WESTPORT, Conn., March 28, 2016 /PRNewswire/ -- North Star
Partners, LLC ("North Star"), one of Checkpoint System, Inc.'s
("Checkpoint" and, the "Company") (NYSE: CKP) largest shareholders,
owning 3.9% of the Company's shares outstanding, delivered a letter
to the Company's Chairman of the Board, Stephen David, today maintaining its opposition
to the proposed sale of Checkpoint to CCL Industries, Inc. for
$10.15 per share. North Star
demanded that Checkpoint postpone its shareholder meeting in
connection with the proposed transaction until after Checkpoint's
shareholders have had an opportunity to elect a new Board to make
strategic decisions on the future of the Company.
In the letter sent to Checkpoint today, Andy Jones, Managing Partner of North Star
stated, "[r]egardless of what the motivations to sell the Company
are, the glaring outcome of the proposed transaction with CCL is a
massive transfer of value from the Company's shareholders to the
shareholders of CCL," and that "[o]nly after allowing [Checkpoint]
shareholders a voice on Board composition would it be appropriate
to evaluate the proposed [CCL] transaction."
The full text of the letter follows:
March 28, 2016
Mr. Stephen N. David
Chairman of the Board
Checkpoint Systems, Inc.
101 Wolf Drive
Thorofare, NJ 08086
Dear Mr. David:
NS Advisors, LLC ("North Star", North Star Partners", or "us")
currently owns 1,612,046 shares of Checkpoint Systems, Inc.
("Checkpoint", "CKP", or the "Company"), and we are writing again
to express our extreme disappointment with your decision to sell
our Company to CCL Industries, Inc. ("CCL") at a price that is
substantially below the true intrinsic value of the
business.
We have had the opportunity to review the preliminary proxy
statement filed on March 17, 2016,
and it confirms our suspicions that this was a poorly timed and
fundamentally flawed sale process that resulted in an inadequate
valuation of the Company.
As is detailed in the proxy statement, in June 2015, when Checkpoint's stock consistently
traded above $10.00 per share, the
Company initiated a process to take the Company private in a
management-led leveraged buyout transaction. If successful,
we believe management would have effectively "stolen" the Company
from shareholders at a time when its stock price was under great
pressure due to management's inability to deliver on the operating
plan they outlined to the shareholders. Given the Company's
poor operating results and the volatility that existed in the
equity markets at that time, it is not surprising that management
could not find a financial backer willing to partner with
them.
Then, in the fall of 2015, as Checkpoint's stock price continued
to experience a precipitous decline in value, the Company received
an unsolicited inquiry from CCL to examine a potential
transaction. Instead of focusing on the internal strategic
initiatives that the Company commenced the year before, the Board
decided to pursue a very limited auction process between CCL and
one financial sponsor, even though at the time the Company appeared
to have no plans to seek a third party buyer. Management has
been consistently telling shareholders that Checkpoint was a
"lumpy" business, but that better days were ahead due to a building
backlog of high-potential customer trials. Management was
also in the process of spending an additional $7 – 10 million on consultants and R&D.
This spending depressed earnings and weighed heavily on the stock
price, but was being justified as building for the long-term.
It is clear to us that the artificially depressed earnings combined
with a difficult stock market meant it was precisely the wrong time
to pursue a sale of the Company. Selling from such a position
of weakness all but guarantees that there would be a reduced level
of interest from potential buyers and a poor pricing outcome.
Indeed, the decision to even consider selling the Company when
earnings were artificially depressed reveals the woeful lack of
financial sophistication on the Board and the dire need to
reconstitute it with members who will look out for the best
interests of the shareholders.
The Board's decision to sell the Company at this time is
illogical. Under George Babich's leadership as CEO, the
Company has had numerous accounting restatements and earnings
misses, which have driven the stock from a peak of roughly
$18.00 per share in October 2013 to less than $8.00 per share the day before the CCL
transaction was announced. However, Babich's abysmal
managerial performance, while enormously frustrating for all
shareholders, is not a reason to sell the Company.
In hindsight, it is clear to us the Board erred in making Babich
the CEO. Instead of doing a proper search and bringing in a
world class executive, this crony board elevated one of its
long-standing members to the position. There is simply
nothing about Babich's resume and track record that suggests that
he is equipped to run a multi-segment, international
business. Despite this, the Board elevated him from his
position of retirement to CEO of our Company, a managerial position
he had previously never held at a public company.
If the Board is unhappy about how the Company is performing,
as we are, it should replace Babich as CEO, not sell the Company
out from under the shareholders.
