Ramius
Sends Letter to Agilysys Shareholders
Thursday February
26, 8:05 am ET
Believes
Current Board Has Overseen The Company Through A Period Of Significant
Shareholder Value Destruction
Urges
Shareholders to Elect New, Independent Director Nominees That Have The
Experience Necessary To Oversee A Turnaround Of Agilysys
NEW
YORK--(BUSINESS WIRE)--RCG Starboard Advisors, LLC, together with Ramius LLC and
its other affiliates (collectively, the “Ramius Group” or “Ramius”), today
announced that it has sent a letter to the shareholders of Agilysys, Inc.
(“Agilysys” or the “Company”) (NasdaqGS: AGYS
- News)
urging shareholders to elect new, independent director nominees at the Company’s
2008 Annual Meeting of Shareholders on March 26, 2009. On June 20, 2008, Ramius
nominated three highly qualified director candidates, John Mutch, Steve
Tepedino, and James Zierick. Ramius, the second largest shareholder of the
Company, is the beneficial owner of approximately 13.0% of the Company’s
outstanding common shares.
Ramius
Partner Mark Mitchell stated, “The current Board of Agilysys must be held
accountable for its ineffective oversight of a misguided, poorly executed
acquisition strategy and extremely weak operating results which have resulted in
significant destruction of shareholder value. Management and the Board have had
ample opportunity to address the key strategic and operational issues that have
affected Agilysys’ performance, but have repeatedly failed to do so.
Shareholders cannot afford to let the Company continue to make mistakes and
destroy shareholder value.”
Added
Mitchell, “Immediate and substantial change at the Board level is imperative if
a turnaround of Agilysys is to succeed. Our independent, knowledgeable, and
highly experienced nominees will work diligently to significantly improve the
Company’s businesses and create substantial value for all
shareholders.”
The
full text of the letter follows:
February
26, 2009
Dear
Fellow Agilysys Shareholder:
CHANGE
IS NEEDED NOW – VOTE FOR RAMIUS’ HIGHLY-QUALIFIED, INDEPENDENT NOMINEES WHO ARE
DETERMINED TO SIGNIFICANTLY IMPROVE SHAREHOLDER VALUE
The
RCG Starboard Advisors, LLC, together with Ramius LLC and its other
affiliates (collectively, the “Ramius Group” or “Ramius”), currently owns 13.0%
of the outstanding common stock of Agilysys, Inc. (“Agilysys” or “the Company”).
We are the Company’s second largest shareholder. We are seeking your support to
elect independent, experienced and highly qualified nominees -- John Mutch,
Steve Tepedino, and James Zierick – to the Agilysys Board of Directors at the
Company’s 2008 Annual Meeting. The nominees are uniquely qualified and have
extensive experience in the Value-Added Reselling (“VAR”), distribution, and
software industries.
Please
support our efforts by voting your shares by telephone or Internet, following
the instructions on the enclosed GOLD proxy card, or by
signing, dating and returning your GOLD proxy in the envelope
provided.
The
enclosed materials outline our views regarding Agilysys and the reasons you
should help elect new, highly qualified, and independent director nominees at
the Company’s substantially delayed 2008 Annual Meeting. We believe the current
Board has consistently failed to represent the best interests of Agilysys
shareholders and is responsible for the significant deterioration in shareholder
value. A reconstituted Board is vital to the Company’s futures.
We are not seeking control of the
Company. Rather, we are seeking to improve the quality of the
Board by electing qualified individuals who will bring a fresh, independent
perspective in addressing Agilysys’ challenges and opportunities to create a
more transparent, effective, and accountable
Board. The decisions made, and actions taken, by the current Board do not give
us any confidence that they have the best interests of all shareholders in
mind.
