A California activist investor upped its pressure on Volcano (NSDQ:VOLC) yesterday, scolding the company for its $115 million AtheroMed acquisition and missing chances to sell itself at a premium, and threatening a move to oust chairman Ron Matricaria and CEO Scott Huennekens.
San Diego-based Volcano makes precision-guided medical devices, including intravascular ultrasound systems to gauge potential blockages in blood vessels, and functional measurement guidewires to analyze pressure and flow parameters from inside a vessel.
Engaged Capital, which bought up a 5.1% stake in San Diego-based Volcano almost a year ago and immediately began agitating for changes at the company, also took Volcano management to task for failing to rein in expenses, both on internal projects it describes as "fruitless" and on senior executives’ compensation.
The AtheroMed acquisition added a system to clear plaque from diseased arteries below the knee to Volcano’s portfolio. But to Welling it’s a case of Volcano "swinging for the fences," he wrote, alleging that the deal "carries a high degree of stand-alone risk as a pre-commercial technology outside the company’s core competence" and "adds significant risk to the company’s capital structure."
"Current leadership is rightly credited with guiding VOLC from a development stage medical device company with no revenue and a handful of employees to a global corporation with market-leading technologies in the IVUS and FM markets," Welling wrote. "However, despite these significant early accomplishments, VOLC shareholders have suffered through a long period of material underperformance for which this board and management team must be held accountable.
"It is abundantly clear that, given the myriad of strategic, operational, and financial failures, the current Board and management team are no longer the appropriate custodians of VOLC’s assets. Therefore, we insist the board immediately add shareholder representatives and begin a parallel process to evaluate strategic alternatives and conduct a CEO search for candidates with a history of driving profitability and extracting value from medical device assets in the event VOLC remains an independent company," he wrote. "Should the board once again fail to uphold its fiduciary responsibilities, shareholders will have no choice but to replace chairman Ron Matricaria, CEO Scott Huennekens, and Lesley Howe, as directors of the company at the 2015 annual meeting."
Volcano said that it "will carefully review and consider the ideas presented in the letter and continue its dialogue with Engaged Capital" and highlighted the AtheroMed deal as a key part of its strategy to improve top-line growth. The company also said it would also benefit in the planned divestment of its Billerica, Mass.-based Axsun Technologies swept laser engine subsidiary.
The company defended its use of capital, which has included a $200 million repurchase program. It also noted the settlement of pending litigation with St. Jude Medical (NYSE:STJ), which it said will cut its legal expenses.
As of April, affiliates of Kansas-based Waddell & Reed Financial had the largest portfolio of Volcano stock at 10.9% of all shares outstanding, followed by Fidelity Investments parent FMR in Boston at 9.9%. As a group, management held 3.6% of shares.
Volcano reported a $300,000 profit in the 2nd quarter, an improvement from its $2.4 million loss a year ago. Shares were down slightly after the opening bell Tuesday to just under $11, less than half their level at the start of 2014.