Both Leading Proxy Advisory Firms Support Voce Capital’s Case for Change at Natus Medical & Recommend Stockholders Vote on ...
14 June 2018 - 12:19AM
Business Wire
Glass Lewis Recommends Stockholders Vote FOR
Election of Lisa Wipperman Heine and Joshua H. Levine
Glass Lewis Highlights Natus’ Sustained
Underperformance and Grades the Company’s Compensation Practices an
“F”
Glass Lewis Troubled by Board’s Inaction
Regarding Serious Pending Allegations in Federal Court that CEO
Hawkins Mislead Natus Stockholders
ISS Previously Recommended Stockholders Vote
FOR Election of Voce Directors
Voce Believes ISS and Glass Lewis’ Findings
Demonstrate a Holistic Failure of Corporate Governance at Natus and
Urges Stockholders to Hold Chairman Gunst Accountable
Voce Urges Stockholders to Follow ISS’ and
Glass Lewis’ Recommendations to Vote on the BLUE Proxy Card
Voce Capital Management LLC (“Voce”), a long-term owner of Natus
Medical Incorporated (Nasdaq: BABY) (“Natus” or the “Company”) and
the owner of approximately 2.2% of its shares outstanding, today
announced that leading proxy advisory firm Glass, Lewis & Co.
(“Glass Lewis”) has recommended that Natus stockholders vote FOR
the election of both Voce nominees, Lisa Wipperman Heine and Joshua
H. Levine, to Natus’ Board of Directors (the “Board”) on the
BLUE proxy card at the upcoming
Annual Meeting of Stockholders on June 22, 2018. Previously, fellow
leading proxy advisory firm Institutional Shareholder Services
(“ISS”) also recommended that Natus stockholders vote on the
BLUE card FOR the election of
Ms. Wipperman Heine and Mr. Levine.
Voce also urges Natus stockholders to vote on the BLUE proxy card FOR the removal of Chairman
Robert Gunst and FOR the election of Mark Gilreath to replace Gunst
as a Director.
In its detailed report and findings, Glass Lewis affirmed Voce’s
criticisms of the performance, strategy and corporate governance of
Natus – as well as the qualifications of Voce’s nominees. Glass
Lewis concluded that stockholders should therefore vote on the
BLUE proxy card:1
- “[W]e believe Voce has made a
compelling argument that change to the composition of the Natus
board is warranted at this time. We find that the Company
significantly underperformed on a TSR basis relative to peers and
market benchmarks in recent years and that the Company’s operating
performance has been largely unfavorable. While the incumbent board
touts the Company’s revenue growth and acquisitions, this strategy
has not led to shareholder value creation in recent years and
management has consistently failed to meet the financial targets it
has communicated to shareholders.”
- “We find that the Company suffers from
numerous corporate governance shortcomings, including an entrenched
board with a lack of fresh perspective, ineffective board oversight
of management and poor executive compensation practices. We believe
shareholders would benefit from fresh perspective and additional
independent oversight and find that the Dissident Nominees are well
qualified to serve on the board, with significant and highly
relevant experience in the medical device industry as well as prior
public company board experience.”
With regard to Natus’ corporate governance issues and Board
composition, Glass Lewis stated:
- “[T]he Dissident has expressed valid
concern with several aspects of the Company’s governance structure
and practices. The Company maintains a
classified board, which limits the ability of shareholders to hold
directors accountable, in our view. We agree that
the incumbent board is stale and in need of
refreshment.”
- “Following the Dissident’s involvement,
the Company announced that the longest-serving director, William
Moore, would not stand for reelection at the 2018 annual meeting
and that the board had nominated a new director, Robert Weiss, for
election at the 2018 annual meeting to fill the seat vacated by Mr.
Weiss….[W]e are concerned that the incumbent
board determined to act only after the Dissident’s involvement and
that it appears to be a reactionary measure to the Dissident’s
campaign.”
- “Moreover, in the context of this proxy
contest, we find it concerning that Mr. Weiss
was recommended to the board by CEO Hawkins and that CEO Hawkins
and Mr. Weiss reside in the same gated community in Pleasanton, CA.
Given these connections, we question whether Mr. Weiss would
provide a sufficient level of independent oversight.”