THE
CURRENT BOARD HAS OVERSEEN A PERIOD OF SIGNIFICANT SHAREHOLDER VALUE
DESTRUCTION
Under the direction
of the current Board, Agilysys shareholders have suffered massive declines in
shareholder value. We believe management and the current Board have overpaid for
acquisitions, have failed to integrate those acquisitions properly, and have
continuously
supported an inefficient cost structure that has rewarded senior management and
generated margins significantly below the Company’s peers. In our opinion, this
unacceptable performance has resulted in significant erosion of shareholder
value.
Over the past one, three and five
years, Agilysys stock has significantly underperformed the broader benchmarks by
a large margin and currently trades at close to cash value. In other words, shareholders are
currently attributing little to no value for the operational
businesses.
1,
3, and 5-Year Stock Price Performance Through February 25, 2009
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Peer
Group
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(51.0%)
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(45.3%)
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(43.3%)
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Russell
2000
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Agilysys
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(70.8%)
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(75.7%)
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(72.5%)
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Peers
include ARW, AVT, IM, NSIT, PCCC, SCSC, SNX, TECD
THE
COMPANY HAS A MISERABLE TRACK RECORD OF ACQUISITIONS
SINCE 2003 AGILYSYS HAS
SPENT $410 MILLION ON NINE ACQUISITIONS – YET THE CURRENT ENTERPRISE
VALUE IS ONLY $9.4 MILLION
It
should be apparent to all shareholders that the current Board has
“rubber-stamped” a misguided acquisition strategy that has led to management
overpaying for acquisitions and failing to integrate them properly. The Board’s
failure to effectively oversee this ill-conceived and disastrously executed
acquisition strategy, in our opinion, is the primary contributor to the
significant erosion in value Agilysys shareholders have suffered.
Since
September 2003, the current Board has approved nine acquisitions for a
total value of $410 million. This compares to the Company’s current enterprise
value of just $9.4 million. Five of these acquisitions, with an approximate
aggregate value of $279 million have
occurred since the beginning of calendar year 2007, into the headwind of
deteriorating economic conditions and apparently without any understanding of
the impact on the industries the Company operates
in.
In
light of these ill-conceived and poorly executed acquisitions, Agilysys’
enterprise value has declined by $262.7 million. In other words, 96.5% of Agilysys’ shareholder value has been
destroyed.
Agilysys’ self
proclaimed “transformational” acquisition strategy has left shareholders far
worse off than if
the Company had simply returned the cash to
shareholders.
AGILYSYS
HAS FAILED TO MANAGE ITS BUSINESSES EFFECTIVELY – RESULTING IN MARGINS
SIGNIFICANTLY BELOW PEERS
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The
Hospitality Solutions Group (“HSG”) generated an adjusted segment LTM
EBITDA margin of 6.2% versus its closest peer, MICROS Systems, Inc., which
generated an LTM EBITDA margin of 18.1%.1
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The
Technology Solutions Group (“TSG”) generated an adjusted segment LTM
EBITDA margin of 1.7% versus its closest peer, Forsyth Technology, Inc.,
which generated a fiscal year 2007 EBITDA margin of 7.9%.2
3
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Total
consolidated Company LTM EBITDA margin was only 2.3%. In comparison, Arrow
and Avnet, which operate as distributors without the benefit of
significant high margin value added services, generated EBITDA margins of
4.0% and 4.2%, respectively.
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These
results are unacceptable, especially when considering that two of the VAR
businesses which Agilysys acquired - Innovativ and Stack - were operating at
significantly higher EBITDA margins as standalone companies.
MANAGEMENT
AND THE BOARD OF AGILYSYS HAVE HAD AMPLE OPPORTUNITY AND HAVE FAILED TO
ADEQUATELY ADDRESS THE COMPANY’S KEY STRATEGIC AND OPERATIONAL
ISSUES
The Company’s CEO,
Martin Ellis, has been with Agilysys for five years, including three years as a
CFO. The Chairman of the Board, Keith Kolerus, has been a director of the
Company since 1998. Two of the Company’s directors, Charles Christ and Thomas
Commes, have been on the Board since 1997 and 1999, respectively. Two additional
directors, Robert Lauer and Robert McCreary, have been on the Board since 2001.
