Investors at Oracle Partners revived their complaints about management at Biolase (NSDQ:BIOL), citing "dismal" 1st quarter earnings that the activist group attributed to "improper Board manipulations" by Biolase chairman & CEO Federico Pignatelli.
Biolase responded with its own public statement, calling Oracle’s claims "absurd" and chalking up the firm’s actions as illegal attempts to control the board and eventually take over the company entirely.
Biolase has for several months been enmeshed in a proxy war with activist investor Oracle Partners, which owns a 16.4% stake in the dental devices firm. Earlier this year Oracle filed a lawsuit accusing Pignatelli of manipulating Biolase’s board, seeking court-mandated changes to directors as well as a temporary restraining order requiring that board members seek approval before taking any actions.
A Delaware state judge constrained Biolase’s board of directors to 4 members on a "status quo" basis and restrained board activity, pending the outcome of the Oracle lawsuit. The ruling excluded Oracle partner Eric Varma from sitting on the board, but let Oracle-backed Frederic Moll keep his existing seat.
Pignatelli said in prepared marks this month that Moll was aiding Oracle in its attempt to illegally gain control of the board.
"I believe that once they had control of our Board, their plan was to push through a financing that would be highly dilutive to our other shareholders," Pignatelli said in prepared remarks. "Oracle has proposed such a financing to our Board last August and it has been rejected. This type of dilutive financing could essentially pass control of Biolase to Oracle without requiring them to put forth a tender offer to our shareholders that would typically result in a premium to market."
He added that he believed Oracle’s lawsuit was filed in an attempt to block a Biolase offering that would dilute the investment firm’s ownership and that Oracle’s meddling had a "dramatic and meaningful impact" on the company’s latest quarter ended March 31.
Biolase posted an 86% increase in losses on a 21% slide in sales during the 3 months ended March 31. In total the company reported losses of $4.9 million, ,or 13¢ per share, on sales of $11.5 million. That compared with losses of $2.6 million, or 8¢ per share, on sales of $14.6 million during the same period last year.
"Like most companies that sell capital equipment, a significant portion of our sales closes in the last month of a quarter, and the uncertainty that the lawsuit created regarding the composition of our Board most definitely impacted the decision making process of most of buyers," Pignatelli said.
Oracle maintained that Pignatelli’s claims were little more than self-serving excuses to prevent the nominations of Oracle’s board candidates. The investment firm barely pulled its punches the a recent statement, saying that Pignatelli was misleading investors and strong-arming his board to ensure he retains control of the company.
"Oracle Partners has never commenced any proxy contest or hostile tender offer in its history of over 20 years. Oracle Partners and its affiliates do not have, nor have they ever had, any designs on controlling Biolase," Oracle general partner managing member Larry Feinberg said in prepared remarks. "Rather, it is Mr. Pignatelli who seeks to retain ultimate and absolute control over Biolase. He has pursued scorched earth tactics, at shareholders’ expense, in his efforts to retain such control."
Pignatelli maintained that Oracle had been pursuing inappropriate channels for taking over Biolase, even though the investment firm has "no experience whatsoever with dental equipment companies."
"On several occasions, Oracle’s representatives have told me that they actually disliked the dental business because they don’t understand it," Pignatelli wrote. "Oracle itself is a small fund with barely $700 million under management and that has vastly under performed in recent months, while tracking below its piers and Biotech indexes."
Biolase in mid-February closed a $5 million private placement funding round with Oracle Investment Management, selling some 1.9 million shares for $2.57 apiece. Since then Oracle has been taking interest in the makeup of Biolase’s board of directors, starting with the disputed resignations of members Dr. Sam Low and Dr. Alexander Arrow, who is also Biolase’s president & COO.
BIOL shares were down 2.7% today, trading at $1.83 as of about 4 p.m. The stock has dropped 18% over the last month and is down 35% since the start of the year.