"We are disappointed that the Board has summarily rejected our proposal by wrongly claiming that it 'is not in the best interest of shareholders,' and has refused to engage with us or our share its rationales," stated Philip B. Kenny, Principal of Kenny International, LLC.
About Clinton Group, Inc.
Clinton Group, Inc. is a diversified asset management firm that is a Registered Investment Advisor. The firm has been investing in global markets since its inception in 1991 with expertise that spans a wide range of investment styles and asset classes.
About Kenny International, LLC and Phillip B. Kenny
Kenny International, LLC is a private enterprise owned by Philip B. Kenny engaged in investment and operating activities in real estate, industrial growth, renewable energy and construction. Mr. Kenny is the former co-owner and partner of Kenny Construction Company ("Kenny Construction"), an 85-year-old national construction company that was sold in 2012 to Granite Construction, Inc. Based in Chicago, Illinois, Kenny Construction was involved in many of Chicago's largest infrastructure projects including the new Soldier Field, a $650 million stadium that was completed in a record 20 months, and the recent $1 billion renovation of Midway Airport, as well as serving for nearly two decades as the construction manager of the Chicago Transit Authority, the second largest transportation system in the United States.
During his tenure at Kenny Construction, Mr. Kenny was also responsible for expanding the geographic reach through international expansion. He set up operations in the Middle East, where the company was licensed in all eight GCC countries. Kenny Company established headquarters in Dammam, Saudi Arabia, where it worked with various government agencies in the region including Qatar on all infrastructure development. Mr. Kenny also set up joint ventures in Beijing and Shanghai, China, with one of the largest private contractors in China.
December 20, 2016
To Our Fellow Shareholders of Great Lakes Dredge & Dock:
We are investors alongside you in Great Lakes Dredge & Dock Corp. ("Great Lakes" or the "Company") and have expended considerable time and resources in our quest to improve the Company and its performance. As we will state in every communication to you now and going forward, our collective goal is simple – to reverse the historical shareholder value destruction of the Company.
First, let's look at some empirical data on financial performance. Despite the stock price being buoyed by our recent buying and the wave of interest in infrastructure-focused investments following the presidential election, the Company's stock price is down 16% in the last five years. Contrast this with the over 45% increase over the same period for the Company's self-selected peer group identified in the Company's own proxy. In fiscal year 2011, corporate EBITDA margins were 17.4% compared to 10.2% for the last twelve months ended September 30, 2016. Despite the Company's leadership position in North American dredging, margins in the core dredging segment are down as well. Market capitalization at the end of fiscal 2011 was $425 million and net debt to EBITDA was 1.6x, compared to $271 million and 5.0x, respectively, today. Value has gone down and financial risk has tripled.
Obviously, something does not add up here. Great Lakes possesses a valuable fixed asset base and boasts a #1 market position in an industry segment with numerous macroeconomic tailwinds. It is convenient to say that all of the missteps are related to the value destruction of the environmental segment. But upon closer inspection, the Company's corporate G&A continues on a steep ascent, and the EBITDA margins at the core dredging business are declining.
We have attempted to constructively engage with the Great Lakes Board and executive team regarding our concerns and have laid out potential solutions to address these serious ills. A month ago, we provided the outline for a proposal that we believe addresses the Company's issues. The stated thesis of our proposal is as follows: "To provide a management solution and a capital solution for the Company to improve the operations and expand its international growth profile. Capital can be employed to buyout shareholders wishing to sell at a premium and fund the Company's growth."
After a month of conference calls and answering questions, we were disappointed to hear that the Board rejected our proposal and claimed that it "was not in the best interest of shareholders." Set forth below, we provide the context of our proposal for your consideration:
Capital Commitment. Our group was prepared to make a capital commitment in the form of a stock purchase of at least $75 million, scalable upwards depending on the Company's stated needs, priced at a premium to market. As stated in our proposal and elaborated upon in our conversations with the CEO and Board, we suggested that the Company use the proceeds to fund a share repurchase of the common stock at a premium range of 25-30%, potentially through a Company-led tender offer, and fund international growth. We have articulated that we believe that international growth can be achieved with an asset-light strategy leveraging the Company's technology in prime contractor scenarios.
Governance Changes. Our group proposed (i) the appointment of three new directors to the Board, two of whom would be wholly-independent of us, and (ii) the resignation of two incumbent directors. Philip B. Kenny, an experienced executive with significant industrial and turnaround expertise and shareholder of the Company, would be named Interim CEO during a transitory period, with the goal of putting a permanent CEO in place when a more stable business is achieved, the environmental business is further remedied, and the international business has made progress in a renewed business plan.
Restructuring Plan. Our group proposed the production of a 100-day restructuring plan to detail significant reductions to G&A spending and a strategic and tactical plan for both the environmental business and international business.
Proposed Process. Given our position as shareholders, we were prepared to execute an appropriate NDA and complete a two-week confirmatory due diligence period upon acceptance of a term sheet.
Fiduciary Out. Recognizing the Board's obligations as public company directors, we proposed a fiduciary out period post signing an agreement to ensure that the Company was in a position to maximize shareholder value.
We hope that shareholders share our view that our proposals are, in fact, an attractive alternative for shareholders. Like any proposal, we were - and continue to be - willing to engage and compromise on the component parts, and still provide optionality to the Company to find a better alternative. Unfortunately, we have heard the Board loud and clear, that the status quo is acceptable to them.
We believe the upside in the common stock of the Company can be over $9.00 a share with a new leadership team and a renewed view towards profitability and international growth. Our suggestion for using the proceeds from our investment for a buyback at premium also provides shareholders with a profitable liquidity option should they not share our optimism.
We encourage our fellow shareholders to reach out to us should they have ideas on how to improve our proposal, and if you disagree with the Board's assessment, we welcome your effort in illuminating them. In the absence of progress, we intend to nominate directors at the 2017 annual meeting of shareholders to advance our goals. We can be reached at (212) 825-0400.
Very truly yours,
Joseph A. De Perio
Philip B. Kenny
Senior Portfolio Manager
Clinton Group, Inc.
Kenny International, LLC
To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/clinton-group-and-kenny-international-send-open-letter-to-shareholders-of-great-lakes-dredge--dock-300382188.html
SOURCE Clinton Group, Inc.