Overall, six of the Company’s nine directors, not including Mr. Ellis, have been
on the Board since at least 2002. Over
this time period, Agilysys has significantly underperformed its peers,
drastically overpaid for acquisitions, failed to timely file its financial
statements and suffered massive losses in shareholder value. It is
time for shareholders to hold this Board
accountable!
Despite
the disastrous performance, the Company allowed its former Chairman and
CEO, Arthur Rhein, to retire and agreed to pay him severance for a period of two
years and to continue Mr. Rhein’s group benefits, executive benefits and
most perquisites for a period of two years. The Company also maintains similar
lucrative severance and “change of control” arrangements with its executive
officers. We believe that executive compensation should be linked to value
delivered to shareholders and that a public company’s compensation programs
should be designed to provide a correlation between the financial success of
management and the interests of the stockholders. We see no correlation between
Agilysys’ poor financial performance and the compensation of its executive
officers.
SHAREHOLDERS
CANNOT AFFORD TO LET THE COMPANY CONTINUE TO MAKE MISTAKES AND DESTROY
SHAREHOLDER VALUE
Agilysys
would like you to believe that it is finally taking actions to reduce the
Company’s cost structure. However, even when including these future “cost cuts,”
the Company still only expects to earn $24 million in EBITDA for fiscal year
2009. This implies an EBITDA margin of just 3.0%, using the low end of the
Company’s former revenue guidance, and still significantly below its peer
companies.
As
part of this cost cutting strategy, Agilysys cites the closure of its
corporate offices in Boca Raton, Florida. However, what the Company fails to
tell you is that three years ago, the current Board approved the relocation of
the corporate executive offices from Cleveland, Ohio (where the Company’s
principal
businesses are located), to Boca Raton, Florida, one of the most expensive
locations in a state where Agilysys has no business purpose. We believe there was
absolutely no justification for this move, and it is just another example of the
Company’s egregious
spending and disregard for shareholders best
interests.
DO
YOU WANT THE SAME DIRECTORS WHO HAVE FAILED TIME AND TIME AGAIN TO EFFECTIVELY
OVERSEE AGILYSYS?
CAN
YOU REALLY TRUST THEM TO CORRECT THEIR OWN MISTAKES?
You have the choice
of either supporting the current Board with its record of overseeing a failed
strategy and the destruction of significant shareholder value or you can support
new, highly qualified, independent nominees with a fresh perspective who will
work diligently to ensure that the Company is being run solely in the best
interest of all shareholders. We think the answer is
clear.
THE
RAMIUS NOMINEES HAVE THE EXPERIENCE AND COMMITMENT REQUIRED TO OVERSEE A
TURNAROUND AT AGILYSYS
The
three independent nominees -- Steve Tepedino, John Mutch and James Zierick --
are each uniquely qualified to help develop and execute a successful turnaround
of Agilysys. The nominees have extensive operational experience in the VAR,
distribution and software industries and have successfully navigated turnarounds
of technology companies throughout their careers. Additionally, the nominees
approach the situation with an open mind, a fresh perspective, and a commitment
to working for the best interests of all shareholders.
Steve Tepedino has an
extensive background in the VAR and distribution industries that spans 25 years.
He has a record of excellent performance during his 22 years at Avnet, Inc., and
since May 2006 has successfully built a management consulting firm, Channel
Savvy, specializing in the VAR industry. Contrary to allegations by Agilysys,
Mr. Tepedino is not conflicted.
Channel
Savvy is a management consulting firm serving technology vendors and their
channel partners. The company uses its own developed consulting system – Channel
Optimization – for vendors and/or distributors to deploy to their VAR
partners. Channel Optimization is designed to work with the entire VAR channel
that a vendor or distributor relies on to bring its products and services to
market.
