A group of dissenting shareholders led by San Francisco-based Voce Capital and representing approximately 12% of ConMed, Inc. shares outstanding are making a determined effort to change the governance of ConMed and, quite likely, wrest management away from ConMed’s founding family—the Corasantis.
Just a couple days before Valentine’s Day, Voce Capital submitted for shareholder consideration names of four new directors to serve on ConMed’s board.
ConMed’s shareholders will be asked to vote on the new slate as well as management’s nominees at ConMed’s annual meeting—which originally had been scheduled for May 22 but was postponed late on Friday, March 14.
That meeting—whenever it is held—and this vote should be interesting.
Who Are the Dissenters?
Leading the dissenters is J. Daniel Plants, managing partner of Voce Capital Management LLC. Despite owning a small (less than 1%) of shares, Voce has successfully agitated ConMed’s management to begin instituting changes and is largely responsible for a surge in buying interest in ConMed’s stock.
Mr. Plants is a long-time Wall Street investment banker (law degree from University of Michigan) and has been employed at Goldman Sachs, JP Morgan, Needham & Company, ThinkEquity and HSBC. He is one of the founding members of Voce Capital.
Voce detailed its case against ConMed’s management in a November 2013 letter and, in mid February 2014, filed papers with the SEC to replace four members of ConMed’s board with a new slate.
Joining Voce in this effort were, at least initially, activist shareholders Camber Capital and Coppersmith Capital. Collectively the three investors own 12% of ConMed.
Boston-based Camber Capital Management, founded in 2006 by Stephen Rodney Du Bois, is a privately owned hedge fund which invests in micro-cap and small-cap companies—mostly in the health care sector.
By the end of 2013, Camber held almost 1.4 million shares of ConMed representing 5.02% of the company’s stock. The total value of their shares is $56.6 million.
On February 6, Coppersmith Capital joined the fray announcing that they had amassed 5.9% of ConMed. By reputation, Coppersmith is an “event driven” fund founded in 2012 by Jerome Lande and claims to have significant activist experience.
Clearly, pressure on ConMed’s management and the Corasantis was mounting.
At the time of its purchase, Coppersmith’s founding partner, 37-year-old Jerome Lande said that he “knows the company well” and has been an on and off investor for over 10 years.
According to Coppersmith’s press releases, it is a “long term value creation shareholder with more than one arrow in its quiver.” At the same time Coppersmith announced their investment and support for Voce’s campaign to wrest ConMed’s control away from the Corasanti family, Lande also said that he would “meet with management and try to implement the changes necessary to enhance value.” But if sale of ConMed was the best option for value creation then, he said, he would “support that, at the right price.”
ConMed Settles With Coppersmith and Adds Hartman and Lande to the BOD
Of the three dissenting and activist shareholders Coppersmith was both the largest holder of ConMed shares and the one who explicitly asked to meet with ConMed’s management to implement changes.
Voce Capital had also met with ConMed’s management many times before launching its bid to overhaul ConMed’s governance.
Between February 7 and February 26, Coppersmith’s Lande met with senior members of ConMed’s management. On February 27 the two parties announced a settlement agreement.
Coppersmith agreed to vote all of its shares in favor of ConMed management’s slate of directors.
And Eugene Corasanti, founder of ConMed and its long-time CEO, agreed to resign as Chairman of the Board and also agreed to NOT stand for re-election as a director in 2015.
The dissenters were now down to about 6% of ConMed.
With this, the odds that Voce might force a change in ConMed’s governance, which were long to start with, got much longer.
Two New Independent Directors
As a result of the settlement with Coppersmith, two new independent directors are joining ConMed’s board—they are Curt Hartman, former interim-CEO of Stryker, and Jerome Lande, founder of Coppersmith.
