Activist hedge fund manager Gary Herman calls the board of directors at United American Healthcare Corp. “the worst corporate board in America.” Today, the Strategic Turnaround Equity Partners chief will learn whether he’ll have the opportunity to try to throw them out.
A Michigan state court judge in Detroit is set to rule on Strategic’s demand that UAHC hold its annual meeting, which is coming close to becoming a biennial meeting: The company last held a shareholder meeting on Nov. 7, 2008.
“I’ve never seen something so egregious,” Herman said. “It’s in violation of Michigan corporate law and the company’s own articles of incorporation.”
UAHC has delayed the meeting at least three times, most recently cancelling it outright. In the meantime, it has been delisted by the Nasdaq Stock Market, bought Pulse Systems, a company majority-owned by its largest shareholder and moved to amend its articles of incorporation via its bylaws.
“It’s like having the State of New York voting to amend the U.S. Constitution,” Herman said. “We know they can’t do it. They need two-thirds of the states.”
And that’s not all, according to Herman and Strategic. Prior to the related party transaction, UAHC entered into a voting and standstill agreement with its newly-minted largest shareholder, John Fife, under which the board is entitled to vote Fife’s 23% of its shares in exchange for a highly lucrative put on his shares and a deal for him to buy even more shares under the put agreement. There’s also the matter of the board enriching itself, according to Herman, paying out some of the highest board fees in the nation.
And, Herman says, they lost their primary contract—accounting for some 95% of their business—more than two years ago. It’s no wonder that Herman believes that Strategic’s slate—unanimously endorsed by both ISS Proxy Advisory Services and Riskmetrics—was well ahead in the voting before UAHC cancelled its most recent annual meeting date, without scheduling another.
“In short, the board's actions—in providing a lucrative settlement to one potential dissident at significant expense to all other shareholders, and then (on the advice of that individual) buying another company in which he was a 43% shareholder—raise significant concerns about its stewardship of shareholder assets,” ISS wrote. “The dissident's campaign to replace three incumbent directors, therefore, appears to be a more prudent alternative than the re-election of the incumbent directors.”
UAHC CEO William Brooks declined to comment on today’s hearing or the issues raised by Strategic. But UAHC announced yesterday that it had rescheduled its annual meeting for Sept. 30.
“It was all done as a delay tactic,” he said. “The board has done everything it can to keep management and the board entrenched and to deny shareholders a meeting.”