The
model works by VARs sharing information about how they run their business with a
macro view of metrics, methods and business models. All information that is
requested is comparable to information disclosed by public companies. This
information is then contrasted against a best practice model to
determine the areas where a VAR is performing well, and areas that would benefit
from improvement. These VARs are then brought together for a 2 ½ day educational
seminar on best practices in the VAR industry. During the seminar, VARs learn
ways to improve the performance of their businesses.
Mr. Tepedino’s expertise in the channel and VAR
businesses in particular will provide valuable insight to the Board of Agilysys
as the Company attempts to achieve best practice performance levels and restore
investor
confidence.
Do
not be misled by Agilysys’ attempt to distract you from their record of failure
by alleging that Mr. Tepedino is President of a software company that is related
to a competitor of Agilysys. Mr. Tepedino is President of VBS Software, a
business software ERP (Enterprise Resource Planning) company, serving the
VAR industry. The holding company that owns VBS Software, SIS Holdings, also
owns another company, SIS Information Systems, which competes against Agilysys.
VBS Software and SIS Information Systems are completely separate companies and
Mr. Tepedino has absolutely nothing to do with the operations or management of
SIS Information Systems.
Mr.
Tepedino has no conflict of interest with Agilysys and is a highly qualified
candidate who would add significant value to the Board of Agilysys.
OVER
85% OF AGILYSYS’ REVENUE COMES FROM VAR BUSINESSES
IT
IS IMPERATIVE FOR THE COMPANY TO HAVE A QUALIFIED VAR EXPERT ON THE
BOARD
We have had numerous
discussions with the Company about the need for a qualified
VAR expert to serve on the Board. Since over 85% of Agilysys’ revenue comes from
VAR businesses and in light of the Company’s poor operating history in that
area, it would seem logical that the Board should have directors with relevant
experience in the VAR industry. Yet, for over eight months, the Company
has done nothing to address this obvious void on its Board. At this juncture, we believe it is
critical for shareholders to elect a highly qualified VAR expert to the
Board.
We do
not believe this Board wants a director who has a deep understanding of
the VAR market since anyone with such a background would not tolerate the
Company’s lower operating margins or have approved such ill-conceived
acquisitions.
In
addition to the strong qualifications of Mr. Tepedino, our other two nominees
are also highly qualified and have had extremely successful careers in the
software and technology industries.
John Mutch is a seasoned
turnaround, operating, and restructuring expert in the technology industry with
more than 20 years of experience. He served as President and Chief Executive
Officer of Peregrine Systems Inc, a global enterprise software provider, and
successfully restructured it, culminating in the sale of Peregrine to
Hewlett-Packard in December 2005. Mr. Mutch also served as Chief Executive
Officer of HNC Software Inc, an enterprise analytics software provider, from
December 1999 through August 2002, until it was sold to Fair Isaac
Corporation.
James Zierick brings an
extensive background with more than 25 years in the technology industry. Mr.
Zierick has had a successful history of running, overseeing and consulting for
numerous companies throughout his career. Mr. Zierick is currently the Chief
Executive Officer of Nirvanix Inc., a venture funded cloud storage company.
Prior to that, Mr. Zierick was the interim Chief Executive Officer of Aspyra,
Inc., a healthcare information technology and service provider. Mr. Zierick also
served as Chief Executive Officer of LogicalApps, Inc, a provider of embedded
controls
software for enterprise applications and was a Principal at McKinsey &
Company, where he helped lead the company’s Southern California technology and
operational effectiveness practices.
RAMIUS
HAS ACTED IN GOOD FAITH TO TRY TO ACHIEVE A MUTUALLY AGREEABLE SETTLEMENT WITH
AGILYSYS
Contrary
to what Agilysys would like shareholders to believe, Ramius has attempted to
work cooperatively with the Company to come to a mutually agreeable settlement
in order to avoid a proxy contest. Over the past several months, Ramius has made
several settlement proposals to Agilysys. In the spirit of working
cooperatively, we recently proposed an alternative settlement to the Company to
attempt to address their concerns. This settlement proposal
included:
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The
immediate appointment to the Board of Mr. Mutch and Mr. Zierick, the two
nominees that the Company previously characterized as “qualified and
acceptable”, and
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The
nomination for election to the Board at the 2009 annual meeting of a third
yet-to-be-identified Ramius nominee with specific expertise in the VAR and
distribution channels.