Glass Lewis was also emphatic – as Voce has been throughout this
campaign – that the allegations pending against CEO Hawkins in a
federal securities fraud lawsuit for misleading Natus investors are
serious and require much more oversight by the Board than appears
to have occurred:
- “We are
particularly troubled that the incumbent board does not appear to
have taken any steps to investigate or address business in
Venezuela. These allegations are the subject
of ongoing shareholder litigation against the Company…CEO Hawkins
is alleged to have misled shareholders by promoting the benefits of
a $232.5 million supply contract with the Venezuelan Ministry of
Health while failing to disclose that the counterparty had
defaulted on the agreement by failing to make multiple required
prepayments totaling $69 million by the end of 2015.”
- “[W]e believe the
details of Mr. Hawkins’ conduct contained in a Federal District
Court opinion filed February 26, 2018 are highly concerning and
warrant scrutiny from the board. Given the board’s apparent failure
to pursue this matter, we believe additional independent oversight
on the board is warranted.”
Glass Lewis also criticized Natus’ compensation practices, and
stated:
- “[W]e believe the
Dissident has raised valid concerns with the structure of the
Company’s compensation plans. We are particularly concerned
that the Company relies on time-based vesting of equity awards for
executive officers. We view performance-based vesting as more
appropriate for linking executive compensation with
performance…[W]e find that the Company has been deficient in
linking executive pay to corporate performance, as indicated by the "F" grade received by the Company in
Glass Lewis' pay-for-performance model.”
With regard to Natus’ performance, Glass Lewis stated:
- “Having considered the arguments
presented by both sides as well as our assessment discussed above,
we believe there is reasonable basis to conclude Natus has
materially underperformed on a TSR basis, particularly in recent
periods.”
- “We find that…Natus has suffered from
poor financial performance in recent years and that the Company has
failed to achieve numerous financial targets set by management. The
Company has struggled to deliver meaningful organic growth and
recent acquisitions do not appear to have generated anticipated
scale benefits.”
Finally, Glass Lewis noted the qualifications of Voce’s
nominees, writing:
- “Turning to the nominees, we find that
the Dissident has put forward well-qualified nominees with relevant
industry experience and appropriate credentials. Notably, Dissident
Nominees Gilreath, Heine and Levine all have executive management
experience in the medical device industry and public company board
experience.”
J. Daniel Plants, Founder and Chief Investment Officer of Voce
Capital, said, “We are gratified that both leading proxy advisory
firms – ISS and Glass Lewis – have, at the conclusion of their
respective thorough inquiries, supported our call for change at
Natus by recommending that stockholders vote for our nominees on
the BLUE proxy card. In its
report, Glass Lewis articulates the depth of the issues at Natus,
including chronic underperformance, strategic missteps, misaligned
executive compensation and wholly inadequate Board oversight.
“Most notably, in our view the findings of ISS and Glass Lewis
in aggregate point to a holistic failure of corporate governance at
Natus. It is apparent to us that the issues here cannot be
addressed with quick fixes or cosmetic modification – but instead
require real, meaningful changes to the composition and structure
of the Board especially its chairmanship.
“This is why we also strongly urge stockholders to support our
Removal Proposal to recall Chairman Gunst as a Director. Chairman
Gunst lacks any healthcare experience, has been retired from active
employment for almost two decades and hasn’t sat on another public
company board in more than ten years. In his 14 years as Chairman,
a culture of entrenchment, insularity and misalignment with
stockholders has taken root at Natus. It is high time that Chairman
Gunst is held accountable for this.”
Mr. Plants concluded: “We ask our fellow stockholders to join us
in seeking to restore credibility to Natus’ Board by voting on the
BLUE proxy card today FOR
Voce’s highly-qualified and independent Nominees, and FOR Voce’s
Removal Proposal to replace Chairman Gunst. We look forward to
seeing our fellow stockholders at the upcoming Annual Meeting on June 22, 2018.”
FOLLOW ISS’ AND GLASS LEWIS’ RECOMMENDATIONS
AND VOTE FOR CHANGE AT NATUS ON THE BLUE PROXY CARD TODAY.
About Voce Capital Management LLC
Voce Capital Management LLC is a fundamental value-oriented,
research-driven investment adviser founded in 2011 by J. Daniel
Plants. The San Francisco-based firm is 100% employee-owned.
_______________________________1 Permission to quote Glass Lewis
and ISS was neither sought nor obtained. Emphases added.
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