In an amended 13D filing on Electro Scientific Industries Inc. (NASDAQ:ESIO) 11.6% holder Nierenberg Investment Management comments on their proposal that the company put excess cash to work to maximize shareholder value. The firm also commented on yesterday's proposal from ESIO's largest shareholder, Third Avenue Management LLC, which was advocating a combined share repurchase and dividend program.
From the 'Purpose of Transaction' section of the filing:
Our proposal that ESIO put excess cash to work to maximize shareholder value seems to be progressing. We cite three recent developments to illustrate our point.
First, and foremost, we thank ESIO's management and Board of Directors for their constructive and timely announcement yesterday reiterating their commitment to enhancing shareholder value. We know that ESIO is working to prepare its substantive response to our suggestions. As current and former public company board members ourselves, we appreciate that doing this the right way takes time. We are prepared to be patient while good people do the right thing.
Second, we note the Schedule 13D filed earlier today by ESIO's largest shareholder, Third Avenue Management LLC. We particularly note the thoughtful letter from Third Avenue's Co-Chief Investment Officer, Curtis R. Jensen, to ESIO's CEO, Nick Konidaris, advocating a combined share repurchase and dividend program to improve ESIO's return on equity (ROE) and tangibly demonstrate the company's commitment to maximizing shareholder value. Though Third Avenue's suggestions differ from those in our last 13D, we think they have improved our original ideas.
Third, we note with enthusiasm today's announcement that United Microelectronics Corp. (NYSE:UMC), which is Taiwan's second largest contract chip manufacturer, will use its excess cash to retire fully 30% of its outstanding shares and pay shareholders a one time cash dividend. Taiwanese technology companies are showing American technology companies how to use cash to build shareholder value.
In conclusion, we would like to update the Schedule 13D to disclose that in two separate recent conversations we have told ESIO's CEO and Board Chairman that we do not require the company to use a one time cash dividend as the only or principal way to return excess cash to the shareholders. As Mr. Jensen's letter points out so powerfully, there are other perfectly acceptable ways to use excess cash to build shareholder value. If, for example, ESIO's Board and advisors were to conclude that the best way to improve ROE were to repurchase shares, we could support that decision with just two conditions. First, we would want the size of the repurchase program to be large enough that it would meaningfully boost both ROE and earnings per share, like we believe UMC's program will. And, second, we would like ESIO to make a continuing commitment to use excess cash flow to repurchase a significant percentage of shares on an ongoing basis. To illustrate the size of programs which could be acceptable to us, we could support a one time repurchase of six million shares, which is over 20% of the outstanding share count, succeeded by a continuing program to repurchase at least one million more shares annually.
The previous statements by the Reporting Persons to their views regarding their investment in ESIO represent solely their own analyses and judgments, based on publicly-available information and their own internal evaluation thereof. Those statements are not intended, and should not be relied on, as investment advice to any other investor or prospective investor. To the extent those statements reflect assessments of possible future developments, those assessments are inherently subject to the uncertainties associated with all assessments of future events; actual developments may materially differ as a result of circumstances affecting ESIO and/or extrinsic factors such as developments in the company's industry and the economic environment. The Reporting Persons reserve the right to change their internal evaluation of this investment in the future , as well as to increase or decrease their investment depending on their evaluation, without further amending their Schedule 13D except as required by applicable rules.