Fuel Systems Solutions, Inc. (FSYS)

[Democritus_of_Abdera]

Re: $25M FSYS Share Buyback...

The announcement today of a $25M share repurchase program is probably responsible for the bulk of the share price increase seen this morning (currently about 7%).

It could be that the share buyback has been put in place to enhance shareholder returns as stated in the FSYS CC:

This quarter, we also announced a $25 million share repurchase program, which underscores our focus on delivering returns for shareholders and demonstrates our confidence in Fuel Systems’ financial strength and future business prospects. While we are carefully considering the cost reduction, development and pipeline opportunities available to the company, our announcement of the share repurchase program illustrates our commitment to return capital to shareholders within the overall context of a prudent capital allocation strategy.

However, I am of the opinion that the share buyback may have been established to provide an exit strategy whereby FSYS will buy Becker-Drapkin's shares when Becker-Drapkin decides to cash in their holdings. Currently, Becker-Drapkin holds 1.89M FSYS shares (9.4% of outstanding) and have one seat on the board.

Having FSYS buyback their shares would provide liquidy for such a Becker-Drapkin exit without causing downward price volatility as the transaction is executed. This practice is in the activist investor playbook. It is particularly valuable when exiting a company with a small float (such as FSYS) particularly when the activist has a board seat that imposes restrictions on share purchases and sales.

I have suggested that Drapkin's father has done the same thing to facilitate his eventual exit from CLF (see #msg-105665805).

Regarding activist playbook:

http://blogs.law.harvard.edu/corpgov/2014/07/07/hushmail-are-activist-hedge-funds-breaking-bad/#more-64293

....After a period of time pressing its case, the activist may desire to exit the investment. However, if it were to dump its shares in the market in large volume, the stock price realized in the sale may suffer. The situation becomes trickier for activists that have obtained board representation, because insider trading policies and SEC rules may significantly restrict their ability to dispose of shares quickly.

In order to exit quickly at the highest possible price, the activist sometimes seeks to have the target company buy back its stock. The buyback price is typically at a slight discount to the current market price, but occasionally it is at a premium. As part of the purchase agreement, the activist may enter into a standstill and non-disparagement agreement with the target. If the activist has representatives on the board of the target, the representatives typically would resign their director positions after the repurchase, given the activist’s lack of ongoing economic interest....

see also:

http://online.wsj.com/articles/activist-funds-dust-off-greenmail-playbook-1402527339

http://www.reuters.com/article/2013/12/12/us-sharebuyback-activists-idUSBRE9BB0YJ20131212

http://www.activistinsight.com/press/Activist%20Insight%20Press%20Release%20-%20Share%20repurchases%20a%20new%20favourite%20tactic.pdf.

Becker-Drapkin Membership on FSYS board:

http://www.sec.gov/Archives/edgar/data/1340786/000121465914007256/s10291408k.htm

Current Becker-Drapkin FSYS holdings:

http://www.sec.gov/Archives/edgar/data/1340786/000119312514387916/d811116dsc13da.htm

FSYS CC transcript

http://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=109507&eventID=5172451