Regardless of what the motivations to sell the Company are, the
glaring outcome of the proposed transaction with CCL is a massive
transfer of value from the Company's shareholders to the
shareholders of CCL. On numerous earnings calls, CEO Babich
has articulated a bright future of increased earnings potential for
our Company and has cited our record pipeline of pilots as evidence
of our future earnings potential. But the revenue line is not
the only area of opportunity. In fact, in Checkpoint's most
recent 10-K, we learned shareholders can expect a reduction in
costs of as much as $18 million this
fiscal year, which is an increase from the Company's previous
target of $15 million and represents
approximately 35% of the adjusted EBITDA our Company reported for
all of fiscal year 2015.
Why would we sell our Company today for $10.15 per share when there is an opportunity to
take this much cost out of our business? Why would we give up
this earnings lever to the shareholders of CCL? This benefits CCL
shareholders at the expense of Checkpoint shareholders, which is
evident in the performance of CCL's stock price since the deal was
announced. Since the deal was announced, CCL's stock price is
up 12%, compared to the Toronto Stock Exchange Index, which is up
3%. This 9% outperformance is clearly due to the advantageous
purchase price that CCL achieved in its negotiation with our
Board. This 9% equates to $486 million
dollars of incremental value for CCL stockholders. If
Checkpoint shareholders were to receive just half of that
incremental value, we would be getting an additional $5.85 per share, bringing the deal price to
$16.00 per share, which is much
closer to what a fair and reasonable value for Checkpoint would
be.
Finally, the fairness opinion rendered by Checkpoint's financial
advisor is based on valuing the Company on a 4.5-5.5 times EBITDA
multiple. This multiple is absurd on both an absolute and
relative basis given the fact that Checkpoint has traded at an
average multiple of 8.2 times EBITDA over the last 3 years.
There are simply no companies with the earnings and free cash flow
profile that CKP has that trade for sustained periods of time at
such low multiples, let alone change hands in an arms
length-negotiated transaction with a strategic buyer.
We strongly believe the CCL transaction is poorly conceived and
unfairly priced. We call on the Board to delay any vote on
the proposed deal and instead accelerate the annual meeting so that
shareholders will have the opportunity to vote on our proposed
slate of directors. Only after allowing the shareholders a
voice on Board composition would it be appropriate to evaluate the
proposed transaction. The stock market and business values
have improved greatly over the last month. We should pause
the sale process to reevaluate what is the best way forward for
CKP's shareholders. The proposed transaction robs the
shareholders of the rightful value of their shares, and to continue
on this path is a gross violation of the Board's fiduciary
duty.
Sincerely,
Andrew R. Jones, CFA
Investor Contact:
Andy
Jones
North Star Partners
203-227-9898
Media Contact:
Damien
Park
Hedge Fund Solutions, LLC
215-325-0514
CERTAIN INFORMATION CONCERNING THE PARTICIPANTS
North Star Partners, LP, together with the other participants
named herein (collectively, "North Star"), intends to file a
preliminary proxy statement and accompanying proxy card with the
Securities and Exchange Commission ("SEC") to be used to solicit
votes for the election of its slate of director nominees at the
2016 annual meeting of shareholders of Checkpoint Systems, Inc., a
Pennsylvania corporation (the
"Company").
NORTH STAR STRONGLY ADVISES ALL SHAREHOLDERS OF THE COMPANY TO
READ THE PROXY STATEMENT AND OTHER PROXY MATERIALS AS THEY BECOME
AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. SUCH
PROXY MATERIALS WILL BE AVAILABLE AT NO CHARGE ON THE SEC'S WEB
SITE AT HTTP://WWW.SEC.GOV. IN ADDITION, THE PARTICIPANTS IN THIS
PROXY SOLICITATION WILL PROVIDE COPIES OF THE PROXY STATEMENT
WITHOUT CHARGE, WHEN AVAILABLE, UPON REQUEST.
The participants in the proxy solicitation are North Star
Partners, LP, North Star Partners II, LP, NS Advisors, LLC,
Howard Hoffmann, Andrew Jones, and Jane
Scaccetti.
As of the date hereof, North Star Partners, LP directly owns
1,077,004 shares of common stock, $0.10 par value per share, of the Company (the
"Common Stock"). As of the date hereof, North Star Partners
II, LP, directly owns 535,042 shares of Common Stock. NS
Advisors, LLC, as the general partner of North Star Partners, LP,
may be deemed the beneficial owner of the 1,077,004 shares of
Common Stock directly owned by North Star Partners, LP. NS
Advisors, LLC, as the general partner of North Star Partners II,
LP, may be deemed the beneficial owner of the 535,042 shares of
Common Stock directly owned by North Star Partners II, LP. As
of the date hereof, none of Howard
Hoffmann, Andrew Jones, or
Jane Scaccetti directly or
indirectly beneficially own any shares of Common Stock.
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SOURCE NS Advisors, LLC