Five Affiliated Computer Directors Resign After Clash With Chairman

Five directors at Affiliated Computer Services are stepping down following a vituperative war of words with Darwin Deason, the company's chairman. Deason, incensed over the loss of a $6.2 billion takeover offer from private equity firm Cerberus Capital Management that was withdrawn as a result of the credit crunch, sent the five a letter accusing them of "numerous and egregious breaches of fiduciary duties and other improper conduct" and demanding their immediate resignations (Deason's letter). The directors responded by accusing Deason of "bullying and thuggery," interfering with their mandate, and "[refusing] to understand that the Board's fiduciary duties are to all shareholders -- not just to you" (response letter). Deason's once-cordial relationship with the directors reached a nadir over the Cerberus offer, which included a six-month exclusivity clause between Cerberus and Deason. The board felt the clause would inhibit other bidders from coming forward. "Any suggestion that the Special Committee should have rolled over and simply agreed to your self-interested proposal without having an opportunity to consider alternative transactions would be irresponsible," the directors wrote. "Your self-serving conduct had a material adverse impact on the process of considering strategic alternatives, including your own offer." The directors pointed out that they could "fire you and the entire management team," but prefered to resign out of concern for the company. "In 30 years of trying to track these kind of events, I can't say I've come across such an example" of a clash between board and management, said Purdue management professor John McConnell. ACS shares closed down 3.9% at $48.68 Thursday. In related news, ACS reported fiscal Q1 adjusted non-GAAP EPS of $0.77, shy of analyst expectations of $0.84. Revenue was up 8% to $1.49 billion, in line with expectations.

Sources: Press release calling for directors' resignation, Press release on earnings, Wall Street Journal, Dow Jones, Bloomberg, New York Times, Marketwatch, Reuters
Commentary: Cerberus Pulls Bid for Affiliated Computer -- WSJ • Affiliated Computer Services Receives Buyout Offer from Founder, Cerebus
Stocks to watch: ACS. Competitors: ACN, CSC, EDS
Earnings call transcript: Affiliated Computer Services F1Q08

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