ConMed (NSDQ:CNMD) today responded to a long and critical letter from Voce Capital Management issued last week that demanded steps toward a strategic exit and the end "a culture of nepotism, patronage and dystopian corporate governance."
Voce, which owns a roughly 1% stake in ConMed, described the company as run and ruined by the Corasanti family, highlighting several high-level officers with ties to company founder, former CEO and current chairman and vice chairman Eugene Corasanti, who in 2006 handed the corner office to his son, Joseph Corasanti.
The letter also questioned the Corasantis’ loyalty to shareholders, given that the family collectively holds about 0.7% of ConMed’s shares, and further thrashed the company’s M&A strategy, which Voce says is based on "more sentimental than economic value."
Today ConMed replied by highlighting several financial measures as evidence of "the strong operating performance delivered by ConMed over the past several years."
"We remain open to evaluating any potentially value-enhancing opportunities," lead independent director Mark Tryniski wrote, according to a regulatory filing. "Consistent with our fiduciary duty, we have considered your comments in great detail. Currently, we are focused on executing our business strategy, which the board believes is in the best interests of all shareholders."
Tryniski emphasized that ConMed’s cash from operating activities reached $251.8 million from January 2011 through September 2013, for a 12.3% return on sales; adjusted earnings-per-share growth of 30% in 2010, 15% in 2011 and 20% in 2012; adjusted earnings before interest, taxes, debt and amortization growth of 410 basis points or 30.8% for the 3 years ending December 2012; and reduced operating expenses from the consolidation of 4 plants and "by employing lean manufacturing practices."*
As for shareholder returns, Tryniski cited "the 2%+ cash dividend yield" and share repurchases of more than $63 million during the last 3 years.
"Including the cash dividend, total shareholder return for the 10-month period ending Oct. 31, 2013, was 31.9%," he wrote.
"The board’s process for reviewing the company’s governance practices and strategic direction is thorough and thoughtful," Tryniski wrote. "We welcome and respect the views of all of our shareholders. We remain open to evaluating any potentially value-enhancing opportunities."
ConMed missed analysts’ expectations for the 3 months ended Sept. 30 and lowered its forecast for the rest of the year.
The Utica, N.Y.-based device maker posted profits of $5.7 million, or 21¢ per diluted share, on sales of $179.3 million during the 3 months ended Sept. 30, 2013. That compared with profits of $9.3 million, or 32¢ per diluted share, on sales of $181.9 million during the same period last year. Adjusted earnings were reported at 40¢, on par with analysts’ expectations.*
ConMed also lowered its 2013 guidance, saying it now expecting 4th-quarter sales of $195 million to $200 million and full-year sals of $754 million to $759 million, down from prior guidance of $770 million to $775 million.
CNMD shares have gained 2.9% since the Nov. 4 letter from Voce and its concurrent earnings release, reaching $37.32 apiece as of about 11:30 a.m. today, for a 0.2% gain on the day.
*Correction, Nov. 13, 2013: This article originally mis-stated the percentage gain of EBITDA for ConMed during that period. Return to the corrected sentence.
