outstanding common stock
and strongly recommends that the Board of Directors immediately begin
the process to sell the company.
We believe the company’s core business of providing value added
authentication services is an attractive business and far more
valuable than implied by its current stock price of $3.37 per share.
Our analysis concludes that the intrinsic value of Collectors Universe
is at least $7 per share. The Board has a fiduciary responsibility to
maximize the value of the company and should attempt to realize that
value through a transaction rather than attempting to provide
oversight of the current flawed strategic direction of the business.
We believe the company is an attractive acquisition candidate and has
a profile that would facilitate a transaction given the significant
amount of cash and cash equivalents on the balance sheet as well as
the company’s ability to generate positive cash flow. Further, there
are significant costs the company is incurring as a public entity
which could be eliminated as a result of a sale.
We certainly applaud and approve the company’s decision announced a
few days ago to exit the business of authenticating and grading
diamonds and colored gemstones. We believe this decision will help
restore a certain amount of shareholder capital that was lost as a
result of the Board’s decision to acquire the business in the first
place.
As reflected in the current $3.37 share price, we do not believe
investors have confidence or expect a return to the company’s initial
public offering price of $21.82 ten years ago. During this period, the
stock has underperformed its peer group and the Russell 2000 by a
daunting amount. In our view, the current stock price is nothing more
than a reflection of the Board’s inability to provide adequate
oversight of the strategic planning process required to create long-
term shareholder value.
The company history over the last few years is a litany of lost
opportunities, frequent changes in strategy, near delisting from
NASDAQ, incurrence of a series of operating losses, and the Board’s
pathetic recent adoption of a poison pill we believe only serves to
entrench management and this Board.
The company’s earnings per share report card is simply dismal – from a
reported $0.27 per share in fiscal 2004 to a loss of $1.85 per share
by fiscal 2008. These earnings results have been well below consensus
analyst forecasts and return on invested capital has repeatedly been
below the company’s cost of capital. We believe that these long-term
performance results reflect inadequate Board oversight, a
fundamentally flawed strategy and a failure to hold management
accountable.
It should be no surprise to Directors that the company’s shareholders
have lost confidence in this Board. Shareholders strongly voiced their
disapproval of Directors at the 2008 annual meeting where the
percentage of withheld votes per director ranged from 32% down to 12%.
It is very unusual for an individual director of a public company to
receive a withhold vote of 5-10%. The recent withhold vote by the
company’s shareholders is clear evidence to us that shareholders have
lost confidence in the Board’s ability to effectively represent the
owners of Collectors Universe.
So what has been this Board’s response to current and past failures?
To adopt a poison pill in 2009 without shareholder approval at a time
when Corporate America is judiciously moving away from this sad
practice.
We urge this Board to take the necessary steps now to create value for
shareholders by selling the business. This initiative needs to be well
underway before the 2009 annual meeting. Creating value for
shareholders is your fiduciary responsibility and we believe a sale of
the company is the best path to achieve that result for shareholders.
Regards,
Dennis A. Johnson, CFA
Managing Director
look@worldnet.att.net don't look
"Frank Provasek" <fr...@frankcoins.com> wrote in message
news:dc8a5a2d-807b-4df4...@h20g2000yqn.googlegroups.com...
March 6, 2009
Dear Mr. Allen:
Regards,
Just wondering what this "poison pill" is this guy keeps mentioning? I have
an idea,but..
Mark Kness
A "poison pill" is a requirement that the board sets so that if there
is a change in control of the company (somebody buys it), that the
buyer has to pay big bucks to various corporate executives/board
members/etc. It might also involve issuing lots of new stock, diluting
the existing shares. Basically, the idea is to make it prohibitively
expensive to buy the company. A great deal for current management,
perhaps not so good for shareholders.