One of Voce Capital’s main criticisms of ConMed’s management is its insular management of ConMed and the perceived lack of independent board oversight. Said Voce’s Plant in his November letter to ConMed’s management:
“Any analysis of ConMed’s corporate governance must begin with the recognition that, until July of this year, its Board of Directors has been inhabited exclusively by denizens of Utica, New York…. The Board’s lack of alignment with shareholders, coddling of management and toothless oversight is highly relevant to the review of ConMed’s strategic positioning and financial and operational performance.”
With this agreement, ConMed would now have two independent members of the board both of whom hail from geographies well away from Utica, New York.
Voce Unimpressed
Voce Capital was not impressed with Coppersmith’s standstill agreement nor with the new director nominees.
Said Voce’s Plant:
Mr. Hartman’s “senior executive experience [consists] mostly as a financial officer, with CEO operating experience limited to eight months as interim CEO, no public company board service.” And: “After a 22-year track record with Stryker, and eight months as interim CEO, Stryker board passed over Hartman for a full-time job in favor of another internal candidate with 18 months tenure at Stryker.”
Voce also mentioned that they had interviewed Mr. Hartman as a potential nominee for ConMed’s board but rejected him for two reasons. Said Voce: “First, we were (and still are) troubled by the gravity and specificity of the unrebutted allegations that Alere raised against him. Second, Mr. Hartman, who has been unemployed since his termination from Stryker in October 2012, made clear to us that he was pursuing board seats as a source of income and was interested in being appointed as ConMed’s CEO if we were successful in electing directors.”
As for the other board nominee (Jerome Lande), Voce has this comment: “Mr. Lande is an undistinguished 37-year-old investor with relatively narrow and junior experience.”
Voce’s Alternative Board Slate
And here are the four Board of Director candidates Voce is offering to ConMed’s shareholders:
Strong AAOS
The annual meeting of the American Academy of Orthopedic Surgeons was held last week in New Orleans. Initial reports from Wall Street analysts are that ConMed had one of its best meetings in years. Said Michael Matson, CFA of Needham & Company; “CNMD’s (Buy) new products were impressive.CNMD is launching a number of new products during 2014, and after seeing these for the first time at AAOS, we have greater conviction in CNMD’s ability to reaccelerate its revenue growth this year and we reiterate our Buy rating.”
What Happens Next?
Originally, ConMed’s shareholders were expected to vote on both management’s slate of board members—including the two new outside board members and Voce Capital’s nominees—on May 22, 2014. But late last Friday (March 14, 2014) ConMed announced that it was delaying the annual meeting.
Whenever the annual is heal, odds favor management’s slate. Because dissatisfied shareholders of a public company can simply sell their shares, there is a built-in inertia to shareholder votes at annual meetings.
Still, one way or the other, ConMed’s board will now be comprised of at least two new outside members both of which have stated that they are interested in helping ConMed increase its value to shareholders.
One of Voce’s most intriguing arguments is that ConMed is, in fact, a more valuable company than its current stock price would indicate.
Paraphrasing from Voce’s November letter to ConMed’s management:
ConMed’s is one of only three players with a full-line sports medicine business. Two-thirds of ConMed’s revenues and three-fourths of its EBITDA is from sports medicine products. Eighty percent of revenues are from single-use disposables rather than capital equipment.
Many companies believe ConMed is strategically attractive. Prime among them would be Zimmer, a small player in sports medicine today that has identified sports medicine as a corporate focus. Zimmer actually owned ConMed’s Linvatec prior to Zimmer’s spin-off from Bristol-Myers Squibb. Stryker, as well, would find that ConMed fills out its arthroscopy offerings. Smith & Nephew, on the other hand, has a strong arthroscopy franchise but lacks the depth in power tools offered by ConMed. Finally Biomet has a number of holes in its arthroscopy product line which ConMed could fill. ConMed’s shoulder restoration system, for example, would be of particular value to Biomet. Other prospective acquirers include Arthrex, J&J, Covidien or even such diverse health companies as Bard, Boston Scientific, Danaher, Medtronic, Teleflex or 3M.
So, whatever happens at the eventual board meeting, this much is clear. Going forward this will not likely be the same ConMed Corporation.
