There’s nothing quite like a letter from Thomas Hudson to spoil an executive’s week. The latest victim of Pirate Capital’s poisoned-penned helmsman, uniform and linen provider Angelica Corp., started the holiday week with a missive from Hudson. In the letter, Hudson accused management and the board of directors of not doing enough to maximize shareholder value and insisting that the Chesterfield, Mo.-based company retain an investment bank to explore a possible sale.
Shares of Angelica rose 6.8% on Monday after Angelica filed the letter revealing Pirate owns just under 10% of the linen-maker.
The letter included Hudson’s trademark bold-and-all-caps statement, complaining about “a performance gap of over 2,500” basis points between the performance of Angelica shares and the Standard & Poor’s 500 this year. It also included his patented threat, putting the board “on notice that we may have no recourse but to nominate a slate of directors for election at the upcoming annual shareholders meeting,” for which it is seeking to get a resolution on hiring an investment bank on proxy statements.
FINalternatives was unable to reach Angelica for comment.
In his letter, Hudson accused the board and management—both led by Stephen O’Hara, chairman, president and CEO of the company—of failing “to improve operating results” as “its net income has declined precipitously,” from about $10.7 million in 2004 to $3.3 million last year.
“We don’t believe management has laid out for shareholders a cogent roadmap of how to achieve its targets,” Hudson said in the letter. Pirate’s funds own slightly under 10% of Angelica’s outstanding shares, and is the company’s second largest shareholders.
In its proposed supporting statement for the proxy ballot, Pirate claims the “current market for mergers and acquisitions and the appetite of private equity firms” could lead to a buyer paying a premium for Angelica.
"In recent years, Angelica has undertaken a string of acquisitions, specifically 11 acquisitions for an aggregate purchase price of nearly $130 million, or approximately 1x sales," a Pirate spokesman told FINalternatives. "If a 1x sales metric is applied to Angelica’s current gross-sales level, even after adjusting for net debt and other factors, the implied valuation for Angelica suggest meaningful upside to its current market capitalization, which we estimate approaches over $35 per share. Although we may not be able to reach this type of valuation, we still believe the stock grossly undervalued at current levels."