SurModics Inc (SRDX)

[Democritus_of_Abdera]

Datascope as Ramius precedent ...

As noted in #msg-56832951, Ramius purchased a substantial fraction of SRDX stock and simultaneously put forward three nominees for the Surmodics Board of directors. This seems to be a common modus operandi for Ramius (a hedge fund).

As a long-term investor in SRDX, I’m endeavoring to determine whether Ramius’ interest in SRDX is beneficial or detrimental to my interests (i.e. should I plan to exit my position or continue holding). In particular I want to know if Ramius has abused its insider positions at other companies, i.e. did the target company, after gaining a Ramius nominated director, uncharacteristically initiate a private placement with warrants, issue convertible shares that preferentially benefited Ramius, etc.)

To make this determination, I’m cataloging the outcomes of similar Ramius actions as recorded in SEC filings. Datascope is of interest because one of the directors nominated by Ramius for the SRDX Board (David Dantzker) was also nominated by Ramius for the Datascope’s Board...

At the time of Ramius’ purchase of Datascope shares, Datascope sold cardiac monitoring and vascular intervention products and had net sales of about $400M, net earnings of about $20M, and cash equivalents of about $40M with no debt. Its share price during FY2006-2007 was $30-$40/share.

Ramius acquired about 2.4% of the outstanding Datascope shares in Oct 2007 for about $35/share. Directly after purchasing Datascope’s common stock, Ramius put forward a slate of two nominees for Board of Director to be chosen at the next scheduled annual meeting (which was to be held in Nov 2007).

Ramius’ nominees were David Dantzker & William Fox, The stated reason for the proxy fight was that Ramius was not satisfied with the Company's corporate governance and management. In fact, Datascope did have some serious governance issues. These had been investigated by Datascopes Board in FY2007, but there was reason to believe that the investigation was not adequate.

During the two months leading up to the annual meeting, there were several articulate and substantive press releases and letters to shareholders by both Ramius and Datascope detailing the merits of their respective positions and arguing for support of their nominees for the Board of Directors.

In my opinion the best presentation by Ramius can be found at
http://www.sec.gov/Archives/edgar/data/27096/000092189507002721/dfan14a206297040_11302007.htm

... and by Datascope at http://www.sec.gov/Archives/edgar/data/27096/000095012307016217/y43641defa14a.htm

An important audience for these press releases and letters to shareholders was the proxy voting advisory firms that institutional investors might rely upon.... Ultimately, three proxy advisers recommended David Dantzker (Institutional Shareholder Services Inc, PROXY Governance, Inc, & Egan-Jones Proxy Services), one recommended William Fox (Egan-Jones Proxy Services), and one recommended Datascope’s nominees (Glass Lewis & Co).

Just before the annual meeting (Dec 17, 2007), Datascope’s board made substantive changes in its governance etc. that neutralized many of Ramius’ concerns. These included dropping the Shareholder Rights Plan, separating the roles of Chairman and CEO so that the Chairman will be an independent director, and pledging to choose directors that are independent. Nevertheless, David Dantzker was elected by the Datascope shareholders at the Dec 20, 2007 Annual Meeting, over-riding the recommendation of the Datascope Board. Ultimately, Dr. Dantzker became a member of the audit committee. William Fox was not elected.

Historically, Datascope had minimal or no debt obligations... This policy of avoiding debt was not altered subsequent to Ramius’ involvement. Nor did I see any evidence of Ramius abusing its position to gain a sweetheart relationship with Datascope.

On September 15, 2008, Getinge AB commenced a cash tender offer for all of Datascope’s outstanding shares at a price of $53/share. This offer represented a 33% premium over Datascope’s volume weighted average price of $39.67 for the three month period ending June 3, 2008, the day before the Board of Directors announced it was exploring strategic options for Datascope.

<So, in summary, Ramius’ involvement probably galvanized the Board and resulted in the sale of Datascope at a price beneficial to all shareholders. Nevertheless, shareholders lost out on the long term potential of Datascope’s franchise.>