July 10, 2006
A hedge fund calling for the sale of troubled Vitesse Semiconductor Corp. (Nasdaq: VTSS) made its point Friday with an attention-getting letter loaded with insults and jibes.
California-based Chapman Capital LLC, which owns a 7.3 percent stake in Vitesse, is making its demands in the wake of a stock-options scandal that's led to the firing of three Vitesse executives. (See Vitesse Execs Get the Axe.)
The fun part is a letter, dated July 7, to Vitesse's board from Chapman Capital founder Robert Chapman. The letter was appended to an SEC form 13-D, filed Friday to report Chapman Capital's purchase of its Vitesse stake -- roughly 16 million shares amassed since May 18, the form says.
The letter is smug and brutal, combining detailed research (83 footnotes!), highfalutin language, and plain old cheap shots. For example, Chapman describes his firm as "yearning for the ephemerally salubrious separation of management from ownership" -- but he also refers to the three fired executives as "The Three Stooges" and "the throttled threesome."
When Chapman explains his firm is not attempting a hostile takeover of Vitesse, he makes his point with some descriptive personal details.
"I swelter at the thought of driving north along the Pacific Coast Highway only to arrive as a minority director and have the fresh ocean breeze replaced by all the hot air bellowing from your crusty mouth," Chapman writes to Vitesse chairman John C. Lewis. "I have nightmares of sitting across from Mr. Tomasetta [Lou Tomasetta, Vitesse's former CEO] as he explains to me how amazingly lucky he was to have his options priced near pinpointed lows in Vitesse’s trading history."
Ah, but these aren't personal attacks, Chapman points out elsewhere in the letter: "Expression of our negative opinion of your behavior in your capacity as a professional fiduciary does not constitute a personal attack."
Chapman's main point is to call for the "recission" of any ill-gotten stock-option payouts and, once any earnings restatements are done, the sale of Vitesse. Specifically, his firm demands "a full scale auction of the Company, which we estimate would value Vitesse in excess of $4.50 per share as part a strategic bidder’s post-merger business model."
Vitesse stock rose 24 cents (16.9 percent) to $1.66 Friday afternoon, once word of the 13-D spread.
Chapman praises Vitesse's products, directing his barbs only at management."Chapman Capital believes that after treating backdated stock options tied to the success of Vitesse’s computer chips like past-expiration bags of stale potato chips, the Board’s stewardship shall be proven grossly negligent, if not fraudulent," he writes.
Chapman Capital's call for a Vitesse sale isn't that unusual -- recall how a hedge fund pressured CoSine Communications in 2003, for instance. (See Mellon Hires Banker for CoSine.)It's just that the firm's style is to go for the jugular, and the media attention. (Apparently, it works.)
Vitesse isn't the only company getting roasted by Chapman. A Chapman 13-D filed in June regarding timeshare firm Sunterra Corp. reads, in part: "Sunterra Europe is a malignant cancer ulcerating at Sunterra’s healthy North American business." Chapman Capital has been at this for a while, having filed 17 13-Ds, "15 of them hostile campaigns," between 1996 and 2003, according to its Website.
Vitesse officials could not be reached for comment late Friday.
— Craig Matsumoto, Senior Editor, Light Reading
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