A Teleflex (NYSE:TFX) shareholder has written a letter to the company urging it to change its approach toward potential buyers.
Irenic Capital Management, LP, a 2% owner in Teleflex, said the company’s board has refused to engage with potential buyers, “despite receiving interest from multiple credible parties.” The letter asks the board to “take a more constructive and responsible approach to evaluating strategic alternatives.”
Teleflex has undergone a period of significant change recently, starting with the decision to sell its Acute Care, Interventional Urology and OEM businesses in two separate deals worth a combined $2.03 billion. With this ongoing, the company ousted CEO Liam Kelly amid plummeting stock prices. Shares of TFX are down more than 20% over the past 12 months.
Irenic said that Dr. Stephen Klasko, the company’s board chair, indicated in a recent conversation that Teleflex advisors are under instructions from the board to refuse approaches from potential acquirers.
“He made clear to us that, in his view, it did not make sense to even have a conversation with interested parties at this point – regardless of how much such parties might be willing to pay for Teleflex,” the shareholder said. “As we conveyed on the call and in our subsequent private communication with the board, we firmly believe that posture is unreasonable and irresponsible.”
More on the shareholders’ gripe with Teleflex
Irenic claims that Teleflex, over the last five years, has delivered a total shareholder return of -73. The shareholder adds that operating without a CEO further adds to instability “because the board failed at its primary job — properly planning for succession.”
According to Irenic, after conversations with other shareholders, it believes its concerns are “broadly shared.”
“Against this backdrop, it is difficult to understand how the board can justify refusing to engage with potential buyers,” Irenic said.
Irenic says the Teleflex board expects its search for a permanent CEO, along with recent strategic decisions, to position the company for shareholder value creation. However, the shareholder disagrees.
The letter requests a change at board level, including in the chair position. It also outlines hopes for the engagement of independent advisors capable of supporting an objective evaluation of strategic alternatives.
“Given its track record of value destruction and lack of alignment, we do not believe this board has earned the right to unilaterally determine how value is best created on shareholders’ behalf, and particularly not before it has thoroughly assessed all potential alternatives,” Irenic said.
Teleflex responds
In response to Irenic’s letter, Teleflex today issued a press release stating that, in a March 19 meeting, Irenic “demanded that Teleflex immediately announce a public strategic alternatives process within a week or Irenic would issue a public press release calling for a sale.”
The company says Irenic “grossly mischaracterizes” the discussions. It also labeled the claims of refusal to approach potential acquirers as “patently false.”
According to Teleflex, its planned divestitures remain on track to close in the second half of this year. With expected proceeds of $1.8 billion after tax, the company believes that it will create value for shareholders. It also plans to use the proceeds to fund a $1 billion share repurchase and $800 million in debt paydown.
Teleflex said its focus remains on completing the divestitures and conducting its ongoing CEO search.
“Teleflex’s board has clearly demonstrated its willingness to consider all paths that enhance value for shareholders,” the statement read. “Teleflex has not rebuffed inbounds from potential acquirers or received proposals to acquire the Teleflex RemainCo business. However, the Board would thoroughly and thoughtfully consider any bona fide acquisition proposal in the context of the long-term value inherent in the business.”
Irenic comments on Teleflex’s response
In response to Teleflex’s statement, Irenic replied:
“We welcome Teleflex’s newfound openness to consider all strategic alternatives.
“As a next step, we believe the board of directors should form a strategic review sub-committee with new independent directors, including a shareholder representative and excluding Dr. Klasko, to work with its advisors to both engage with inbound approaches and solicit outbound interest — and report back to shareholders.
“While we strongly disagree with the board’s description of our conversation with Dr. Klasko, we look forward to working with the board to take appropriate next steps to maximize value at Teleflex.”