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We believe this
settlement proposal achieves the goal of improving the composition of the Board
with relevant industry expertise and satisfies the Company’s concerns regarding
Mr. Tepedino.
Unfortunately, the Company once again hastily turned down this settlement
offer.
AGILYSYS
NEEDS A NEWLY CONSTITUTED BOARD WITH A FRESH PERSPECTIVE DETERMINED TO RUN THE
COMPANY FOR THE BENEFIT OF ALL SHAREHOLDERS
We firmly believe there is a substantial opportunity
to create value at Agilysys. Under the direction of the current Board, Agilysys
shareholders have suffered massive declines in shareholder value. The
independent, knowledgeable, and highly experienced nominees will work diligently
to significantly
improve the Company’s businesses and create substantial value for all
shareholders. By
electing Ramius’ highly-qualified, independent nominees, you have the
opportunity to bring true accountability to the Board of Agilysys. We believe their election will send a
strong message to management and the remaining members of the Board that
shareholders demand that the Board represent their best
interests.
VOTE
FOR CHANGE AT AGILYSYS -- PLEASE SIGN, DATE AND MAIL THE ENCLOSED GOLD PROXY
CARD TODAY
Best
Regards,
/s/
Mark
R. Mitchell
Partner,
Ramius LLC
About
Ramius LLC
Ramius
LLC is a registered investment advisor that manages assets in a variety of
alternative investment strategies. Ramius LLC is headquartered in New York with
offices located in London, Tokyo, Hong Kong, Munich, and Vienna.
CERTAIN
INFORMATION CONCERNING PARTICIPANTS
Ramius
Value and Opportunity Master Fund Ltd (“Value and Opportunity Master Fund”),
together with the other participants named herein, has made a definitive filing
with the Securities and Exchange Commission (“SEC”) of a proxy statement and
accompanying GOLD proxy card to be used to solicit votes for the election of a
slate of director nominees at the 2008 annual meeting of shareholders of
Agilysys, Inc., an Ohio corporation (the “Company”).
VALUE
AND OPPORTUNITY MASTER FUND ADVISES ALL SHAREHOLDERS OF THE COMPANY TO READ THE
PROXY STATEMENT AND OTHER PROXY MATERIALS BECAUSE THEY CONTAIN IMPORTANT
INFORMATION. SUCH PROXY MATERIALS WILL BE AVAILABLE AT NO CHARGE ON THE SEC’S
WEB SITE AT
HTTP://WWW.SEC.GOV. IN
ADDITION, THE PARTICIPANTS IN THIS PROXY SOLICITATION WILL PROVIDE COPIES
OF THE PROXY STATEMENT WITHOUT CHARGE UPON REQUEST. REQUESTS FOR COPIES SHOULD
BE DIRECTED TO THE PARTICIPANTS’ PROXY SOLICITOR, INNISFREE M&A
INCORPORATED, AT ITS TOLL-FREE NUMBER: (888) 750-5185.
The
participants in the proxy solicitation are Value and Opportunity Master
Fund, Parche, LLC (“Parche”), Ramius Enterprise Master Fund Ltd (“Enterprise
Master Fund”), RCG PB, Ltd. (“RCG PB”), Ramius Advisors, LLC (“Ramius
Advisors”), RCG Starboard Advisors, LLC (“RCG Starboard Advisors”), Ramius LLC
(“Ramius”), C4S & Co., L.L.C. (“C4S”), Peter A. Cohen (“Mr. Cohen”), Morgan
B. Stark (“Mr. Stark”), Thomas W. Strauss (“Mr. Strauss”), Jeffrey M. Solomon
(“Mr. Solomon”), John Mutch (“Mr. Mutch”), Steve Tepedino (“Mr. Tepedino”) and
James Zierick (“Mr. Zierick”).
