Zarlink fires back

Zarlink Semiconductor levels a counterattack at dissident shareholders looking to install proxy representation on the company’s board and topple its CEO and chairman, accusing the group of short sightedness driven by want of quick profits. “As evidenced by the trading pattern disclosed in the circular issued by hedge fund manager Mr. Scott Leckie, Mr. David Banks and Mr. Daniel Owen, these individuals are traders rather than long-term holders of the shares,” says Zarlink CEO Kirk Mandy. “At the same time, the circular misstates Zarlink’s financial results, product direction and strategy. As one example, we have Zarlink.JPGmade progress in our cost-reduction efforts and are not significantly better than the operating expense metrics of comparable companies in our sector, which Mr. Leckie highlighted in the circular as a key objective of their plan. We expect to continue these efficiency improvements in order to drive further operating margin improvements and profitability.” Messrs Banks and Owen and Mr. Leckie, who manages funds that control 5.2% of Zarlink’s shares, charge Zarlink with fiscal irresponsibility tha has resulted in a cost structure more double that of industry norms. The group also notes that the value of Zarlink’s shares has dropped by 95% since January 2002. In addition, Mr. Leckie took exception to having his funds described as profit-driven hedge funds, noting that they have held Zarlink stock for more than three years, while Mr. Owen and Mr. Banks, who own 0.7% of Zarlink’s share, first invested in the company in 2005. The groups proposed shakeup would see Mr. Mandy replaced as CEO, on an interim basis, by Mr. Banks, a managing partner of Carlyle Banks & Co., while Mr. Owen would supplant Henry Simon as chairman. It would also see five incumbent board members replaced by members elected by shareholders. Zarlink, calling the proxy threat “disruptive,” says it could prove costly to the company and “have immediate and lasting negative consequences for the company’s growth prospects for the future.”

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