Activist investor Millbrook Capital Management, also know as MMI Investments, received criticism last week for the slate of “independent” directors it has nominated to the board of Chemed Corp (NYSE:CHE). In a letter to shareholders on Wednesday, Chemed Corp’s CEO Kevin McNamara and Chairman George Walsh urged shareholders to support the company’s slate of board nominees at the Annual Meeting on the 29th and ignore the self-serving and value destroying agenda of Millbrook. Millbrook is a top holder of Chemed, holding over 3.5% of shares out as of 3/31/09.
The Cincinnati headquartered company operates two wholly owned subsidiaries with highly divergent business models. The subsidiaries are end-of-life hospice care provider VITAS Healthcare and provider of plumbing and drain cleaning services Roto-Rooter. MMI has suggested that the company needs to spilt up the two businesses. The board of Chemed believes that
MMI has one, and only one, idea for (investor’s) Company: to separate immediately Chemed’s businesses – VITAS and Roto-Rooter. We believe that this idea is extremely short-sighted and threatens the value of your investment.
The letter went on to criticize the backgrounds of Millbrook’s nominees. The letter stated that they
believe that MMI’s nominees…bring limited relevant experience to the Board. For example: Of MMI’s five nominees, only one has any professional experience in healthcare and only one has any professional experience in residential and commercial cleaning services. In contrast to the more than 141% increase in value (the current) Board has delivered since the announcement of Chemed’s acquisition of VITAS in December 2003, a compounded annual growth rate of nearly 18%, the only three MMI nominees with prior public company board experience have overseen significant value destruction.(which include) The stock price of Unisys Corporation (NYSE:UIS) has decreased approximately 69% since Clay B. Lifflander began serving on its board of directors; the stock price of iSECUREtrac has decreased approximately 85% since Peter A. Michel began serving on its board of directors; and the stock price of The Brink’s Company decreased approximately 29% during the time Carroll R. Wetzel, Jr. served on its board of directors.
Chemed’s management also included the following excerpt in their letter:
We believe that MMI has resorted to half truths and mischaracterizations because it cannot substantiate its assertion that a separation of Chemed’s businesses at this time would create value for stockholders. Consider the following: ( 1 ) MMI has attempted to impugn the integrity and independence of your Board’s directors by suggestively pointing to directorships and former employment relationships of certain Board members, despite the fact that none of the independent directors has been an employee or a director of any Chemed affiliate for a minimum of nearly ten years. The fact is that nine of the Board’s 11 nominees are independent under the director-independence requirements of the New York Stock Exchange (the “NYSE”) and the Securities and Exchange Commission (the “SEC”). Accordingly, the Board’s nominees are in full compliance with both the letter and the spirit of the NYSE and SEC requirements for director independence. ( 2 ) M... insinuations about your management’s views on a potential separation of Chemed’s businesses appear to be deliberate attempts to mislead stockholders. The reality is that your management team has not only consistently stated that it would consider a separation transaction when market and economic conditions are right, but it has in fact already positioned Chemed to separate its businesses at such time. ( 3 ) MMI has distorted the facts regarding its investment in Chemed, falsely stating that it has held Chemed stock for over two years, when MMI has really been a Chemed stockholder for only 13 months. In addition, you should know that MMI sold more than 22% of its Chemed holdings in December 2008, which we believe calls into question its so-called “long-term” interest in the Company.
Two days after Chemed sent its letter, Millbrook filed its 3/31/08 holdings,which showed that the firm had slightly increased its holdings over the first quarter by purchasing 3,817 shares of the company’s common stock. Millbrook's SEC filing also revealed that it had added 201,836 shares of Commscope Inc (CTV), bringing its total position to 1,500,000 shares ($17 million) or approximately 2.1% of CTV’s shares out. The only other companies held in Millbrook’s 3/31/09 portfolio were: Brinks Home Security Holdings (CFL) $46.2 million, Brinks Co (NYSE:BCO) $41 million, and Unisys Corp (UIS) $13 million.