As
of the date of this filing, Value and Opportunity Master Fund beneficially owns
2,342,130 shares of Common Stock of the Company. Parche beneficially owns
323,761 shares of Common Stock of the Company. RCG PB beneficially owns 277,103
shares of Common Stock of the Company. RCG Starboard Advisors, as the investment
manager of Value and Opportunity Master Fund and the managing member of Parche,
is deemed to be the beneficial owner of the 2,342,130 shares of Common Stock of
the Company owned by Value and Opportunity Master Fund and the 323,761 shares of
Common Stock of the Company owned by Parche. Enterprise Master Fund, as the sole
non-managing member of Parche and owner of all economic interests therein, is
deemed to be the beneficial owner of the 323,761 shares of Common Stock of the
Company owned by Parche. Ramius Advisors, as the investment advisor of each of
Enterprise Master Fund and RCG PB, is deemed to be the beneficial owner of the
323,761 shares of Common Stock of the Company owned by Parche and the 277,103
shares of Common Stock of the Company owned by RCG PB. Ramius, as the sole
member of each of RCG Starboard Advisors and Ramius Advisors, C4S, as the
managing member of Ramius, and Messrs. Cohen, Stark, Strauss and Solomon, as the
managing members of C4S, are each deemed to be the beneficial owners of the
2,342,130 shares of Common Stock of the Company owned by Value and Opportunity
Master Fund, the 323,761 shares of Common Stock of the Company owned by Parche
and the 277,103 shares of Common Stock of the Company owned by RCG PB. Messrs.
Cohen, Stark, Strauss and Solomon share voting and dispositive power with
respect to the shares of Common Stock of the Company owned by Value and
Opportunity Master Fund, Parche and RCG PB by virtue of their shared authority
to vote and dispose of such shares of Common Stock. As of the date of this
filing, Mr. Mutch does not beneficially own any shares of Common Stock of the
Company. As of the date of this filing, Mr. Tepedino beneficially owns 10,670
shares of Common Stock of the Company. As of the date of this filing, Mr.
Zierick beneficially owns 775 shares of Common Stock of the
Company.
As
members of a “group” for the purposes of Rule 13d-5(b)(1) of the Securities
Exchange Act of 1934, as amended, each of the participants in this proxy
solicitation is deemed to beneficially own the shares of Common Stock of the
Company beneficially owned in the aggregate by the other participants. Each of
the participants in this proxy solicitation disclaims beneficial ownership of
such shares of Common Stock except to the extent of his or its pecuniary
interest therein.
1 HSG
and TSG reported segment LTM EBITDA margins were 10.0% and 6.2%, respectively.
Both segments’ LTM EBITDA margins have been adjusted to include corporate
overhead expense to be consistent with the EBITDA margins reported by
MICROS and Forsythe. This adjustment was done on a percentage of revenue basis.
Total LTM reported unallocated corporate overhead expense was $41 million. HSG
was allocated 12% of corporate overhead expense, or $5 million, and TSG was
allocated 70% of corporate overhead expense, or $28.6 million, based on each
segments percentage of total revenue.
2
Source: Forsythe Annual Report 2007; Forsythe is a private company and therefore
LTM data is not available; Forsythe's fiscal year ends December
31st.
3
TSG’s fiscal year 2007 and 2008 adjusted EBITDA margins were -0.9% and 0.0%
respectively. The operating margins for the segment have been adjusted to
include corporate overhead expense. Please refer to Footnote 1 above for the
calculation. TSG’s fiscal year 2007 and 2008 EBITDA margins, not adjusted for
corporate overhead, were 5.1% and 5.0%, respectively.
Contact:
Media
& Shareholders:
Sard
Verbinnen & Co.
Dan
Gagnier or Renée Soto, 212-687-8080